About Jordan Maglich

Jordan Maglich is an attorney at Wiand Guerra King, P.L. in Tampa, Florida. He is considered an expert on Ponzi schemes and white collar crime, and his practice includes complex commercial litigation, receiverships, Foreign Corrupt Practices Act litigation, and civil regulatory matters, with a focus on securities and financial services litigation. He represents securities broker/dealers, investment advisors, and their associated persons in federal and state court and in arbitration. Additionally, Jordan is currently part of the team that represents the court-appointed receiver nominated by the SEC in the Arthur Nadel $400 million Ponzi scheme. Jordan authors the Ponzitracker blog, and is also a contributor at Forbes.com where he writes about white collar crime.

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.

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.

Update From ZeekRewards Receiver: Claims Process Coming, Potentially “Hundreds of Millions of Dollars” In Clawback Lawsuits

The receiver appointed to recover assets for victims of the $600 million ZeekRewardsPonzi scheme has posted a letter on his website providing an update to investors and indicating that he intends to vigorously pursue those who received profits from the scheme – profits he estimates are in the hundreds of millions of dollars.  Kenneth E. Bell, appointed by United States District Judge Graham Mullen, disclosed that the total amount recovered thus far exceeds $300 million and is likely to increase while he pursues additional funds being held in financial institutions.  Additionally, Mr. Bell indicated that once victims completed a court-approved Official Claim Form, he would proceed with a preliminary and partial distribution rather than make one final distribution at the conclusion of the Receivership.

Pegging the number of true victims who lost more in the scheme than they were able to withdraw as approximately 800,000, the Receiver estimated that total losses ranged from $500 million to $600 million.  For those victims, the Receiver indicated that an Official Claim Form will be posted to his website once he received Court approval.  There will likely be a deadline for victims to submit their completed Form, after which the Receiver indicated he will proceed with a preliminary and partial distribution.  It appears as if the affiliate User ID’s will be used as a method of identification for victims, as Mr. Bell refers to those IDs several times in his letter.

While the updates on Mr. Bell’s intent to proceed with a claims process are similar to what he has indicated in prior updates, today’s update provides a wealth of new information surrounding those investors whose withdrawals/distributions from Zeek exceeded their initial investment.  In a Forbes article I posted shortly after the scheme was uncovered, I estimated that the prospect of “clawback” lawsuits was “amost certain” once the Receiver had completed his initial investigation.  While Mr. Bell laterconfirmed that he would be pursuing those affiliates “who took more out of Rex Ventures than they put in,” he did not provide specific numbers on the amount of potential clawback victims or recovery.

Apparently having completed his initial investigation, the Receiver disclosed that “there are more than 100,000 User IDs” that took more out of the scheme than they invested.  While declining to provide specifics on the potential amount of clawback recoveries, Mr. Bell did disclose that the ‘false profits’ enjoyed by these individuals numbered in the “hundreds of millions of dollars.”  Mr. Bell indicated that subpoenas would be sent out “this week” to approximately 1,200 of these likely clawback targets, seeking documentation of financial dealings with the scheme and, if necessary, depositions and litigation.

While not mentioned in the letter, it is likely that these 1,200 individuals received the highest amount of distributions from the scheme.   Additionally, in an attempt to allow settlement without litigation, a letter will also be included with the subpoena offering the possibility of negotiating the voluntary surrender of profits without litigation.  While the letter does not elaborate, it is likely that a slight discount will be offered as an incentive to avoid litigation costs.  These 1,200 likely represent the first batch of clawback targets, as Mr. Bell also indicated that subpoenas and demand letters will be served on “thousands more” in the upcoming weeks.

With over $300 million in the bank and an estimated “hundreds of millions of dollars” in potential clawback recoveries, there is an increasing possibility that Zeek victims could eventually recover an amount close to, if not equal to, their net investment.  While Mr. Bell was quick to caution against counting on a 100% recovery, he stated that “if we don’t it won’t be for lack of trying.”

The Receiver’s letter is here.

