Search
Most Recent
AdSurfDaily Agape agent American Integrity Aronson asset sales Attorney av bar reg baker bank bank of america Bankruptcy baumann bermudez black diamond blackwell bridge loan bull cattle CD celebrity cftc charity china China Voice church cityfund claims claims process clawback commission commodities commodity pool computer program congress Crown Forex currency death sentence denver diamond bar disgorgement Distribution Dodd-Frank donnan Dreier dunhill e-bullion elderly E-M Management SEC england Fairfield family FBI FDIC Fees female ponzi scheme financial advisor fine FINRA football forex fraud fufta fugitive Full Tilt gift card guilty plea GunnAllen hawaii Heckscher HSBC india invers forex janvey John Morgan JP Morgan kansas ken bell kenzie las vegas lawsuit lawyer libya Lifland machado Madoff Marian Morgan metro dream homes mets milberg millers a game Morgan European Holdings mortgage multiple schemes NCAA Net Winner new jersey notes objection Oxford Patrick Kiley paul burks PermaPave Pettengill Petters Picard poker Ponzi ponzi scheme ponzi scheme database ponzi scheme list Prime Rate profitable sunrise prosun pta puerto rico Rakoff real estate receiver receivership regulation relief defendants religion remission repeat offender restitution Rothstein RRA sec sentencing simmons sipa sipc snelling standing stanford stettin subpoena td bank telexfree treasury bonds treasury strip Tremont Trevor Cook UBS UFTA uga utah venture advisors Wachovia wilpon wire fraud woman zeek zeek rewards zeekler zeekrewards
Social
Recent SEC Releases

Entries in zeek (8)

Friday
Oct042013

Zeek Receiver Seeks To Auction Former Headquarters, Inventory

The court-appointed receiver overseeing the fallout from the $600 million Zeek Rewards Ponzi scheme has filed papers (the "Filing") seeking court approval for the public auction of real and personal property to raise funds for nearly two hundred thousand victims.  The Receiver, Kenneth Bell, has recovered over $300 million thus far, and last month announced that 174,000 victims had submitted claims for aggregate losses of approximately $550 million.  Along with the former warehouse and office of Rex Venture Group, the parent company of Zeek Rewards, the Receiver is also seeking to dispose of over 1,000 pieces of personal property that include office furniture, music, and even entertainment memorabilia.

The shutdown of Zeek Rewards by the Securities and Exchange Commission ("SEC") in August 2012 exposed one of the largest Ponzi schemes in history, if not the largest based on the sheer number of victims.  The SEC announced that, while Zeek had daily investor obligations of approximately $45 million, it had only $225 million on hand - meaning that the scheme could have collapsed within a week.  Zeek had become well known through its representations that investors could earn daily "awards" of 1.5% based on a daily commitment of no more than 5 minutes.  The scheme featured a referral-based network that rewarded users based on investors they attracted to the company, and over 1 million would join - including over 100,000 that would ultimately profit from their investment.  

After his appointment, Bell began marshaling assets for the benefit of investors.  This included securing Zeek's former headquarters, located in Lexington, North Carolina, as well as other real estate the company had purchased, such as a warehouse holding various personal property.  The Filing seeks court approval for the sale, by public auction, of Zeek's former headquarters and the warehouse, as well as the personal property collected thus far.  According to Nash Dunn at the Lexington Dispatch, this personal property includes home and office furniture, Zeek promotional material such as water bottles and coffee mugs, and approximtely 600 items relating to country music memorabilia.  

Under the procedures proposed by the Receiver, the real estate and personal property will be sold through public auction by a professional auctioneer company.  The sale, which is proposed to take place within 60 days of a court order approving the sale, will be heavily advertised and also be broadcast over the internet to ensure maximum exposure.  The Receiver cites maintenance and upkeep costs as an incentive to sell the property, as well as additional funds for the benefit of victims.

In a quarterly report filed for the period ending July 31, 2013, Bell stated he had recovered approximately $325 million for investors.

Memo in Support of Motion to Approve Sale of Real Property by jmaglich1

Thursday
Apr252013

Zeek Receiver Blasts Objections to Claims Process

"Hundreds of thousands of Zeek victims have waited patiently for months as the Receiver has completed the work necessary to provide an easy to use, fair and efficient claims process.  But yet again, it appears that counsel pursuing their own agenda has come forward to delay and raise the costs of the Receiver moving forward in the best interest of all Zeek victims."

