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:
- Making the Claims Process publicly available on the Reeiver's website at a soon-to-be-functional Claims Portal;
- Emailing all known affiliates through email addresses obtained from Receivership records and collected at the Receiver's website;
- By U.S. Mail to trade creditors and other known, non-affiliate creditors; and
- 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 As a last resort, should an email be found to be no longer valid, the Receiver will attempt service of the notice by an alternative method, which includes a different email address or postcard to the last known address.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.
A copy of the proposed Claims Form is here.