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Entries in zeekrewards (6)

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.

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

Wednesday
Sep052012

ZeekRewards Update: Banks Report Account Balances, Receiver Takes Fight For Cashier's Checks To Court

It has now been over one week since Ken Bell, the court-appointed receiver overseeing ZeekRewards ("Zeek"), held a press conference to brief various members of the media about this progress thus far and plans for the near future. In his remarks, Bell indicated that one of his main priorities going forward was to continue gathering assets for eventual distribution to victims. This included cashiers checks deposited, but not cashed, by Zeek investors just before the scheme's collapse. Following the press conference, Mr. Bell posted an update to his website that included a letter updating investors and additional answers to investor questions.

Since that meeting, a review of the court docket reveals that the recovery of assets continues to be the focus of Mr. Bell and his team. In the past ten days, various financial institutions have submitted sworn statements in response to the court's earlier asset freeze indicating how much, if any, Rex Venture Group ("RVG") maintained in bank accounts. RVG is the parent company of ZeekRewards. Those reports, from institutions such as Charles Schwab and NewBridge Bank, showed that tens of millions of dollars were currently being held in the name of RVG or Paul Burks, Zeek's founder. Additionally, Mr. Bell's lawyers have sparred with Burks in an attempt to gain control of his personal assets.

Shortly after the Securities and Exchange Commission ("SEC") filed suit against Zeek, United States District Judge Graham Mullen issued an order appointing Mr. Bell as receiver. That order listed the various assets over which Mr. Bell would have authority over, including assets held or fraudulently transferred by RVG. These orders are standard in receivership proceedings, and their wording rarely varies. However, Zeek was somewhat unique, in that it highly encouraged the use of cashier's checks to fund a new investor's account. Different from personal checks, a cashier's check operates like cash upon endorsement by the maker. According to the receiver, "numerous" cashier's checks and other forms of payment potentially totaling several million dollars were received either on or after the date the SEC shut down Zeek, Because of this, Mr. Bell sought the Court's approval (the "Motion") to clarify the language of the order appointing receiver to explicitly include those forms of payment as receivership assets.

The Motion also sought to freeze assets in possession of Burks and other third parties, including his family members. In support, Bell noted that while Burks was estimated to have secretly misappropriated roughly $11 million from Zeek, nearly $7 million of that sum was no longer in Burks' possession or control, including $1 million transferred to certain family members.

Not surprisingly, while Burks did not object to the inclusion of uncashed cashier's checks into the receivership estate, he strongly opposed any attempts to now "include Mr. Burks' personal accounts." Noting that the receiver's basis for this request centered on the SEC's allegations in its complaint - which Burks had neither admitted nor denied in his settlement with the SEC as is typical of SEC judgments - Burks' attorney argued that no other evidence existed in support. Additionally, Burks noted that, in addition to the $4 million penalty paid to settle the SEC's allegations, the IRS received more than $5 million in income tax assessments for 2011 and 2012. Arguing that Mr. Bell was overreaching, Burks' lawyers touted his roots in Lexington, marital status, recent successful bouts with cancer, and lack of prior legal troubles. In other words, Burks was not a flight risk.

Apparently swayed, Judge Mullen declined to grant the receiver's request to include Burks' personal accounts in the asset freeze, but did allow the amendment of language in the order appointing receiver to include cashier's checks and other forms of payment as receivership property. However, the receiver certainly has the ability to bring future lawsuits against Burks and/or his family members once he has completed his analysis of Zeek's financial records and been able to trace the flow of assets in and out of Zeek. This investigation is expected to take weeks, if not months, to complete.

The Receiver's Motion to Amend is here.

Burk's Response is here.

Judge Mullen's Ruling is here.

Monday
Aug202012

ZeekRewards Victims: What Happens Next


"“It's a process...We're going to try to gather as much money as we can and figure out who deserves what.”

Kenneth Bell, Court-appointed Receiver of ZeekRewards


The Securities and Exchange Commission ("SEC")'s shutdown of ZeekRewards last Friday left many of the estimated one million victims shocked and confused, with many still refusing to believe that they had fallen victim to one of the largest Ponzi schemes in history. With the SEC alleging that Zeek's cash reserves were far insufficent to cover the nearly 3 billion "profit points" accumulated by members, it will be up to the court-appointed receiver to begin the arduous task of trying to recover assets for the benefits of victims. The Receiver has already indicated that the process will likely "take a long time." A court-ordered asset freeze on the $225 million currently held by Zeek in various financial institutions ensures that victims can be assured of at least some recovery.

The establishment of a receivership is common in the wake of an exposed Ponzi scheme. Usually simultaneously with the filing of charges, the SEC also requests the appointment of a receiver. In this case, the SEC chose Kenneth Bell, a North Carolina attorney with law firm McGuireWoods who is experienced in white collar fraud. According to Lexington newspaper The Dispatch, Bell visited Zeek headquarters for the first time today. There, Bell likely took possession of investor files and office computers, which he will try to use to piece together to fully understand the scheme. Bell also announced that he will be establising a website, www.zeekrewardsreceivership.com, where he will communicate with all concerned parties. At the time this article was published, the website was not yet live.

Likely due to the staggering amount of victims, Bell also stated that communications with investors would be through email only, and provided this address for victims: info@ZeekRewardsReceivership.com. Before any distribution process can be established, it is likely that Bell will first provide the court with a report on his investigation and findings. This process will likely take weeks or months.

In addition to any funds recovered by the Receiver, both the SEC and Department of Justice ("DOJ") allow for any funds forfeited or paid as penalties to be returned to investors. In the context of an SEC proceeding, this is known as a "Fair Fund", while the DOJ process to return funds to victims is known as remission. For those familiar with the AdSurfDaily Ponzi scheme, which was similar to ZeekRewards in that it purported to pay investors daily returns in exchange for visiting websites daily, those investors received approximately $55 million in funds seized by the Department of Justice from foreign bank accounts.

After the Receiver completes his initial investigation, he will then begin the process of recovering assets for the benefits of victims. These efforts may include securing or disposing of property owned by Zeek and/or Burks. Additionally, there is also the possibility that the Receiver could employ the use of "clawback" lawsuits, which target those investors that withdrew funds in excess of their initial investment. This will especially be important in the context of Zeek, where those that invested early in the scheme and grew their "downline" affiliates likely received exponential returns exceeding their original investment. Mr. Bell said that it was still unclear as to whether clawback lawsuits were likely. He may also look to financial institutions or other third parties who were involved with Zeek that ignored or should have noticed "red flags" relating to the scheme.

In the near future, many will simply be waiting for word from the Receiver as to his initial findings. Some investors have already begun to secure legal representation as well. Kevin Thompson, a well-known attorney in the direct sales industry who operates themlmattorney.com, indicated that he had already been contacted by 2,000 victims seeking help whose losses ranged from $500 to $70,000. Many of these stories, according to Thompson, were "heartbreaking", and involved many victims who had cashed out their retirement accounts to invest in Zeek. Thompson estimated that there could potentially be up to 1.2 million victims.

The North Carolina Attorney General's ("NCAG") office has also warned Zeek's victims to be wary of "reload scams", which purport to "help them replace the income they were receiving from Zeek Rewards." Some of these programs even refer to themselves as the "Zeek rescue program." The NCAG urged investors to cut their losses rather than lose even more.

The Receivership website will be established at www.zeekrewardsreceivership.com. All investors seeking to contact the Receiver should email info@zeekrewardsreceivership.com.

A statement released by the Receiver this evening is here.