SUBMIT YOUR CLAIM FORM!

keep-calm-and-please-hurry-upThis is likely going to be our last post / email blast regarding Zeek Rewards. It has been a little over a year since the company was shut down by the SEC. I know the company’s demise resulted in a lot of frustration, anger and pain. I’ve talked with people that literally lost their entire life savings. I’ve even talked with people that walked away with six figures in earnings and blew it all on frivolous expenses, stressing over ways to pay it back. Bottom line: it was bad for a lot of people.

But for those of you that lost money, there’s an opportunity to get most of it back. SUBMIT YOUR CLAIM! The receiver is charged with doling out the funds to the net losers in a fair and equitable fashion. He’s not able to do it unless you submit your claim. The deadline for the submissions is September 5. In his most recent letter sent two weeks ago, Ken Bell said,

If you have not completed and fully submitted a claim through the Receiver’s online Claim Portal or through alternative means expressly authorized by me in writing prior to 11:59pm prevailing Eastern Time on September 5, 2013, your claim will not be counted and you will not receive a distribution on account of any amounts that Zeekrewards may owe you.

The official website for the claims process is: http://www.zeekrewardsreceivership.com/. There’s a “FILE A CLAIM” button right in the middle of the site. Push it. Since it’s in electronic format, the submission process could not be any simpler. This firm actually considered helping participants file their claims. But the online portal is so simple, there’s just not much for us to do. Please submit your claims before the deadline. According to the receiver, hundreds of thousands of participants have not filed their claims. And when you submit your claims, try to follow the instructions as closely as possible. If you miscalculate your investments in Zeek, it may result in serious delays and / or a rejection of the claim.

Promises Made / Promises Kept

When we first created this site, we made four commitments: (1) we were going to provide the information for free; (2) we were never going to use your email address for anything other than posts from this site; (3) we were going to make it easy for you to stay informed; and (4) we were going to help with the claims process. The 4th commitment is a moot point. The online claim portal is simple. We’ve honored the other three. I want to send a special thanks to all of the contributors on this site: Walt Burton, my law partner; Jordan Maglich, Ponzi Tracker; Phillip Young, bankruptcy attorney and receivership specialist; and Len Clements, MLM consultant.

If you want to stay informed on what’s happening in the MLM industry, please provide your email address below. I’d love for us to stay in touch. If you’re getting this message via email, please click the link to subscribe to my newsletter.


Sincerely,

+Kevin Thompson

Ken Bell’s most recent update can be found below. If you’re reading this in your email inbox, it can be found here.

Fraud Alert: Banners Brokers / Profit Clicking “Claim Form”

There’s an online form on the internet about Banners Brokers claiming to be from Thompson Burton PLLC (our law firm). DO NOT FILL OUT THIS FORM. It’s fraudulent. We did not create this form, or anything like it. We are not representing Banners Brokers or Profit Clicking participants. The image of the form can be found below. The form is requiring highly sensitive information, such as your usernames and passwords for Payza and Solid Trust Pay accounts. It’s also asking for credit card information. If you filled out the form, we strongly suggest you change your passwords and cancel your credit cards immediately. If you have information about the person behind this form, please provide it to us here.

Banners_Broker_Return_Cash__

Zeek Receiver Seeks Approval of Claims Process, Notice Procedures, and Proof of Claim Form

The court-appointed receiver overseeing the $600 million ZeekRewards Ponzi scheme has filed a motion seeking approval of a claims process to compensate what could be nearly 1 million victims.  In a 21-page motion (the “Motion”), the receiver, Kenneth Bell, seeks court approval for the proposed procedures and manner of filing claims to be used by victims, as well as the use of an online claims submission form. Victims would be notified by email, would have 120 days from the Order approving the Motion to submit their claims, and any late-filed claims would be disallowed in their entirety.

The Proposed Claims Process

In the Motion, the Receiver estimates that while approximately 1 million affiliates paid money into Zeek, over 800,000 suffered losses, and the remainder were fortunate enough not only to recoup their principal investment but may also have profited.  Should the Court approve the Motion in its current form, the Receiver proposes that he will provide notice to all interested parties via several methods:

  1. Making the Claims Process publicly available on the Reeiver’s website at a soon-to-be-functional Claims Portal;
  2. Emailing all known affiliates through email addresses obtained from Receivership records and collected at the Receiver’s website;
  3. By U.S. Mail to trade creditors and other known, non-affiliate creditors; and
  4. Publishing the Receiver’s Notice on the Receiver’s website, certain multilevel marketing sites, certain newspapers, and sending the Notice to certain trade groups in the financial industry.

