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Entries in clawback (11)


First Batch of Zeek Subpoenas Arrive; Victims Solicited For New 'Pay-To-Object' Venture

As promised last week, the court-appointed receiver tasked with recovering assets for the victims of the $600 million ZeekRewards Ponzi scheme (the "scheme") has begun sending out a first batch of 1,200 subpoenas to 'affiliates' that profited from the scheme.  The detailed subpoenas seek a variety of information ostensibly related to the location and/or use of scheme profits.  Meanwhile, the de facto voice of those leading the efforts to oppose the receiver, who earlier predicted that "there likely will be no clawbacks" and later characterized the subpoenas as "fishing for information", is now "offering" Zeek victims legal representation to object to the subpoenas...for a "simple and reasonable flat fee of $300."

Clawbacks and Subpoenas

In an update to victims last week, Kenneth Bell, the court-appointed receiver, indicated that he intended to vigorously pursue those who "profited most from from ZeekRewards."  According to Mr. Bell, more than 100,000 User ID's were fortunate enough to profit from their investment with Zeek, which purportedly amounts to "hundreds of millions of dollars."  Following that announcement, approximately 1,200 subpoenas were sent to those 'net winners' seeking a variety of information concerning their dealings with the scheme.  The subpoena was accompanied by a brief letter from Mr. Bell specifying an amount sought, as well as his not-so-subtle statement that he was

"committed to pursue the full court process necessary to obtain personal court judgments against "winning" participants and recover all money owed to the Receivership estate."

At the end of the letter, Mr. Bell indicated that he was open to discussing the return of any false profits without the institution of litigation, and provided contact details for those interested.

The subpoena is quite sweeping in nature, and requests numerous documents in twenty-six (26) different document requests.  A closer look suggests that the subpoena targets are not only Zeek investors, but also business partners, employees, and third-parties.  For instance, request 4 seeks documents related to any work or assistance provided as an employee, independent contractor, vendor, or agent of Rex Venture Group ("RVG"), which is the parent company of Zeek that was charged by the SEC.  Additionally, request 5 seeks documents related to any employment agreement or other contract with RVG, as well as any salary or compensation received.  

Not surprisingly, the majority of the subpoena requests concern the receipt and use of funds received from RVG or any of the related Zeek entities.  This includes copies of banking and financial statements, as well as documentation evidencing the purchase of assets with those funds such as boats, airplanes, real estate, household furnishings, jewelry, and any other assets exceeding $1,500 in value.  Because money is a fungible commodity, the deposit of "tainted" funds from the scheme into an individual's bank account theoretically taints the entire amount of funds in that account, and any subsequent use of funds up to the amount transferred in potentially "taints" the ownership rights in that asset.  

As is common in Ponzi scheme litigation, a receiver/bankruptcy trustee may seek possession of a high-ticket item without going through the litigation process if he is confident that the item was purchased with tainted proceeds from the scheme.  While that notion certainly has its critics, these actions are taken in the name of equity, and are designed to prevent clawback targets from shielding assets beyond the reach of potential creditors.  The scope and detailed nature of the subpoenas are no doubt implicitly designed to encourage settlement and avoid tedious (and expensive) litigation.  

Victims Solicited for 'Pay-to-Object' Arrangement

The group that has openly opposed the SEC and the receiver's mission has also interjected itself into the subpoena issue.  That group, Fun Club USA, earlier obtained approval to intervene in the SEC civil case as an interested party and appears to operate in tandem with another group, Zteambiz.  An individual associated with the two groups, Robert Craddock, who himself previously acknowledged being the target of a SEC subpoena relating to his relationship with RVG and Zeek, has provided ongoing updates to Zeek victims that are openly critical of the Receiver's duties.  

