Zeek Receiver Releases Preliminary Claim Form and Details on Claims Process

As promised in his quarterly report filed yesterday, the court-appointed Receiver for ZeekRewards has filed his Final Liquidation Plan ("Plan") that details his plans to liquidate the assets of the entity behind the scheme.  In the Plan, Kenneth Bell, the Receiver, provides the clearest indications to date as to how he plans to administer what is thought to likely be the largest claims process in the context of a Receivership action with nearly 1,000,000 victims having a possible claim to recovered funds. Additionally, the Receiver has also released 'screenshots' of the expected claim form that will soon be provided to victims once the Court has approved the claims process.

One of the biggest questions surrounding the institution of a claims process for such a staggering amount of victims concerned the process by which such an undertaking would proceed.  Perhaps anticipating the sheer amounts of paper that would be involved in mailing and overseeing close to one million claim packets, the Receiver indicated he would seek approval of electronic noticing procedures and an online claims submission process.  Noting that the underlying nature of Zeek was an internet business, the Receiver expects to use investor email addresses both previously provided to him and those retrieved from the computer systems maintained by Zeek.  Interested parties would be provided the address to a unique and customized claims website.

The screenshot attached to the Plan contains the depiction of a multi-step process to file a claim.  After filling out claimant information and registering various contact information, a claimant would identify the type of claim they have from seven listed categories.  For affiliate claims, which are believed to be the majority of the claims, the claimant would be required to provide a variety of specific details related to various purchases made, including subscription fees, sample bids, retail bids, auction items purchased, and training materials.  Once the total amount of each category is listed, the claimant will then be required to list the date, amount, and reason for each payment and the corresponding payment type.  Cnce all payments to Zeek have been provided, the claimant will then be required to list all payments the received from Zeek, the reason, and the payment type.  

After this information is provided, the Claimant will be required to answer several questions relating to their involvement in Zeek.  This includes:

• A list of all usernames they created;
• A list of all lawsuits or legal proceedings they are involved in;
• Whether they were an employee or officer, or related to any employee or officer of, Zeek;
• Whether they sponsored or assisted any entity or person become an affiliate; 
• Whether they paid cash to Zeek on behalf of any other entity or person;
• Whether another person or entity paid cash to Zeek on their behalf or transfer bids to their account; and 
• A listing of their upline/downline.

Importantly, the Receiver requires not only that the submission of the claim form constitutes consenting to the jurisdiction of the Court, but also that the answers are submitted under penalty of perjury.  Some or most of these answers are likely to have a direct effect on whether a claim is rejected or accepted.

Each claimant will have the ability to upload supporting documentation, and upon completion will receive a receipt by email indicating that the claim was received.

While engaging the services of an attorney is certainly not required, it may be recommended to ensure not only that victims receive the maximum amount they would be entitled to, but also to monitor compliance with court deadlines which are historically strictly enforced.  Those with questions are encouraged to contact Jordan D. Maglich at jmaglich@wiandlaw.com.  

A copy of the Claim Form screenshots is here.

A copy of the final plan is here.

Zeek Receiver Issues Quarterly Report; Claim Form Expected Today

The court-appointed receiver for the $600 million ZeekRewards Ponzi scheme filed a quarterly report yesterday that provides a clear recap of his efforts to date, including asset recovery, the ongoing investigation, and clawback litigation.  The Receiver, Kenneth Bell, was appointed on August 17, 2012, and has since been tasked with the Herculean effort of reconstructing a complex Ponzi scheme that counts over one million investors as victims and over 80,000 that were fortunate enough to realize a profit.  A key part of the report, in what is undoubtedly a topic of interest for these victims, outlines Bell's progress on establishing a claims process by which victims may be able to recoup some or more of their losses.  Of note, a sample claim form is expected to be filed today.

Asset Recovery Efforts

Bell first outlined the progress of his asset recovery efforts, indicating that Receivership bank accounts under his control held approximately $310 million.  This amount includes $221 million that had previously been seized by the United States Secret Service and was transferred to Bell's control on January 15, 2013.  All cashier's checks in Bell's possession have been cashed, and efforts are ongoing to recover funds held by various third parties including E-Wallets and various foreign bank accounts.  At least one foreign entity is believed to hold over $12 million belonging to the Receivership and has resisted the Receiver's efforts thus far to return those funds.  Bell indicated that he has enlisted the assistance of the Secret Service, the SEC, and the U.S. Attorney's Office for those recovery efforts.

Clawback Litigation

Clawback lawsuits remain ongoing, and Bell clarified that he had filed proper paperwork in each of the 93 federal districts where he believes Receivership assets may be located and subject to recovery.  Bell's investigation has revealed that at least $295 million may have been fraudulently transferred to "net winners" and thus subject to clawback claims.  In the clearest indication of how he intends to pursue clawback actions against the estimated 80,000 potential clawback targets, Bell indicated that

the Receiver’s clawback litigation is likely to be a combination of individual actions, group actions, defendant class actions, and possibly administrative damages hearings. Such proceedings will establish the key findings applicable to most, if not all, recipients of fraudulently transferred funds (findings such as the existence of a Ponzi and/or pyramid scheme). They will also separately provide a forum for the efficient determination of the proper amount of each net-winner’s repayment obligation.

