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Thursday
Sep202012

Texas Lawyer Seeks to Intervene on Behalf of Zeek "Victims" Group

A Texas lawyer has indicated in a court filing that he seeks to appear on behalf of a "victims" group with the North Carolina federal court overseeing the $600 million ZeekRewards receivership. Michael Quilling, a partner with Dallas law firm Quilling, Selander, Lownds Winslett & Moser, P.C. ("QSLWM") made the filing known as a pro hac vice application, in which a lawyer not admitted to practice in a particular state seeks the court's permission to appear as an attorney in a specific case. The filing indicates that Quilling intends to represent "Fun Club Usa, Inc. and other entities whose assets were seized in connection with the above-referenced matter." Quilling is a well-known attorney who is board-certified in bankruptcy law and has also served as the receiver in several Securities and Exchange Commission securities fraud case.

As some may recall, Fun Club Usa, Inc. ("Fun Club") is the Florida corporation that, after being administratively dissolved on August 18, 2010, for failure to file an annual report with the Florida Division of Corporations, suddenly came back to life on August 28, 2012, when Craddock re-filed articles of incorporation for Fun Club and indicated that the filing should have an "effective date" of August 24, 2012. Craddock has also been a active member of Zteambiz.com and Zteambiz.net, which began soliciting donations to retain a law firm to "prevent further damage caused by the actions of the SEC". According to a chart on the site, which has since been removed, over 6,000 people made a donation of at least $20. Craddock is also prominent on the Facebook group "Zeek Rewards Affiliates United Against the SEC," which directs users to Zteambiz and circulates frequent updates on the progress of the suit.

The reliability of the updates sent out from the site has been questioned at least once, including a previous article by Ponzitracker that refuted the claim that the Securities and Exchange Commission ("SEC") had confided to an unnamed individual that the case against Zeek was weak. Ponzitracker spoke with an SEC official involved with the case who unequivocally stated that those statements were "inaccurate" and "false."

Another important issue concerns (1) the identity of clients to be represented, and (2) whether those clients were net winners that received more from the scheme than they invested, or net losers that actually suffered a loss on their investment. While victims had been solicited to donate and sign up originally to rectify a "major injustice to all of us affiliates," a September 8th, 2012 update from Zteambiz indicated that legal representation was being sought for the purport of "providing protection against possible crawlback (sic) action by the SEC." Clawback actions are those brought by a receiver against individuals that withdrew more funds from the scheme than they originally invested. Because Zeek is alleged to have operated as a Ponzi scheme, those withdrawals did not constitute true profits, but instead a re-distribution of other investor funds. Clawback actions are frequently used by court-appointed receivers to recover funds for victims, and Zeel receiver Kenneth Bell indicated in so many words that he intended to pursue clawbacks in a recent letter to investors.

This presents an ironic situation if Zteambiz and related entities have been soliciting funds from victims in order to "protect against possible crawlback (sic) action by the SEC," since the funds recovered from clawbacks are used to compensate those victims that did not have the good fortune to make withdrawals from the scheme exceeding their investment. Essentially, those victims who would not be the target of clawback actions would be subsidizing efforts to prevent recovery of additional funds for distribution. Additionally, some have observed the likely conflict of interest involved for an attorney to represent both victims and targets of clawback actions, as each has radically different interests.

While these are scenarios that are months, if not years, away, the likely approval of Mr. Quilling's pro hac vice application sets the process into motion.

The Pro Hac Vice motion is here.

Previous Ponzitracker coverage of ZeekRewards:

Zeek Receiver: Nearly $300 Million Recovered, Clawbacks Likely

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

ZeekRewards Victims: What Happens Next

SEC Shuts Down Zeek Rewards, Alleges It Was $600 Million "Massive Ponzi Scheme" On Verge Of Collapse

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Reader Comments (2)

Rather bizarre Fun Club USA is trying to claim status as an entity whose "assets were seized" if it legally was not in existence when Zeek closed. Are they going to perhaps try to claim they were operating all along as a suspended company?

September 21, 2012 | Unregistered CommenterLaidback

What is interesting is that Robert Craddock, one of the leaders of what I call the Gang of 12, announced he had been requested to appear before the SEC. Since that announcement was made he just announced that upon advice of his attorney he has to keep his lip zipped.

Needless to say these next few weeks are going to be quite interesting to see how this appearance before the SEC plays out. This pending legal action may be quashed before it can begin.

What is even more bizarre is that this tactic being implemented by the Gang of 12 is the same thing that was tried in the ASD Cash Generator case, and all of these type of lawsuits (over 90) were denied for lack of standing.

But to me the most absurd comment from this Gang of 12 is that they know Zeek was not offering securities and was a legitimate company, but the SEC doesn't and they are the ones who determine what is and what isn't a security. Incredulous.

September 25, 2012 | Unregistered CommenterLynndel "Lynn" Edgington

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