Funky Shark announced today it would not launch its planned penny auction, citing legal concerns and a lack of confidence in the auction's profitability. The company had initially aimed to enter the market following the collapse of Zeek Rewards, a previous high-profile MLM penny auction scheme.
Penny auctions paired with multi-level marketing compensation plans have faced scrutiny since Zeek Rewards' downfall. An SEC investigation found Zeek Rewards, the largest MLM penny auction company until its collapse, received 98% of its income from affiliates. This structure effectively recirculated member funds, with daily returns tied to personal investment or recruitment.
After Zeek Rewards, Bidify attempted a similar model before shifting its compensation plan to focus on bid sales to actual customers. But traffic reports indicate this change has not yielded success for Bidify or its Bidsson penny auction. Affiliates now report issues withdrawing funds from Towah, Bidify's payment processor, with some complaining of daily earnings under a dollar.
Funky Shark, which appeared on prelaunch lists in September, showed similarities to Zeek Rewards. Its 'Crown Member' program charged $1,000 for membership, with affiliates earning $500 for each new Crown Member recruited. This model raised immediate red flags regarding commissions paid on recruitment.
The company recently informed members via email that its Founder program "may violate certain securities laws in the United States." This discovery came despite the model being nearly identical to Zeek Rewards, which had already faced legal action for pyramid scheme characteristics. Why this was not identified before prelaunch remains unclear.
Funky Shark stated it would refund the full $1,000 to Crown Members who paid the fee but received no commissions. The source of these refunds remains unclear, as the company has already paid out thousands in recruitment commissions. Members who received commissions are "not due any additional funds," and Funky Shark has not requested repayment.
The primary reason for abandoning the project was a deeper concern. Funky Shark leadership admitted a lack of confidence in the penny auction's ability to generate sufficient activity to sustain the business model. "We really cannot in good conscience move forward with the penny auctions," the company stated. "In order for the penny auction to be profitable, there needs to be a lot of activity with the auctions. We lack confidence in this regard."
This decision from Funky Shark suggests that MLM penny auction models struggle to operate without relying heavily on member investment. Zeek Rewards' Zeekler auction generated only 2% of the company's non-affiliate revenue. The ongoing issues with Bidify and Funky Shark's admission paint a challenging picture for the entire niche.