The Report also states that foreign "net winner" will also be pursued, both as parties to domestic litigation based on their connections to Zeek in the United States and through foreign litigation where necessary.  Many of the foreign litigants' countries of residence are signatories to the Hague Convention, which provides an established method to provide service of process.  Bell also indicated that he is considering claims against not only Zeek's 'insiders' such as employees and contractors, but also third-party advisors that "knew or should have known of the inappropriate nature of [Zeek's] activities and yet facilitated those activities for their own gain."  While Bell did not expand further on the potential third-party targets, the potential claims he identified suggest that Bell may pursue law firms, accounting firms, and/or payment processors.  

Claims Process

During a public conference call held on December 17, 2012, Bell devoted substantial time to providing information about an upcoming claims process by which victims could submit claims for their losses and receive future distributions.  While Bell had hoped to make these submissions by the end of January 2013, he indicated in the Report that, due to the extensive and time-consuming efforts to reconstruct receivership records that will form the basis for the claims process, he now hopes to make these filings at the conclusion of March, 2013.  With more than one million potential victims, Bell estimates that "the claims process may comprise the largest single expense for the Receivership Estate."  

Bell did say that he intended to file "screenshots" of the draft online claim forms that will be an exhibit to the Final Liquidation plan which Bell plans to file today, January 31, 2013.  Assuming the Final Liquidation plan is not filed under seal, these forms may provide the first indication for investors as to both the information Bell currently has relating to investor claims and the required information needed to dispute or affirm these calculations.  Ponzitracker will be providing both coverage and guidance as to these claim forms.

As indicated above, the Receiver's Final Liquidation Plan is due to be filed today.  

A copy of the Quarterly Report is here.

Previous Ponzitracker coverage of Zeek is here.

Associated Bank Sued For Facilitating $194 Million Ponzi Scheme

The court-appointed receiver for Trevor Cook's $194 million Ponzi scheme filed a lawsuit against banking behemoth Associated Bank (the "Bank"), alleging that the Bank played a key role in the success of Cook's scheme and providing an aura of legitimacy.  R.J. Zayed, the court-appointed receiver for Cook's scheme, filed a heavily-redacted complaint today against the Bank, which is popular in northern states such as Wisconsin, Illinois, and Minnesota.  Zayed alleges the Bank "knowingly aided and abetted one of the largest Ponzi schemes in Minnesota's history" by ignoring a multitude of red flags that should have prompted an investigation.  

The Bank faces charges of aiding and abetting fraud, aiding and abetting breach of fiduciary duty, aiding and abetting conversion, and aiding and abetting false representations and omissions.  Zayed is seeking a jury trial, and alleges that the Bank's assistance allowed Cook's scheme to take in over $79 million.

Cook, along with several co-conspirators, pitched Crown Forex, SA ("Crown Forex") to potential investors as a risk-free foreign currency trading program that promised guaranteed 10% annual returns.  Cook later contacted Bank officials to discuss opening an account in the name of Crown Forex in order to receive investor funds.  According to Zayed, what followed was a pattern of "atypical banking activities" that, combined with other circumstantial evidence, represented actual knowledge by the Bank of Cook's scheme that was ignored in favor of the lucrative business brought in by Cook's scheme.  This included:

• Servicing of the Crown Forex account despite lacking the required Secretary of State documents;
• Transferring funds between the Crown Forex account and Cook's personal account, and in one instance allowing Cook to stuff $600,000 in cash in a box to allegedly go buy a yacht,
• Not a single penny being transferred from the Crown Forex account held in Switzerland, as originally promised, and instead only the repeated transfer of millions of dollars between Cook's personal account and other co-conspirator accounts; and
• Numerous suspicious transfers that should have triggered the Bank's obligations under anti-money laundering policies or the Bank Secrecy Act.

Roughly half of the factual and legal allegations in the complaint are redacted.  Zayed also points to the fact that the Bank recently entered into a Consent Order with the Comptroller of the Currency of the United States of America stemming from its failure to comply with Bank Secrecy Act requirements and anti-money laundering procedures.  

Along with alleging that the Bank was responsible for at least $79 million flowing through the Crown Forex account, Zayed is also seeking punitive damages, civil penalties, and pre- and post-judgment interest.  

A previous suit brought by several of Cook's victims was dismissed in Aoril 2010 after a state judge found that the Bank had no duty to non-customers.

A copy of the complaint is here.

Guilty Plea in Home-Flipping Ponzi Scheme

An Arizona man entered a guilty plea to charges that he orchestrated a house-flipping Ponzi scheme that defrauded investors out of nearly $2 million.  Jere Parkhurst (f/k/a Jere Sessions) pled guilty to a single count of wire fraud in a criminal proceeding that was originally spawned from a series of civil lawsuits brought against Parkhurst by disgruntled investors.  After criminal authorities caught wind of the scheme, Parkhurst was indicted in 2011 on seventeen counts of wire fraud and ten counts of money laundering. Both wire fraud and money laundering each carry a maximum potential sentence of twenty years in prison along with a criminal monetary fine.