Zeek Receiver Files Preliminary Liquidation Plan With Updates on Asset Recovery, Clawbacks, and Claims Process

Today, Receiver Kenneth Bell filed his Preliminary Liquidation Plan with the Court, and he provides an abundance of information on asset recovery to date, clawback possibilities, and the upcoming claims process.  A comprehensive article on Forbes.com outlining the Plan, as well as a link to download the Plan itself, is available here.

Clawback Litigation Likely

The receiver appointed to recover assets in the $600 million ZeekRewards Ponzi scheme announced today that he had recovered nearly $300 million in assets for eventual distribution to the estimated one million victims.  The receiver, Ken Bell, also estimated that “tens of millions of dollars more” are still unaccounted for, and hinted at their eventual recovery as well.  While victims certainly should be optimistic about the developments to date, Mr. Bell urged patience going forward, stating that “this process will take months, if not longer.”

Also of note in the letter was Mr. Bell’s most pointed statements to date that he intends to pursue clawback litigation against those “affiliates who took more out of Rex Ventures than they put in.”  While many victims received few, if any, distributions and instead chose to re-invest their gains, some affiliates were rumored to have withdrawn tens or even hundreds of thousands of dollars in excess of their initial contribution.  Citing principles of equity, Mr. Bell declares that “in order to make everyone as whole as possible, those who profited from participating should surrender their gains.”  Courts routinely approve the use and legal theory surrounding clawbacks, and they are very difficult to defend.

It also appears that the beginning of a claims process is near.  Mr. Bell indicated that an “information template” will be posted to the Receivership website soon that, while it will not function as an official claims form, will allow the Receivership to begin collecting victim information and also enable an accurate method of communication as the case proceeds.

Finally, and likely in response to increased and rampant speculation over recent comments made by some affiliates in which they purported to have spoken to the Receiver or the SEC about the negative merits of the case, the Receiver made a categorical denial.  According to Mr. Bell, False information is being circulated by these claimants.”  Going forward, Mr. Bell urged victims to consider only what the SEC posts on its website for its position on the matter.

Ponzitracker published an article several days ago echoing Mr. Bell’s comments after having been forwarded an email that purported to contain comments attributed to the SEC concerning the “weakness” in Zeek’s case.  In a conversation with a top SEC official involved in the litigation, Ponzitracker was able to confirm that the statements being circulated were false.

SEC Admissions Of Weakness In Zeek Case “Inaccurate”; Tactics and Motivations of Zeek Victim Group Questioned

The update below was prepared by Zeek Recovery contributor, Jordan Maglich. In summary, we strongly encourage everyone to be patient with the process. Zeek Rewards is NOT coming back. There’s no value in donating money to cover someone else’s legal bill. This is especially true if you lack information regarding the personal benefits of the effort (assuming there are any), lack information regarding how the money is spent and lack information regarding the law firm being retained. If it’s possible, we suggest you request a refund for your donation made pursuant to this effort. As we’ve written in the past, there’s no benefit for a group of people to retain a law firm and negotiate en masse. The receiver is going to treat all victims equally, regardless if a few hundred or thousand have retained a similar lawyer. In the event of class action litigation, the benefits will be distributed evenly to the entire class, regardless if the victims have “donated” to the effort. +Kevin Thompson

Jordan’s article is below:

On August 17, 2012, the Securities and Exchange Commission (“SEC”) filed an emergency enforcement action to shut down ZeekRewards (“Zeek”), calling it a massive $600 million Ponzi scheme.  According to the SEC, while Zeek promised participants a daily payout of “net profits,” these profits were nearly exclusively derived from the funds of new investors – the classic hallmark of a Ponzi scheme.  At the SEC’s request, the court then approved the appointment of Ken Bell as the receiver, who would be tasked with gathering and safekeeping assets for eventual distribution to victims. 