The court-appointed receiver tasked with recovering assets for victims of the $600 million ZeekRewards Ponzi scheme addressed objections to his proposal for the establishment of a claims process, dismissing the objections as meritless and questioning the underlying motivations of those objectors.  Kenneth Bell, the receiver, asked that the Court deny the objections, which currently stand in the way of the court's approval of a claims process that could begin returning funds to the estimated 800,000 victims of ZeekRewards.  The objections come from counsel for a parallel class action that was filed on behalf of Zeek victims, captioned as Belsome, et al v. Rex Venture Group, and raise three primary issues: (1) that the proposed notice to be send to interested parties somehow violated attorney rules of professional conduct prohibiting an attorney's interaction with represented parties, (2) whether a claimant's use of an attorney is permitted, and (3) that the proposed release sought in the Claims Process is improper.

The first objection takes issue with the proposed procedure of the mailing of a court-approved notice to all potential claimants, whether or not they are represented by counsel, notifying them of the beginning of the claims process.  Belsome's counsel claims that this would violate attorney rules of professional conduct governing communication with individuals that are currently represented by an attorney.  The Receiver dismissed this claim, noting that the rule was intended to protect adverse parties, which is clearly different than the current situation where the victims are those parties that the Receiver and the Court are attempting to help.  Additionally, while not noted in the response, it is axiomatic that the Receiver functions as an arm of the Court in his official functions as Receiver.  Indeed, the Receiver notes in a footnote that the only possible basis for such an objection could whether the lawyers' financial interests

will be harmed by their alleged clients visiting the receivership website and considering whether they want to pay counsel in connection with the claims process, which is intended to be simple and easy to use.

The Receiver indicated that he has already received communications from victims expressing their fear that they may be victimized by attorneys seeking to take advantage of their uncertainty in the claims process.

Second, the Receiver brushed aside any insinuation that he was seeking to limit a claimant's access to legal representation, noting that the Belsome clients and any potential claimants are free to seek the assistance of counsel on their behalf - that is, as long as appropriate notification is provided to the Receiver of that representation.  

Finally, the Receiver addressed the objection to the release sought in the claims process.  As part of the claims process, and in exchange for a claimant being permitted to receive pro rata distributions, the Receiver is requiring each claimant to release all claims a victim has against the Receiver, his team, and the Receivership Estate.  This arises partly due to the fact that, legally, each victim currently holds a claim against the Receivership Estate for the return of their pro rata share of funds.  In essence, if a claimant was permitted to retain that claim and receive pro rata distributions, they could theoretically recover more than their losses - which would be contrary to the intent and function of an equity receivership.  Bell states that the release is narrowly tailored to address these issues, and notes that each claimant remains free to pursue claims against current or former Zeek employees or entities.

In closing, Bell again takes aim at a growing group of counsel that, in "pursuing their own agenda," have only succeeded at "delay[ing] and rais[ing] the costs of the Receiver."  Ironically, it is this same group that also has been vocal about the Receiver's costs in maintaining the Receivership.  The Receiver asks that the objections be denied, and that his motion for the approval of a claims process be granted.  

A copy of the Motion is here

More Ponzitracker coverage of Zeek is here.

Sign up for Ponzitracker's free weekly email list for continued Zeek coverage here.

Saturday
Nov102012

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.  

Thursday
Sep132012

Zeek Receiver: Nearly $300 Million Recovered, Clawbacks Likely

The receiver appointed to recover assets in the $600 million ZeekRewards Ponzi scheme announced today that he had recovered nearly $300 million in assets for eventual distribution to the estimated one million victims.  The receiver, Ken Bell, also estimated that "tens of millions of dollars more" are still unaccounted for, and hinted at their eventual recovery as well.  While victims certainly should be optimistic about the developments to date, Mr. Bell urged patience going forward, stating that "this process will take months, if not longer."