As previously alluded to in earlier articles on Ponzitracker, the Receiver cites the “great cost” of serving the over-2 million claimants by any other method and seeks court approval for the proposed notice procedures.  As a last resort, should an email be found to be no longer valid, the Receiver will attempt service of the notice by an alternative method, which includes a different email address or postcard to the last known address.

Within 14 days of court approval of the Motion and included in the court-approved notice to claimants, the Receiver proposes to have a Claims Portal active on his website, www.zeekrewardsreceivership.com.  According to the Receiver, the Portal is “designed to capture the claims of all Claimants…in the most cost effective way possible.”  Thus, all claimants, whether affiliates or non-affiliates, should files claims at the Claims Portal.  Indeed,

Failure to submit a validly completed claim on the Claim Portal (or by alternative means that are agreed to between such Claimant and the Receiver prior to the Bar Date) will preclude a Claimant from receiving a distribution from the Receivership Defendant regardless of the validity of the Claimant’s claims.

The Receiver proposes that, if a Valid Proof of Claim is not received by any claimant within 120 days from the date of the Order approving the claims process, that claim shall be forever barred and precluded from sharing in any distribution.  As the Receiver has already collected over half of what he estimates are the $500-$600 million in losses, this could be a substantial penalty for those who fail to timely follow the claims procedures.

The Claim Form will allow each claimant to upload supporting documentation, if any, for its claim that may be helpful to the Receiver and his team.  The failure to provide any documentation will not automatically cause that claim to be disallowed, but could delay approval – and payment – of the claim. Before submitting any claim, each claimant will be required to attest under penalty of perjury that the supplied information is accurate.

VIP Points Not Allowed

One issue of note is the Receiver’s proposal to omit any inclusion of “Retail Profit Points” or “VIP Points” in the calculation or determination of any claim.  Akin to interest, the VIP Points were accrued by purchasing sample or VIP bids and then re-distributing them to retail customers or back to Zeek.  The VIP Points then allowed the affiliate to participate in the daily percentage payout from Zeek, which averaged approximately 1.5%.  As is universally understood in other receiverships, victims of Ponzi schemes are entitled only to their lost principal balance, and not to any fictitious interest (or, in this case, points) that they may have accumulated.  Indeed, especially since the vast majority of Ponzi schemes are unable to accomplish a total return of victim losses, allowing interest as part of a valid claim would reward some victims at the expense of others.

A copy of the Motion is here.

See below for a copy of the proposed online Claim Form. If you’re reading this via email, click this link to see the claim form.

Zeek Receiver Issues Quarterly Report; Claim Form Expected Today

The court-appointed receiver for the $600 million ZeekRewards Ponzi scheme filed a quarterly report yesterday that provides a clear recap of his efforts to date, including asset recovery, the ongoing investigation, and clawback litigation.  The Receiver, Kenneth Bell, was appointed on August 17, 2012, and has since been tasked with the Herculean effort of reconstructing a complex Ponzi scheme that counts over one million investors as victims and over 80,000 that were fortunate enough to realize a profit.  A key part of the report, in what is undoubtedly a topic of interest for these victims, outlines Bell’s progress on establishing a claims process by which victims may be able to recoup some or more of their losses.  Of note, a sample claim form is expected to be filed today.

Asset Recovery Efforts

Bell first outlined the progress of his asset recovery efforts, indicating that Receivership bank accounts under his control held approximately $310 million.  This amount includes $221 million that had previously been seized by the United States Secret Service and was transferred to Bell’s control on January 15, 2013.  All cashier’s checks in Bell’s possession have been cashed, and efforts are ongoing to recover funds held by various third parties including E-Wallets and various foreign bank accounts.  At least one foreign entity is believed to hold over $12 million belonging to the Receivership and has resisted the Receiver’s efforts thus far to return those funds.  Bell indicated that he has enlisted the assistance of the Secret Service, the SEC, and the U.S. Attorney’s Office for those recovery efforts.

Clawback Litigation

Clawback lawsuits remain ongoing, and Bell clarified that he had filed proper paperwork in each of the 93 federal districts where he believes Receivership assets may be located and subject to recovery.  Bell’s investigation has revealed that at least $295 million may have been fraudulently transferred to “net winners” and thus subject to clawback claims.  In the clearest indication of how he intends to pursue clawback actions against the estimated 80,000 potential clawback targets, Bell indicated that

the Receiver’s clawback litigation is likely to be a combination of individual actions, group actions, defendant class actions, and possibly administrative damages hearings. Such proceedings will establish the key findings applicable to most, if not all, recipients of fraudulently transferred funds (findings such as the existence of a Ponzi and/or pyramid scheme). They will also separately provide a forum for the efficient determination of the proper amount of each net-winner’s repayment obligation.

