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Thursday
Feb072013

Zeek Judge Denies Request For Appointment of Examiner, Has 'Utmost Confidence in Receiver's Efforts'

In a terse but strongly-worded order issued earlier today, the federal judge overseeing the $600 million ZeekRewards Ponzi scheme refused to appoint a separate examiner to essentially supervise the court-appointed receiver's efforts, finding such an action would be duplicative and "cause unnecessary and significant depletion" of receivership assets.  A group of 'net winners' - those who were fortunate enough to profit off their Zeek investment - had filed a motion seeking the appointment of, ironically, their own lawyer as a purported "voice" of all investors.  However, United States District Judge Graham C. Mullen summarily rejected this request, noting that it would be impossible for an examiner to represent the interests of both the net winner and net loser affiliates.

As examined in depth in this Ponzitracker article, the 'victims group' Fun Club USA had sought to have their attorney, Michael Quilling, appointed as an examiner and compensated out of the receivership estate.  As examiner, Quilling would essentially act as a voice for all interested parties.  As I explained previously, and as Judge Mullen implies, this could represent a serious conflict of interest, as the best interests of those who profited from their investment are, not surprisingly, much different than those who lost some or all of their investment:

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.  

Additionally, the appointment of an examiner would also cause the unnecessary duplication of efforts currently being performed by the receiver, Kenneth Bell.  Compounded with the fact that the examiner would be compensated with funds out of the receivership estate - which would reduce dollar-for-dollar those funds available for eventual distribution to victims - such a move would seem to have no real purpose but to complicate the receiver's efforts and line the examiner's pockets.  Judge Mullen echoed this opinion, expressing confidence in Mr. Bell's efforts thus far and noting his diligence in preserving and maximizing assets.

Indeed, the move to appoint an examiner should be seen for what it truly was - a thinly-veiled attempt by those who profited from Zeek to delay, stall, and further avoid their day of judgment.  While those net winners are content to employ a variety of tactics to frustrate the receivership's efforts, many fail to make the connection that efforts by the receiver and his team to defend these tactics not only divert manpower away from legitimate issues, but only add to the legal costs of the receivership.  Further, and perhaps most ironic, the war chest funding these efforts has likely been funded through the solicitation of more than $100,000 from victims in the immediate aftermath of Zeek's closing for the vague cause of fighting the Receivership and restoring Zeek.  

A link to Judge Mullen's Order is here.

A special thanks to ASDUpdates, which maintains a comprehensive Zeek blog and database of court filings available to the public.

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