Emotions have run high since Zeek’s shutdown, as many lament their losses amid what was such a promising operation that seemingly defied the age-old “if it’s too good to be true..” mantra.  However, a select (and growing) group has taken their dissatisfaction to another level, soliciting the assistance of other victims to fight the “illegal” and “unlawful” actions taken by the SEC.  While their rousing rhetoric is critical of the SEC, recent representations made regarding the SEC’s handling of the case may have crossed the line from opinion to misrepresentation.  Indeed, an SEC official briefed on the claims by Ponzitracker explicitly refuted such allegations.

Shortly after the SEC stepped in, several groups, including “Zeek Rewards Affiliates United Against The SEC” and “Zteambiz” were formed, and appear to operate in tandem.  Zteambiz describes itself on its website, www.zteambiz.com, as “a professional organization designed to secure competent legal counsel to prevent further damage caused by the actions of the SEC actions against Rex Venture Group aka, Zeek Rewards.”  Dave Kettner and Robert Craddock are several of the individuals behind these sites, as evidenced by multiple postings attributed to them.  Using the site, both have solicited Zeek victims to “donate” towards a fund being set up to retain a top law firm to fight the SEC’s allegations and reopen Zeek.   A September 5, 2012 update from Kettner implored victims to donate if possible to be added to the “protected group.”  The response seems to have been positive, and on August 30, 2012, a notice was posted indicating that SNR Denton, a well-known international law firm, had been retained:

“Important notice:

SNR Denton US LLP represents Fun Club USA and all inquiries about this representation should be directed to Fun Club USA at xxxxxxxxx. SNR Denton’s legal representation is limited to Fun Club USA; SNR Denton does not represent and does not have an attorney-client relationship with affiliates of Zeek, Zeek Rewards, Rex Venture Group LLC or with any individual or party that chooses to provide funds to Fun Club USA.”

The notice is seemingly at odds with representations contained in the “People Helping in the Legal costs” tab on Zteambiz, which indicated that those who had donated – numbering over 6,000 as of September 1, 2012 when it was last updated – were “now being represented by counsel, to protect their moneys (sic) earned by Zeek Rewards and monies currently held by Zeek Rewards.”  The notice, which has since been removed, was clear that “SNR Denton’s legal representation is limited to Fun Club USA.”  A quick search on Florida’s Division of Corporations website yielded a “Fun Club USA Inc.” registered on August 28, 2012.  The President of Fun Club, as shown on its Articles of Incorporation  Robert Craddock. 

Zteambiz has been vocal in its criticism of the SEC, alleging that “all the pages that were submitted…by the SEC that froze the assets of Rex Venture Group, LLC has all been one sided and what we believe to be a misrepresentation of the truth and facts of what Zeek Rewards was as a viable and legal business.”  Additionally, Zteambiz claimed that “the SEC mislead (sic) the judge” in securing an emergency asset freeze.

This past Saturday, an email from “Dave” updated recipients based on information recently learned from Craddock.  One of the first revelations was that SNR Denton had decided to no longer represent Zeek, reportedly due to the “tons of calls” received by the firm from victims that interfered with Denton’s “entire law firm operations.”  A new law firm was said to be in the works, whose identity would remain a secret until court filings were unveiled “early next week.”  What piqued the interest of many, however, were the representations made immediately after.  The paragraph is reproduced below:

Here is the great news…The law firm has already talked to the SEC and the NC DOJ. On Thursday, Robert got a call from one of our attorneys regarding the conversation that he had with the SEC. Here
is what he said:

The SEC acknowledged that there are a couple of problems with the case against Zeek Rewards and Rex Venture group. Here are the problems:
1.    We (the SEC) are not able to find a victim in this case. We are not able to find anybody at this time that has been harmed by Zeek Rewards.
2.    We (the SEC) are having a hard time finding a security. In the complaint, it said that Zeek was selling securities and was an investment scheme.
Based on their (the SEC) new knowledge of the Zeek Rewards business model, they are having a hard time moving forward in making their case. And they are now looking for a path or way to back out of this.

These apparent admissions by the SEC quickly spread over the internet, with dozens of websites frequented by the multi-level marketing community accepting the statements as fact and quickly proclaiming that the SEC was close to capitulating.  