The Report also states that foreign “net winner” will also be pursued, both as parties to domestic litigation based on their connections to Zeek in the United States and through foreign litigation where necessary.  Many of the foreign litigants’ countries of residence are signatories to the Hague Convention, which provides an established method to provide service of process.  Bell also indicated that he is considering claims against not only Zeek’s ‘insiders’ such as employees and contractors, but also third-party advisors that “knew or should have known of the inappropriate nature of [Zeek’s] activities and yet facilitated those activities for their own gain.”  While Bell did not expand further on the potential third-party targets, the potential claims he identified suggest that Bell may pursue law firms, accounting firms, and/or payment processors.

Claims Process

During a public conference call held on December 17, 2012, Bell devoted substantial time to providing information about an upcoming claims process by which victims could submit claims for their losses and receive future distributions.  While Bell had hoped to make these submissions by the end of January 2013, he indicated in the Report that, due to the extensive and time-consuming efforts to reconstruct receivership records that will form the basis for the claims process, he now hopes to make these filings at the conclusion of March, 2013.  With more than one million potential victims, Bell estimates that “the claims process may comprise the largest single expense for the Receivership Estate.”

Bell did say that he intended to file “screenshots” of the draft online claim forms that will be an exhibit to the Final Liquidation plan which Bell plans to file today, January 31, 2013.  Assuming the Final Liquidation plan is not filed under seal, these forms may provide the first indication for investors as to both the information Bell currently has relating to investor claims and the required information needed to dispute or affirm these calculations.  Ponzitracker will be providing both coverage and guidance as to these claim forms.

As indicated above, the Receiver’s Final Liquidation Plan is due to be filed today.

A copy of the Quarterly Report is here.

Previous Ponzitracker coverage of Zeek is here.

Zeek Receiver Updates Investors On Recovery Efforts, Has Harsh Words For Opposition

NOTE: The domain for the Thompson Burton Zeek Recovery site has been relocated to: www.thompsonburton.com/zeekrecovery. If you’re receiving updates via email, nothing will change. Jordan Maglich provides a great update below about receiver’s conference call with Zeek participants. In summary, the information presented on this site has been accurate to date. Zeek Rewards is not coming back. If you are a net winner, ignoring the subpoena or fighting the receivership is ill-advised. Lawsuits WILL be filed. If you lost more than you spent, organizing with net-winners is not in your best interest. As stated by Ken Bell, there’s an obvious conflict. The needs of the net winners and net losers are completely different. +Kevin Thompson

Zeek Receiver Updates Investors on Recovery Efforts

The receiver appointed to recover assets for victims of the massive $600 million ZeekRewards Ponzi scheme hosted an hour-long conference call earlier this evening in which he provided new updates on the eve of the four-month anniversary of his appointment.  In the call, Receiver Kenneth Bell revealed a wealth of new information, including estimates on total recoveries, the establishment of a claims process, and the number of victims and clawback targets.  Mr. Bell also addressed several recent filings challenging his authority and the legitimacy of the receivership, dismissing them as “absurd.”

With the benefit of now having several months to comb through financial records and other documents detailing the inner-workings of Zeek, Mr. Bell provided an update on loss and victim figures.  First, Mr. Bell estimated that approximately 840,000 affiliate ID’s invested more with Zeek than they withdrew.  Conversely, Mr. Bell estimated that 77,000 affiliate ID’s were fortunate enough to withdraw an amount in excess of their total investment.  In total, and in adherence with previous estimates, Zeek investors suffered collective losses of approximately $500 million to $600 million.  Since his appointment, Mr. Bell has secured the recovery of over $300 million – with a majority of that recovery consisting of funds returned from various financial institutions.

Claims Process

One of the most popular topics was the establishment of a claims process in which investors could eventually be permitted to receive distributions based on their loss amounts.  Mr. Bell stressed that he is working strenuously to institute a claims process, which would first require the submission of a proposed claim form and procedure to United States District Judge Graham Mullen.  According to Mr. Bell, he has set an internal deadline of submitting this information to Judge Mullen by January 31, 2013.  Once the claims form and procedure receives court approval, the claims form will likely be posted to the website and distributed to victims, who will have until a court-imposed deadline by which to submit relevant requested information.  The claim form will also specify what proof is required to substantiate claims. Upon the approval of claim forms and submission by victims, Mr. Bell also indicated his preference to proceed with an ‘interim’ distribution rather than waiting to make one final distribution at the end of the Receivership.

