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  As a last resort, should an email be found to be no longer valid, the Receiver will attempt service of the notice by an alternative method, which includes a different email address or postcard to the last known address.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.

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.

Update From Zeek Receiver: Outside Lawsuits Likely To Be Stayed

Disclaimer: The information and materials on this blog are provided only for general informational purposes. No attorney-client relationship is formed nor should any such relationship be implied. By using this website or subscribing to our Zeek e-mail alerts, you acknowledge that your receipt and use of such information does not create an attorney-client relationship. In the future, we may make formal offers for legal representation; however, at this time it is our opinion that litigation and/or other action is premature.

This post is authored by Jordan Maglich, Forbes contributor, associate at Wiand Guerra King and creator of the Ponzi Tracker website.

In the wake of the SEC’s shutdown of ZeekRewards and the court’s appointment of a receiver, many have expressed frustration at the perceived lack of progress. In an apparent effort to “jumpstart” the recovery, at least one class action lawsuit has been filed by investors against ZeekRewards and Paul Burks. On another front, a group of Zeek affiliates appear to be soliciting “donations” from investors to fund litigation against the Securities and Exchange Commission in an effort to “reinstate” Zeek. While victims may mean well, it is likely that neither suit will yield any benefits.

When the North Carolina federal court appointed Ken Bell as receiver, it issued an “Order Appointing Receiver” (the “Order”) that spelled out Mr. Bell’s duties and responsibilities. Among these, Mr. Bell was directed to marshal and preserve all of Zeek’s assets. Additionally, the Western District of North Carolina was designated as the exclusive forum for any claims brought against Zeek or Burks. Besides giving Mr. Bell the sole authority to bring claims on behalf of the receivership entities, Paragraphs 32 – 34 of the Order also specifically stayed any litigation involving the Receiver, Receivership Property, the Receivership Entities, or previous employees. Courts in which those actions are filed must defer to the exclusive jurisdiction of the Western District of North Carolina before proceeding.

The Receiver also brought this up during his conference call with various members of the media today. I was fortunate enough to be permitted to listen. While stating that he had not been provided with any copies of the filed lawsuits, Mr. Bell alluded to the court-imposed litigation stay, opining that the stay likely encompassed those actions. Mr. Bell’s viewpoint is likely shared by Judge Mullen, as receivership courts do not take lightly to encroachments on their jurisdiction. If you’re wondering what a court-imposed “Stay” means, it’s a ruling by the court that halts further legal process in a case.

During the conference call today, Mr. Bell was clear that he intended to recover every possible source of funds for eventual return to victims, and the existence of competing litigation for these funds is not likely to sit well with both Mr. Bell and the federal judge presiding over the case. In addition to the unambiguous language in the Order, principles of equity also require that a small group of investors should NOT be allowed to essentially “leapfrog” the rest of investors to recover funds that rightfully belong to the receivership estate. The goal of a receivership is to treat similarly-situated victims alike, and allowing some investors to recoup a larger part of their total investment than others is contrary to this vision. If people are encouraging you to “unionize” and demonstrate “strength in numbers,” it’s certainly within your rights. However, I feel it will not yield any meaningful benefits that you are not already entitled to receive.

In short, investors are urged to have patience as Mr. Bell completes his initial investigation. A court is very unlikely to allow outside litigation to proceed that has the professed goal of enriching some investors to the detriment of others. Additionally, any funds recovered from Zeek Rewards and/or Burks are the property of the Receivership Estate for the benefit of all victims, and not just a select subset. Victims must simply sit tight while the receiver’s investigation continues and stay tuned for future updates.

In a future post, we’ll explain the likelihood of Clawback Litigation against some of the investors that actually profited from the program. Based on the receiver’s comments, it seems possible that Ken Bell will pursue this avenue to bolster the cash accounts at Zeek. In the meantime, if you have not done so already, please subscribe to receive our email updates.