The claims seem skeptical for several reasons.  First, it is highly unlikely that these kind of admissions would be made to a potentially adversarial party and/or attorney.  Second,  both Rex Venture Group and Paul Burks have each already entered into a consent judgment agreeing to waive any right of appeal, and, in Burk’s case, paying a $4 million civil penalty.  Further, a link to an information page established by the SEC now features prominently on the SEC’s homepage, www.sec.gov.  

These suspicions were confirmed today after Ponzitracker spoke with a top SEC official familiar with the case.  After reviewing the allegations, the official, who declined to be named, labeled the statements as “inaccurate” and “false”.  Additionally, it would be highly impractical for the SEC to make such moves and statements without allowing the receiver to complete his initial investigation and make appropriate recommendations.

ZeekRewards Update: Banks Report Account Balances, Receiver Takes Fight For Cashier’s Checks To Court

It has now been over one week since Ken Bell, the court-appointed receiver overseeing ZeekRewards (“Zeek”), held a press conference to brief various members of the media about his progress thus far and plans for the near future. In his remarks, Bell indicated that one of his main priorities going forward was to continue gathering assets for eventual distribution to victims. This included cashiers checks deposited, but not cashed, by Zeek investors just before the scheme’s collapse. Following the press conference, Mr. Bell posted an update to his website that included a letter updating investors and additional answers to investor questions.

Since that meeting, a review of the court docket reveals that the recovery of assets continues to be the focus of Mr. Bell and his team. In the past ten days, various financial institutions have submitted sworn statements in response to the court’s earlier asset freeze indicating how much, if any, Rex Venture Group (“RVG”) maintained in bank accounts. RVG is the parent company of ZeekRewards. Those reports, from institutions such as Charles Schwab and NewBridge Bank, showed that tens of millions of dollars were currently being held in the name of RVG or Paul Burks, Zeek’s founder. Additionally, the Receiver’s lawyers have sparred with Burks in an attempt to gain control of his personal assets.

While this information does not answer the most pressing question of when the victims will be paid, these recent filings provide a glimpse into the Receiver’s focus: securing all assets. These recent filings do, however, address the issue of cashier’s checks that were sent immediately prior to Zeek being shut down.

Shortly after the Securities and Exchange Commission (“SEC”) filed suit against Zeek, United States District Judge Graham Mullen issued an order appointing Mr. Bell as receiver. That order listed the various assets over which Mr. Bell would have authority over, including assets held or fraudulently transferred by RVG. These orders are standard in receivership proceedings, and their wording rarely varies. However, Zeek was somewhat unique, in that it highly encouraged the use of cashier’s checks to fund a new investor’s account. Different from personal checks, a cashier’s check operates like cash upon endorsement by the maker. According to the receiver, “numerous” cashier’s checks and other forms of payment potentially totaling several million dollars were received either on or after the date the SEC shut down Zeek, Because of this, Mr. Bell sought the Court’s approval (the “Motion”) to clarify the language of the order appointing receiver to explicitly include those forms of payment as receivership assets. The Motion can be viewed here.

The Motion also sought to freeze assets in possession of Burks and other third parties, including his family members. In support, Bell noted that while Burks was estimated to have secretly misappropriated roughly $11 million from Zeek, nearly $7 million of that sum was no longer in Burks’ possession or control, including $1 million transferred to certain family members.

Not surprisingly, while Burks did not object to the inclusion of uncashed cashier’s checks into the receivership estate, he strongly opposed any attempts to now “include Mr. Burks’ personal accounts.” His objection can be found here.

Apparently swayed, Judge Mullen declined to grant the receiver’s request to include Burks’ personal accounts in the asset freeze, but did allow the amendment of language in the order appointing receiver to include cashier’s checks and other forms of payment as receivership property. The Judge’s order can be viewed here. However, the receiver certainly has the ability to bring future lawsuits against Burks and/or his family members once he has completed his analysis of Zeek’s financial records and been able to trace the flow of assets in and out of Zeek. This investigation is expected to take weeks, if not months, to complete.