Clawbacks

Another popular topic was the issue of “clawbacks” against those ‘net winners’ that were fortunate enough to profit off their investment by withdrawing funds in excess of their investment.  The Receiver sent out a first wave of 1,200 subpoenas to those ‘net winners’ that were deemed to have profited most off Zeek.  According to Mr. Bell, “scores” of investors responded in a cooperative manner seeking to pay back their false profits.  However, a “whole lot” of recipients have also fought back against the requests for information.  If the Receiver is not able to reach an amicable resolution with each clawback target, he will likely proceed with the filing of a lawsuit.  The Receiver took steps last week to ensure that he may properly bring clawback lawsuits in various federal districts around the United States by filing a copy of the SEC Complaint and the Order Appointing Receiver in districts where clawback suits are likely under 28 U.S.C. 754.

Opposition Efforts

Mr. Bell also addressed the various recent filings that have sought to both contest his authority as receiver and challenge the SEC’s decision to shut down Zeek in the first place.  This included the filing by Fun Club USA of a motion seeking the appointment of an examiner, as well as a filing by several clawback targets seeking to dissolve the Receivership.  Mr. Bell saved his harshest words for these efforts, calling them “absurd” and disputing their accuracy.  As to the motion for appointment of examiner, Mr. Bell pointed out (as Ponzitracker did here) the inherent conflict of interest that would present itself since the nominee for examiner currently represents “several hundred net winners,” as well as the implications of paying such an examiner out of receivership funds.  Mr. Bell also indicated he will oppose the  motion seeking the dissolution of the receivership, saying that the “receivership is here to stay,” and represented the only and best way to make victims whole.

In closing, Mr. Bell stated that his goal was to ensure that the Receivership was the most cost-effective Receivership to date, and urged victims to regularly check his website, www.zeekrewardsreceivership.com, for updates.  A copy of the conference call is expected to be available on the website as well.

Zeek Rewards Update: Subpoenas Challenged, Affiliates Want ‘Examiner’ Appointed (And Paid) By Receivership

It has now been one month since the Receiver appointed in the wake of the $600 million ZeekRewards Ponzi scheme issued his October 31st update indicating he intended to subpoenas those investors that profited from the scheme by withdrawing funds in excess of their original investment. In the ensuing weeks, several notable developments have arisen, including a legal challenge to the legitimacy of those subpoenas (and the Receiver’s response), as well as the attempt by a ‘victims’ group to have an independent Examiner appointed (and paid with Receivership funds) to represent the collective voice of victims.  Each will be discussed below.

The Motion to Appoint Examiner

The most notable development was the Friday filing by Michael Quilling, who represents ‘victims’ group Fun Club USA, seeking the appointment of himself as an “Examiner” that would act as a representative on behalf of all “affiliates” (the “Examiner Motion“).  As stated by Mr. Quilling,

The Affiliates need representation of their interests in this case and Movants request that the Court appoint Michael J Quilling as Examiner in these proceedings to represent the collective interests of the Affiliates and all creditors of the receivership estate and that the Examiner and his counsel be compensated out of the receivership estate.

Not suprisingly, the Examiner Motion, along with a brief filed in support, is nearly devoid of legal support.  Mr. Quilling is only able to cite two cases, including one in which Mr. Quilling himself previously served as Receiver and recommended the appointment of an examiner.  In that case, the examiner received nearly $1 million for serving as a “voice” for investors.  Instead, the Motion appeals to the “equitable” powers of the Court, the emotional toll on victims, and delivers a passionate plea that “these people deserve a voice before the court.”  Ironically, the appointment of a representative for such a noble plight will likely serve only to deplete available funds for eventual distribution to the true victims – and at the request of those ‘victims’ who are fighting the Receiver’s efforts to collect their false profits from the scheme to add to those funds.  Indeed, Fun Club USA has been linked to Zteambiz, which has already collected over $100,000 in donations to fund its vague cause of fighting the receivership.