In a November 3, 2012 update, Craddock characterized the subpoenas as an effort to "fish[] for information" and "in my opinion, scare tactics."  Expanding on that assessment, Craddock stated that

Next, I have been instructed by the attorneys fighting for us to inform you that any request you have received to voluntarily turn over any monies earned is just that a request. You are not bound to turn over any money.  Why, you may ask and that is simple there has not been any judge ordering you to do so and the likelihood of that happening is slim to none.

Several days later, victims received an update stating that a Charlotte, NC law firm would handle subpoena objections for a flat fee of $300.  This came as a surprise to some who were part of the group that had initially responded to a Zteambiz request to raise funds to retain legal representation to "allow us to hire one of the best if not the best firm in the country to protect us." This effort was apparently quite successful, for a chart on Zteambiz (since removed) indicated that over 6,000 victims had contributed at least $120,000.  Besides the Notice of Appearance filed on behalf of "Fun Club USA," there has been no update or accounting for those funds.

However, a closer look at the engagement agreement to obtain legal representation for the "simple and reasonable flat fee of $300" raises several issues which should be considered by victims and could result in the incurrence of thousands of dollars in subsequent legal fees.  Specifically, the agreement makes clear (in bold print) that the $300 fee only covers the preparation of an initial objection to the subpoena. However, the filing of an objection to the subpoena is likely the beginning, rather than end, of involvement with the Receiver.  Under federal rules of civil procedure, the receiver may then set the matter for a hearing and/or serve an additional filing known as a "Motion to compel" which takes issue with the objections and allows the receiver to seek attorney's fees and further relief if the asserted objections are deemed by a Judge to be frivolous or designed to frustrate the receiver's purpose. Additionally, the next likely step after the subpoena, assuming the issues are not resolved, is the institution of litigation against clawback targets.

The retainer agreement is seemingly aware of this, and states that in the event the aforementioned events do happen, the "simple and reasonable flat fee of $300" does not cover representation in those instances.  Instead, the client would be responsible for the attorney's services at standard hourly billing rates ranging from $200 to $375.  Additionally, potential clients are informed that the fees generated may be shared with the same law firm that currently represents Fun Club USA.  

Craddock has also provided a link to the Objection filed on his behalf, which consists of nearly nine pages of general and specific objections to nearly every subpoena request.  Appearing to not provide any responsive documents, the Objection instead provides that, because Craddock had previously complied with requests from the SEC for documents, that Mr. Bell may contact the SEC for those documents.  


Madoff Trustee Seeks Over $200 Million in Latest Round of Clawback Lawsuits

The trustee overseeing the liquidation of Bernard Madoff's defunct brokerage firm continued his quest to recover funds from investors of Madoff's largest feeder fund, filing five lawsuits seeking over $200 million from five entities.  Irving Picard, the court-appointed trustee, is seeking over $1 billion from entities who invested with Madoff through Fairfield Sentry.  Picard reached a settlement with Fairfield Sentry earlier this year that allowed him to pursue clawback claims against Fairfield customers.  Fairfield received over $3 billion during its relationship with Madoff, $1.6 billion of which was subsequently transferred to Fairfield customers.  Picard has now filed suits seeking over $1 billion of the $1.6 billion allegedly transferred from Fairfield to investors.  

Today's suits seek the return of funds from ABN AMRO Bank, Bank Luxembourg, Lighthouse Investment Partners, Nomura International PLC, and KBC Investments Limited.  In total, the latest round of suits seeks nearly $220 million consisting of the following amounts from each entity:

  • ABN AMRO Bank - $25,469,129
  • Bank Luxembourg - $50,082,651
  • Lighthouse Investment Partners - $11,165,251
  • Nomura International PLC - $21,449,920
  • KBC Investments Limited - $110,000,000     

These clawback actions derive their authority from various federal and state laws.  Under Sections 550 and 551 of the Bankruptcy Code and various sections of the New York Debtor & Creditor Law, initial and subsequent transfers from a debtor within the six-year time period preceding the filing of a bankruptcy petition are subject to avoidance.  

Copies of each complaint can be found here:  ABN AMRO, Bank Luxembourg, Lighthouse Investment Partners, Nomura, and KBC.