Parkhurst owned and operated several companies that included C Street Holdings, LLC; Capital Real Estate Co. LLC; and Phoenix Financial Holdings (the "Companies").  Beginning in late 2006, Parkhurst began soliciting potential investors for what he described as the remodeling and resale of historic homes in the Phoenix area.  Investors were promised annual returns that ranged up to 25%, which in turn attracted other investors as original investors began spreading word about their success.

However, according to authorities, Parkhurst misrepresented the use of investor funds, and instead operated the classic Ponzi scheme by using incoming investor funds to make interest and principal payments to existing investors.  Additionally, when Parkhurst actually did use investor funds to purchase real estate, he failed to keep current on mortgage, utility, and insurance payments.  When the real estate market began to head south, Parkhurst fell further behind in scheduled interest payments, which resulted in the filing of several civil lawsuits by burned investors.  Federal authorities began investigating Parkhurst and the Companies soon thereafter.

In a troubling lesson of how valuable it can be for an investor to conduct due diligence before entering into any investment venture, one newspaper reported that several civil judgments had been entered against Parkhurst and his wife beginning in 2004 - several years before the scheme was hatched.  Such judicial records are easily retrievable by conducting an online records search.

Parkhurst is scheduled to be sentenced April 15, 2013.  

Judge Rejects Ponzi Schemers' Settlement With SEC Over "Neither Admits Nor Deny" Language

I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial.

- U.S. District Judge John L. Kane

In what is believed to be the first of its kind in Ponzi scheme jurisprudence, a federal judge refused to ratify a proposed settlement reached between the Securities and Exchange Commission ("SEC") and two men accused of masterminding a $15 million Ponzi scheme because the agreement lacked any admissions of guilt.  United States District Judge John L. Kane issued a terse order denying an unopposed motion to enter final judgments against William P. Sullivan and Jane K. Turnock, who were accused of using their company, Bridge Premium Finance, to operate an insurance premium-financing Ponzi scheme.  The rejection is the latest instance of a growing judicial opposition to the use of the "neither admit nor deny" language, which was most famously on display when U.S. District Judge Jed S. Rakoff rejected the SEC's proposed settlement with Citigroup in December 2011 and eloquently noted that the court would not be “a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth…”

From 1996 to 2012, Turnock and Sullivan solicited potential investors to invest in BPF, telling them that their investment would be used to provide capital for BPF's insurance premium financing business. Investors were given promissory notes that promised annual interest payments of 12%, and were told that the investments were safe, conservative, and "100% collateralized."  In total, BPF raised nearly $16 million from more than 100 investors in multiple states.  However,  the insurance loan portfolio generated insignificant returns, and the SEC alleged that BPF was nothing more than a classic Ponzi scheme, using incoming investor funds to make interest and principal payments to existing investors. Indeed, in a telephone call with an investor as the scheme was on the brink of collapse, Sullivan admitted "your money is all gone.  This is a Ponzi scheme."

The SEC filed an emergency enforcement action in August 2012, charging Turnock, Sulliva, and BPF with multiple violations of federal securities law and seeking various relief including disgorgement and civil monetary penalties.  In a motion filed with the court on January 15, 2013, the SEC sought to have the court enter final judgment against the two and indicated that they had agreed to an order to pay over $12 million.  The proposed agreement contained the common "neither admit nor deny" language that has been traditionally employed by the SEC in civil actions.  The language is favored by defense attorneys and the SEC alike because such admissions would have adverse consequences for the accused in ancillary civil litigation (and likely doom the chances of settlement). 

However, in a sharply-worded order that echoes the rising sentiment among the federal judiciary against such agreements, Judge Kane refused to accept an agreement against "a defendant who remains defiantly mute as to the veracity of the allegations against him."  Ironically, as noted by Alison Frankel of Reuters, Judge Kane's position is contrary to his previous stance in 2011, when he approved a similar settlement that did include the questionable language.  In explaining his position, he cited similar concerns expressed by Judge Rakoff, noting that he was particularly troubled by the waiver for any entry of findings of fact and conclusions of law that have traditionally served to inform the public.  

While Judge Kane indicated that "future motions omitting the unacceptable language...will be entertained," it is more likely that the SEC will pursue appellate review, as it did after Judge Rakoff rejected the Citigroup settlement.  There, the Second Circuit has already indicated its inclination to overturn Judge Rakoff, stating that 

We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.

Oral argument is currently scheduled before the Second Circuit in that case for February 9, 2013.

Similar results have been on the rise since Judge Rakoff's ruling, with at least three federal judges rejecting SEC settlements on similar grounds.

A copy of Judge Kane's Order is here. 

A copy of the SEC complaint is here.