A potential issue with the Examiner Motion lies with the choice of Fun Club’s attorney, Michael Quilling, as Examiner.  Quilling has already entered his notice of appearance in the SEC enforcement proceeding on behalf of Fun Club, which is comprised of several individuals widely thought to have profited from their participation in Zeek.  Thus, those ‘net winners’ obviously have contrasting positions to those ‘net losers’ whose hopes of a full recovery rest in large part on the successful recovery of those ‘false profits’ paid to net winners.  This apparent conflict of interest is magnified when considering that the Examiner’s recommendation to the Court of the position of investors could, at the least, be questioned as having any apparent or direct bias towards those previous (or current) individuals who have opposed the Receiver’s efforts to pursue clawback litigation.

Indeed, in the Stanford case cited as an example in the Examiner Motion, the examiner appointed was required to first file an affidavit disclosing whether any grounds existed that prevented his appointment as judged under the statute governing the disqualification of a judge, justice, or magistrate judge in a proceeding.  That statute, 28 U.S.C. 455, not only encourages disqualification where “impartiality may be questioned”, but also in the following circumstance:

(1) Where he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding;
(2) Where in private practice he served as lawyer in the matter in controversy, or a lawyer with whom he previously practiced law served during such association as a lawyer concerning the matter, or the judge or such lawyer has been a material witness concerning it;

Here, the nominated Examiner, Michael Quilling, not only currently serves as a lawyer in the matter in controversy for a particular victim group as described in subsection (2), but could also be characterized as having a “personal bias” or “personal knowledge of disputed evidentiary facts concerning the proceeding” stemming from his attorney-client relationship with Fun Club. At least one of the reputed Fun Club members is an individual who delivers regular updates to certain victims and who also disclosed that he was the target of an SEC subpoena concerning his relationship with Zeek.

Interestingly, unlike the ABC Viaticals case where the receiver recommended the appointment of an examiner, here the Receiver has indicated that he opposes the appointment of an examiner.   While the Receiver did not expand on his position, it is likely that he will oppose the Examiner Motion on the grounds that it is unnecessary, and will serve only to duplicate and complicate the Receiver’s efforts. Additionally, while the SEC was contacted to inquire as to whether they were unopposed, they did not immediately provide their position. The Receiver is expected to provide his position in a later response.

Challenge to Clawback Subpoena and the Receiver’s Response

In his October 31st update, the Receiver announced that he had identified more than 100,000 “User ID’s” that had profited from the scheme, and indicated that he was preparing to send subpoenas to 1,200 of those investors presumably that had made the largest withdrawals.  In disclosing that those clawback targets had withdrawn “hundreds of millions of dollars” in false profits, it became apparent that the use of clawback litigation to recover those funds for the benefit of victims could potentially result in a near-total recovery.

When the subpoenas began arriving by mail following the update, some in various ‘victims’ groups that have opposed the Receiver’s efforts began circulating the opinion that the subpoenas had not been served properly under the Federal Rules of Civil Procedure, and were thus illegitimate.  Indeed, because each of the subpoena recipients was alleged to have handsomely profited from the scheme at the expense of other less-fortunate victms, the incentive to delay and/or impede the clawback efforts was quite high.

Shortly thereafter, at least one apparent recipient vocalized these opinions in a court filing.  On November 20, 2012, Nathaniel Woods filed his “Motion of Non-Party to Quash Subpoena (“Motion to Quash“),” claiming that the “alleged subpoena was not served in person” as required under Federal Rules of Civil Procedure.  Oddly, despite Mr. Woods’ status as a Florida resident and the Receivership court’s location in the Western District of North Carolina, Mr. Woods cites a 15-year old case from New York supporting this argument.  Additionally, because the subpoena was “bogus,” the Receiver and his team were alleged to have committed a third-degree felony under Florida Statutes Section 834.0855.

On November 29, 2012, the Receiver filed his response in opposition (the “Response“) to the Motion to Quash.  Before specifically addressing Mr. Woods’ claims, the Receiver first explained that he had determined to issue the subpoenas by mail, rather than certified mail or Federal Express, because of the time and cost efficiencies.  Indeed, service by certified mail or federal express would have cost “more than five times as much.”  Next, the Receiver noted that Mr. Woods, who is alleged to have profited by more than $500,000 from the scheme, admittedly received the subpoena, and had filed the Motion to Quash simply as a delay tactic.  Nevertheless, rather than engaging in further litigation over the legitimacy of his service of the subpoena, the Receiver indicated that he had already re-served Mr. Woods by Federal Express and certified mail with a subpoena issued by the Middle District of Florida, thus rendering the Motion to Quash moot.

