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.

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.