Also of note in the letter was Mr. Bell's most pointed statements to date that he intends to pursue clawback litigation against those "affiliates who took more out of Rex Ventures than they put in."  While many victims received few, if any, distributions and instead chose to re-invest their gains, some affiliates were rumored to have withdrawn tens or even hundreds of thousands of dollars in excess of their initial contribution.  Citing principles of equity, Mr. Bell declares that "in order to make everyone as whole as possible, those who profited from participating should surrender their gains" (emphasis added). Courts routinely approve the use and legal theory surrounding clawbacks, and they are very difficult to defend.

It also appears that the beginning of a claims process is near.  Mr. Bell indicated that an "information template" will be posted to the Receivership website soon that, while it will not function as an official claims form, will allow the Receivership to begin collecting victim information and also enable an accurate method of communication as the case proceeds.

Finally, and likely in response to increased and rampant speculation over recent comments made by some affiliates in which they purported to have spoken to the Receiver or the SEC about the negative merits of the case, the Receiver issued a strong statement denying the rumors.  According to Mr. Bell, false information is being circulated by these claimants" (emphasis added). Going forward, Mr. Bell urged victims to consider only what the SEC posts on its website for its position on the matter.

Ponzitracker published an article several days ago consistent with Mr. Bell's comments after having been forwarded an email that purported to contain comments attributed to the SEC concerning the "weakness" in Zeek's case.  In a conversation with a top SEC official involved in the litigation, Ponzitracker was able to confirm that the statements being circulated were false.

Monday
Sep102012

SEC Admissions Of Weakness In Zeek Case "Inaccurate"; Tactics and Motivations of Zeek Victim Group Questioned

On August 17, 2012, the Securities and Exchange Commission (“SEC”) filed an emergency enforcement action to shut down ZeekRewards (“Zeek”), calling it a massive $600 million Ponzi scheme.  According to the SEC, while Zeek promised participants a daily payout of “net profits,” these profits were nearly exclusively derived from the funds of new investors – the classic hallmark of a Ponzi scheme.  At the SEC’s request, the court then approved the appointment of Ken Bell as the receiver, who would be tasked with gathering and safekeeping assets for eventual distribution to victims. 

Emotions have run high since Zeek’s shutdown, as many lament their losses amid what was such a promising operation that seemingly defied the age-old “if it’s too good to be true..” mantra.  However, a select (and growing) group has taken their dissatisfaction to another level, soliciting the assistance of other victims to fight the “illegal” and “unlawful” actions taken by the SEC.  While their rousing rhetoric is critical of the SEC, recent representations made regarding the SEC's handling of the case may have crossed the line from opinion to misrepresentation.  Indeed, an SEC official briefed on the claims by Ponzitracker explicitly refuted such allegations.

Shortly after the SEC stepped in, several groups, including “Zeek Rewards Affiliates United Against The SEC” and “Zteambiz” were formed, and appear to operate in tandem.  Zteambiz describes itself on its website, www.zteambiz.com, as “a professional organization designed to secure competent legal counsel to prevent further damage caused by the actions of the SEC actions against Rex Venture Group aka, Zeek Rewards.”  Dave Kettner and Robert Craddock are several of the individuals behind these sites, as evidenced by multiple postings attributed to them.  Using the site, both have solicited Zeek victims to “donate” towards a fund being set up to retain a top law firm to fight the SEC’s allegations and reopen Zeek.   A September 5, 2012 update from Kettner implored victims to donate if possible to be added to the “protected group.”  The response seems to have been positive, and on August 30, 2012, a notice was posted indicating that SNR Denton, a well-known international law firm, had been retained:

“Important notice:

SNR Denton US LLP represents Fun Club USA and all inquiries about this representation should be directed to Fun Club USA at xxxxxxxxx. SNR Denton’s legal representation is limited to Fun Club USA; SNR Denton does not represent and does not have an attorney-client relationship with affiliates of Zeek, Zeek Rewards, Rex Venture Group LLC or with any individual or party that chooses to provide funds to Fun Club USA.”

The notice is seemingly at odds with representations contained in the "People Helping in the Legal costs” tab on Zteambiz, which indicated that those who had donated – numbering over 6,000 as of September 1, 2012 when it was last updated – were “now being represented by counsel, to protect their moneys (sic) earned by Zeek Rewards and monies currently held by Zeek Rewards.”  The notice, which has since been removed, was clear that “SNR Denton’s legal representation is limited to Fun Club USA."  A quick search on Florida’s Division of Corporations website yielded a “Fun Club USA Inc.” registered on August 28, 2012.  The President of Fun Club, as shown on its Articles of Incorporation?  Robert Craddock. 