While the Receiver declined to address the substance of the Motion to Quash, several factors weigh in favor of the Receiver’s position. First, the Court is vested with broad equitable powers in supervising the Receiver.  The Receiver indicated it was his goal to proceed with the subpoena process in both the most efficient and cost-effective manner, and stated that only 26 out of the 1,200 subpoenas were returned as undeliverable.  Moreover, the use of Federal Express and/or certified mail to deliver the subpoenas would have resulted in much higher costs, which are satisfied out of funds earmarked for eventual distribution to victims.  Additionally, it has been an emerging trend in legal jurisprudence that personal service of a subpoena is not required, and instead finding that Rule 45 of the Federal Rules can be satisfied through service by mail.  See Codrington v. Anheuser-Busch, Inc., 1999 WL 1043861, * 1 (N.D. Fla. 1999) (service by mail upheld); Cohen v. Doyaga, 2001 WL 257828, * 3 (E.D.N.Y.  2001) (same).  In light of supporting legal authority and the fact that approximately 98% of the subpoenas were delivered without incident, quashing of the subpoenas on a procedural basis would appear unlikely.

Jordan Maglich is an attorney at Wiand Guerra King P.L. in Tampa, Florida whose practice includes white-collar crime and securities and financial litigation.  He  covers Ponzi schemes on his blog, PonziTracker, and writes a column for Forbes.com on White Collar Crime.  Follow him on Twitter at @PonziTracker.

Panel Discussion re. Zeek – Google Hangout

The panel discussion regarding Zeek Rewards last week was a huge success. Surprisingly, there were hardly any glitches with the technology. We got over an hour of solid content locked down in the video below. It was a great discussion with multiple lawyers and professionals familiar with the Zeek Rewards case. As many of you know, the Receiver sent out approximately 1,200 subpoenas recently requesting information from many of the “net winners.” This batch of subpoenas re-ignited a host of questions from both the winners and losers affiliated with Zeek. It’s my strong professional opinion that the needs between the winners and losers are unique and at odds with one another. The “net losers” want the receiver to recover as much money as possible so as to maximize the payout to the victims. In order to make the cash pot larger, the receiver is compelled to recover funds from the people that earned more from Zeek than they “invested” / spent into the program. In other words, the net losers want / need clawback litigation to occur. On the other hand, the people that earned more money than what they invested / spent, they’ll likely want to hold onto the cash. They’re going to argue that they earned the money, spent the money, etc. Both sides have unique issues. With lawyers positioned on both sides of the issue, we compiled a panel to answer the following questions:

Can the receiver pursue Zeek participants that reside overseas?
When does it make economic sense for a receiver to sue a net winner?
If a receiver gets a judgment against a net winner, what can he do with it?
What does the claims process look like for the net losers?
When can people expect a distribution of cash?
If an affiliate paid taxes on the income, how do they get the tax money back?
And we address a host of other question.

In the Hangout, we had the following participants

+Kevin Thompson, (MLM lawyer)
Jordan Maglich (Ponzi Tracker)
Len Clements (Market Wave)
Troy Dooly (MLM Help Desk)
Walt Burton (Commercial Real Estate attorney)
Phillip Young (Corporate Litigator / Bankruptcy Lawyer)

The information is free of charge. We hope you find the video informative. Also, as a reminder, if you’d like to unsubscribe to these updates, there’s an “Unsubscribe” button on the bottom of this email.


If you’re not able to play the video in your inbox, click here.

Google Hangout with Contributors

As many of you know, the Receiver in the Zeek case sent out well over 1,000 subpoenas to the “net winners” pursuant to the Zeek Rewards liquidation plan. In case you’re like most people and you’re not sure what a subpoena is, it’s a document from a court that compels someone to produce evidence (documents, verbal testimony, etc) pursuant to a lawsuit. In this case, the Receiver is asking for a lot of information from the “net winners.” Specifically, he’s asking about their involvement with Zeek, how much money they made from Zeek, personal financial standing, and he’s also asking about large purchases made over the past couple of years i.e. cars, boats, homes, etc. As we mentioned in the past, the Receiver is responsible for making the pot of cash as large as possible to ensure the victims get a fair amount of the proceeds. Along those lines, the Receiver is obligated to pursue funds from the net winners. As Phillip Young said in his article about the Liquidation Plan, “The receiver clearly considers any positive returns on a Zeek investment to be a fraudulent transfer, and his pleading indicates that he plans to immediately pursue the return of those funds.”

