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 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.
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.