Related Ponzitracker coverage:

Madoff Trustee Seeks $189 Million in Clawback Suits

Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Madoff Trustee Files Five More Clawback Lawsuits Against Feeder Fund Investors Seeking Nearly $100 Million

Madoff Trustee Seeks $300 Million From Abu Dhabi Investment Arm


Madoff Trustee Seeks $189 Million in Clawback Suits

The trustee overseeing the liquidation of Bernard Madoff's failed Ponzi scheme filed another set of lawsuits seeking to "claw back" nearly $180 million from four entities that invested with Madoff through investment accounts with 'feeder fund' Fairfield Sentry.  Fairfield Sentry was the largest of the so-called 'feeder funds' that funneled billions of dollars into Madoff's scheme.  Irving Picard, the court-appointed trustee, earlier this year reached a settlement with Fairfield Sentry that allows Picard to pursue clawback actions against Fairfield Sentry investors.  According to Picard, Fairfield Sentry received approximately $3 billion in avoidable transfers from Madoff during the six years preceding the collapse of the scheme.

Picard is seeking the return of nearly $190 million from Atlantic Security Bank ("ASB"), Trincaster Corporation ("Trincaster"), Bureau of Labor Insurance ("BLI"), and Naidot & Co ("Naidot").  With the exception of New Jersey-based Naidot, the remaining three companies are foreign companies, with ASB based in Panama, Trincaster in Switzerland, and BLI in China.  A list of the amounts sought from each entity is provided below:

  • Atlantic Security Bank - $120,168,691
  • Trincaster Corporation - $13, 311,800
  • Bureau of Labor Insurance - $42,123,406
  • Naidot & Co. - $13,654,907

These clawback actions derive their authority from various federal and state laws.  Under Sections 550 and 551 of the Bankruptcy Code and various sections of the New York Debtor & Creditor Law, initial and subsequent transfers from a debtor within the six-year time period preceding the filing of a bankruptcy petition are subject to avoidance.  

Including the four suits filed today, Picard has now filed clawback lawsuits seeking nearly $1 billion from Fairfiield Sentry customers, including lawsuits against the investment arm of Abu Dhabi (LINK) and the National Bank of Kuwait.

The Complaints against each entity are here: Atlantic Security, Bureau of Labor Insurance, Naidot, and Trincaster

Related Ponzitracker coverage:

Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Madoff Trustee Files Five More Clawback Lawsuits Against Feeder Fund Investors Seeking Nearly $100 Million

Madoff Trustee Seeks $300 Million From Abu Dhabi Investment Arm


Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Irving Picard, the court-appointed trustee tasked with marshalling assets for defrauded victims of Bernard Madoff's massive Ponzi scheme, filed the next round of clawback lawsuits stemming from his previous settlement with the largest Madoff feeder fund, Fairfield Sentry.  Picard filed six more lawsuits Thursday, seeking an additional $219 million from entities he claimed were subsequent transferees of Fairfield Sentry, which is alleged to have received over $3 billion in "fraudulent transfers" from Madoff subject to avoidance under federal and New York law.

The latest institutions targeted join a growing list of lawsuits related to Picard's previous settlement with Fairfield Sentry, under which Picard secured the right to pursue customers of Fairfield who had withdrawn partial or total amounts of their investment with Madoff.  Since August 1, Picard has sued at least thirteen institutions that invested through Fairfield for nearly $600 million, including the investment arm of Abu Dhabi.  The current lawsuit brings the total to nearly $800 million, and targets six entities:

  • Barclays PLC - $67.4 million
  • Sumitomo Mitsui Trust Holdings Inc. - $54.3 million
  • Korea Exchange Bank - $33.6 million
  • Cathay Life Insurance Co. - $41.7 million
  • Banque Privee Espirito Santo SA - $11.4 million 
  • Banca Carige SpA - $10.5 million

A copy of the Barclays Complaint is here.