Since the subpoenas have recently been sent out, we now have a better idea of the Receiver’s plans before he issues distributions to the victims. The Contributors on this site along with Troy Dooly will be conducting a live Google Hangout to answer some of the common questions about this process. We’ll be conducting the hangout on Thursday, November 15th at 5:00 CST. The current roster of contributors is:

myself, (MLM lawyer)
Jordan Maglich (Ponzi Tracker)
Len Clements (Market Wave)
Troy Dooly (MLM Help Desk)
Walt Burton (Commercial Real Estate attorney)
Phillip Young (Corporate Litigator / Bankruptcy Lawyer)

We’ll be covering questions that are important for both the net winners and the net losers. The Hangout will be streamed live on this page AND on my personal website at www.themlmattorney.com. I’ll embed the video player on these pages. Again, the Hangout will be on Thursday, November 15th at 5:00 CST.

In the meantime, please include any of your questions in the comment section below. I’m not promising that we’ll answer all of them, but it’ll help us all get a general sense of the information you need. NOTE: disparaging comments will be deleted. +Kevin Thompson

Receiver’s Zeek Liquidation Plan

Update from Thompson Burton

One of our contributors, Phillip Young, has provided great insights about the Receiver’s recent communications. Soon, approximately 1,200 subpoenas will be sent to the “net winners” in Zeek Rewards. These subpoenas will request information about their involvement in the program and likely contain a demand for a return of the gains. In our opinion, there’s a conflict if a firm represents both the net winners (people that made more than what they spent / invested) and the net losers (people that made less). The conflict exists because the net losers want the cash pot to be as large as possible for purposes of the distribution i.e. they need the net winners to pay into the pot. On the other hand, the net winners want to maintain their funds. This is normal in this sort of matter.

Phillip Young has served as a Receiver on several occasions and he’s uniquely positioned to help the “net winners” served with a subpoena negotiate a settlement and/or fight against the clawback actions. As for our firm, Thompson Burton, we made the decision months ago to focus on helping the net losers recover their funds by way of the claims process. When the Receiver publishes a claim form for the Zeek participants, which should be soon, we’ll offer the valet service to help with the recovery process.

One final update: we made a commitment on day 1 to maintain your information in the strictest of confidence. If you completed a form and provided your information to us, the information has never been shared with anyone, including with any of the other contributors. The information is being used solely to assess the damages and build a subscription list for this site only. +Kevin Thompson

Receiver’s Zeek Liquidation Plan

On October 8, the Zeek receiver filed what he called a “Preliminary Liquidation Plan.” In reality, it was more like an analysis of the company and a status update rather than a liquidation plan. Nevertheless, there were several interesting tidbits buried in the 26-page pleading:

• There were approximately 2.2 million users in the ZeekRewards system, 1 million of which paid money into the program.

• The receiver has recovered $293.7 million in cash for the Zeek receivership estate, plus he has seized two commercial properties in North Carolina which Zeek owned free-an-clear. The value of this real estate is unknown.

• The receiver indicates that there is at least one foreign bank account holding an unknown amount that has not been seized.

• The receiver has disbursed approximately $56,000 for ordinary operating expenses (such as payroll, utilities, taxes, etc.) and he anticipates distributing another $922,000 for operating expenses incurred by Zeek prior to the receivership. This does not include the expenses of the receiver or his legal counsel, which will be very significant.

• Since the receivership began, the receiver has attempted to deposit over 60,000 payments from Zeek investors, totaling approximately $100 million. Almost 20% of those attempted deposits were dishonored by the banks, primarily because the check makers issued a stop payment on them. The receiver reports in his update that, with court authority, he is re-presenting these checks for payment and expects all banks to honor those checks.

• The receiver made clear in his update that he will aggressively pursue legal claims against third parties, including officers, employees, participants, professionals and others who benefitted from this ponzi scheme.

• The receiver goes into some detail about his pursuit of clawback claims, against “net winners” (i.e. those Zeek participants who received more in returns than they paid into Zeek). It is clear that these clawback claims are receiving much immediate attention. (For a more complete discussion of the clawback claims, see “What does this mean for net winners” below).
The receiver’s recent update gives us some idea as to the size of the receivership, assures us that there should be assets available for distribution to creditors, and allows us a glimpse into what the receiver views as his most pressing duties. As far as what this update means, it means different things to different classes of Zeek participants.

WHAT DOES THIS MEAN FOR NET WINNERS?