Zteambiz has been vocal in its criticism of the SEC, alleging that “all the pages that were submitted…by the SEC that froze the assets of Rex Venture Group, LLC has all been one sided and what we believe to be a misrepresentation of the truth and facts of what Zeek Rewards was as a viable and legal business.”  Additionally, Zteambiz claimed that “the SEC mislead (sic) the judge” in securing an emergency asset freeze.

This past Saturday, an email from “Dave” updated recipients based on information recently learned from Craddock.  One of the first revelations was that SNR Denton had decided to no longer represent Zeek, reportedly due to the “tons of calls” received by the firm from victims that interfered with Denton’s “entire law firm operations.”  A new law firm was said to be in the works, whose identity would remain a secret until court filings were unveiled “early next week.”  What piqued the interest of many, however, were the representations made immediately after.  The paragraph is reproduced below:

Here is the great news...The law firm has already talked to the SEC and the NC DOJ. On Thursday, Robert got a call from one of our attorneys regarding the conversation that he had with the SEC. Here
is what he said:

The SEC acknowledged that there are a couple of problems with the case against Zeek Rewards and Rex Venture group. Here are the problems:
1.    We (the SEC) are not able to find a victim in this case. We are not able to find anybody at this time that has been harmed by Zeek Rewards.
2.    We (the SEC) are having a hard time finding a security. In the complaint, it said that Zeek was selling securities and was an investment scheme.
Based on their (the SEC) new knowledge of the Zeek Rewards business model, they are having a hard time moving forward in making their case. And they are now looking for a path or way to back out of this.

These apparent admissions by the SEC quickly spread over the internet, with dozens of websites frequented by the multi-level marketing community accepting the statements as fact and quickly proclaiming that the SEC was close to capitulating.  

The claims seem skeptical for several reasons.  First, it is highly unlikely that these kind of admissions would be made to a potentially adversarial party and/or attorney.  Second,  both Rex Venture Group and Paul Burks have each already entered into a consent judgment agreeing to waive any right of appeal, and, in Burk's case, paying a $4 million civil penalty.  Further, a link to an information page established by the SEC now features prominently on the SEC's homepage, www.sec.gov.  

These suspicions were confirmed today after Ponzitracker spoke with a top SEC official familiar with the case.  After reviewing the allegations, the official, who declined to be named, labeled the statements as "inaccurate" and "false".  Additionally, it would be highly impractical for the SEC to make such moves and statements without allowing the receiver to complete his initial investigation and make appropriate recommendations.

Craddock is no stranger to controversy in his affiliation with Zeek and Rex Venture Group.  Several months before Zeek was shut down by the SEC, a blogger who goes by the name of KSChang posted an article presenting a detailed look into the legitimacy of Zeek.  The article contained a wealth of information about Zeek, its past, and, perhaps most prescient, asked whether "ZeekRewards [is] a Ponzi Scheme?". However, shortly after the article was published, the site's administrator received a letter from a person purporting to act on behalf of Rex Venture Group alleging that:

It has come to our attention that your website Hubpages.com is broadcasting and delivering content that is both copyrighted and, Trademark Protected. In addition, the content constitutes a tortuous interference with us and our 1.2 million independent advertising reps around the world.

The following page was brought to our attention yesterday (July 21, 2012) and we would request this page to be removed before greater damage is done to our business model and reputation. 

The author of the letter?  Robert Craddock, on behalf of Rex Venture Group LLC.  The letter succeeded temporarily, as the article was removed by the site administrator while the claim was investigated.  Apparently not satisfied with the allegations, the article was allowed back online after six days.  KSChang provided a summary of his efforts while the site was down:

When I requested details from this person, he said he couldn't POSSIBLY create a list of what's untruthful or libelous and why about the hub by Monday. (I contacted him on THURSDAY). When I pressed for more details, he replied with veiled legal threats about "pursue all legal venues".

Less than three weeks later, the SEC confirmed the article's skepticism and shut down Zeek.  

The 9/8/2012 email is here.

The Fun Club USA Articles of Incorporation are here.

The "takedown" letter sent by Craddock is here.

Recent Zeek Coverage:

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