A copy of the Sumitomo Blank is here.

A copy of the Korea National Bank Complaint is here.

A copy of the Cathay Complaint is here.

A copy of the Banque Privee Complaint is here.

A copy of the Banca Carige Complaint is here.


Banco Bilbao Seeks Dismissal of Madoff Trustee's Clawback Suit Citing Extraterritoriality Concerns

A Spanish banking institution sought the dismissal of a "clawback" lawsuit filed by the trustee for Bernard Madoff's failed Ponzi scheme, claiming that United States bankruptcy law is silent as to its extraterritorial reach and thus ineffective in Picard's quest to recover funds for the benefit of Madoff's defrauded investors.  Banco Bilbao Vizcaya Argentaria ("BBVA"), a multinational Spanish banking group, was sued by Irving Picard, the court-appointed trustee, in December in which Picard sought the return of approximately $45 million withdrawn through BBVA's investment with Madoff "feeder fund" Fairfield Sentry Limited.  In addition to the claim that the Bankruptcy Code was silent on its extraterritoriality, BBVA also claimed that Picard's Complaint should be dismissed because (1) the Complaint failed to state a claim upon which relief could be granted, and (2) Picard's failure to avoid the initial transfer between Madoff and Fairfield Sentry precluded any avoidance between Madoff and BBVA as a subsequent transferee.

Contrary to Picard's assertion that BBVA should return the $45 million it received from Madoff through "public information, as well as considerable non-public information, which raised red flags of possible fraudulent activities at BLMIS," BBVA claimed that it had in fact been another of Madoff's victims.  In fact, claimed BBVA, it had "invested $311 million in Fairfield Sentry, and, as of December 2008, still had more than $774 million invested in all feeder funds." This entire amount was lost due to the deception of the "feeder funds," claimed BBVA, which maintained it remained without knowledge as to any indication of Madoff's fraud.  

BBVA raises several interesting novel issues that have largely remained unaddressed in Picard's bevy of ongoing litigation.  The first is the contention that, without the avoidance of the initial transfer between Madoff and Fairfield Sentry, the avoidance of any subsequent transfer is precluded by both the statutory language of section 550 of the Bankruptcy Code and legislative history.  According to BBVA, Section 550(a) permits the Trustee to recover property or its value from a subsequent transferee only “to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title.”  BBVA recognizes that Picard will likely raise the issue of his previous settlement with Fairfield Sentry "and argue that the initial transfers are as good as avoided."  Yet, in weighing the language of Picard's settlement and accompanying declarations, BBVA posits that the transfers from Madoff to Fairfield not only remained unavoided, but were never avoidable. 

Next, BBVA claims that the presumption against extraterritorial application of United States laws bars the Trustee's claim to recover transfers made to BBVA.  Elaborating, BBVA claims that

[g]iven the foreign based nature of both the initial investment and the redemption, the Trustee cannot state a cause of action against BBVA unless he can make an affirmative showing that Section 550(a) has extraterritorial effect. He cannot do so. The language of Section 550(a) gives no clear indication of an extraterritorial application, and, therefore, the statute has none.    

In support of this, BBVA invokes the recent Supreme Court decision in Morrison v. National Australia Bank130 S. Ct. 2869 (2010).  In Morrison, the Court rejected years of caselaw concerning the extraterritorial application of US securities fraud legislation, stating that "[w]hen a statute gives no clear indication of an extraterritorial  application, it has none."  While Morrison dealt with the Securities and Exchange Act of 1934, the Court made it clear that a presumption against extraterritoriality applies in all cases.  BBVA analyzed Section 550 of the Bankruptcy Code under this analysis, concluding that Congress, except for very limited circumstances, did not intend for Section 550 to apply extraterritorially.

Under Federal Rules of Civil Procedure, Picard now has twenty-one days to respond to the motion.

A Copy of the Complaint filed by the Trustee is here.
A Copy of BBVA's Motion to Dismiss is here