A “net winner” is someone who received more money from Zeek in returns than he/she originally invested. For example, if you invested $10,000 into Zeek and received distributions of $12,000, you are a net winner on your investment. The receiver’s “Preliminary Liquidation Plan” is all bad news for the net winner. The receiver clearly considers any positive returns on a Zeek investment to be a fraudulent transfer, and his pleading indicates that he plans to immediately pursue the return of those funds. In fact, as of the writing of this article, we believe that over 1200 demands have been sent out to net winners, with accompanying subpoenas. If you are a net winner, you should expect to receive a demand letter from the receiver with a threat of litigation. While I have not seen the demand letter, it is likely that the receiver is demanding the immediate return of all or a substantial portion of the “return on investment” received by a net winner. Having represented receivers and bankruptcy trustees frequently, it is my experience that a receiver will begin with a very aggressive demand accompanied by a threat of litigation in hopes that he can scare a large portion of potential defendants into an immediate settlement. Often, the receiver will negotiate down from that aggressive demand. If you receive a demand letter from the trustee, you should carefully consider your options. Should you immediately pay the trustee’s demand and avoid future litigation expenses, or should you refuse and hope to negotiate a more favorable settlement as the process unfolds? These are options you should discuss with your legal counsel, especially if you receive a demand for a significant sum of money.

WHAT DOES THIS MEAN FOR NET LOSERS?

A “net loser,” as I will use that term in this article, means someone who invested more money into Zeek than he/she received in return. For example, if you invested $10,000 into Zeek but only received distributions of $5,000 in return, you are a net loser on your investment. The receiver’s “Preliminary Liquidation Plan” provides good news / bad news for the net loser. First the bad news: If you sent a payment to Zeek which you later attempted to freeze or stop payment, chances are that your bank is going to honor that check. The receiver asked for (and was granted) approval from the court to force banks to honor dishonored checks, as many of us anticipated. If you attempted to stop an uncashed check, you should contact your bank to determine whether it has been, or will be, honored.

Now for the good news: it seems very likely that there will be significant assets available for distribution to Zeek creditors, including net losers. There is no indication that creditors will be paid in full, but the receiver has already collected nearly $300 million before what seems to be rather aggressive litigation (which could result in more assets). While the claim process has yet to be established by the receiver, net losers should begin collecting bank records, credit card records, Zeek statements, and any other documents that will assist them in proving the amount of loss they have suffered as a result of Zeek investments. After all, it will be the creditor’s duty to prove the losses he/she has suffered. If a net loser’s losses are significant, he/she might want to consider retaining legal counsel to assist in preparing the proof of claim and its supporting documentation. The receiver has offered little guidance on how or when he plans to conduct the claims process.

Zeek Receiver Posts “Subpoena FAQ” for Clawback Targets

Yesterday, the court-appointed receiver tasked with gathering assets for victims of the$600 million ZeekRewards Ponzi scheme provided various updates on the claims process, asset recoveries, and his intention to pursue those who actually profited off the scheme.  Kenneth Bell, the receiver, indicated he would begin sending out subpoenas this week as part of his plan to institute “clawback” litigation against those “net winners” that, according to Mr. Bell, withdrew hundreds of millions of dollars in profits from Zeek.  As Mr. Bell stated, the first batch of subpoenas would be sent out this week, and “thousands” more would follow in the coming weeks.

The Receiver has now added a “Subpoena FAQ” to his website established for scheme victims, www.zeekrewardsreceivership.com.  Under the tab, the Receiver lists nine commonly asked questions, and in doing so, provides several new details on the clawback process.  First, he indicates that a possible target of a subpoena can include an affiliate, participant, agent, or employee of Zeek Rewards, suggesting that he is not limiting the search to just participants in the scheme.  Second, it appears as if the scope of the subpoenas is more broad than simply the turnover of financial documents, as electronic documents and communications are being sought.  Thus, in addition to bank statements, the Receiver is also likely seeking any communications those “net winners” may have had with the Receiver or possibly other affiliates.  Finally, as speculated yesterday, the Receiver confirms that the first batch of the subpoenas are indeed sent to those “the Receiver currently believes may have won the most money.”

The FAQ’s also contain a section not only for those who have received a subpoena and do not want to proceed with litigation, but also for those who wish to avoid receiving a subpoena in the future (i.e., profited from the scheme but were not the recipient of the first batch of subpoenas).  FAQ # 9 provides that those who wish to reach an arrangement with the receiver to return those profits without “the necessity of lengthy and expensive legal action” may contact the Receiver at[email protected] to discuss the possibility of a settlement.  There is no explicit mention of a slight discount as an incentive to settle, but the wording does suggest that there may be some wiggle room.  Of course, if there is a discount offered, it would likely be an ‘across-the-board’ discount to avoid the appearance of favoritism or unfairness.

A link to the FAQ’s is here.