The receiver appointed to recover assets for victims of the $600 million ZeekRewards Ponzi scheme has posted a letter on his website providing an update to investors and indicating that he intends to vigorously pursue those who received profits from the scheme - profits he estimates are in the hundreds of millions of dollars. Kenneth E. Bell, appointed by United States District Judge Graham Mullen, disclosed that the total amount recovered thus far exceeds $300 million and is likely to increase while he pursues additional funds being held in financial institutions. Additionally, Mr. Bell indicated that once victims completed a court-approved Official Claim Form, he would proceed with a preliminary and partial distribution rather than make one final distribution at the conclusion of the Receivership.
Pegging the number of true victims who lost more in the scheme than they were able to withdraw as approximately 800,000, the Receiver estimated that total losses ranged from $500 million to $600 million. For those victims, the Receiver indicated that an Official Claim Form will be posted to his website once he received Court approval. There will likely be a deadline for victims to submit their completed Form, after which the Receiver indicated he will proceed with a preliminary and partial distribution. It appears as if the affiliate User ID's will be used as a method of identification for victims, as Mr. Bell refers to those IDs several times in his letter.
While the updates on Mr. Bell's intent to proceed with a claims process are similar to what he has indicated in prior updates, today's update provides a wealth of new information surrounding those investors whose withdrawals/distributions from Zeek exceeded their initial investment. In a Forbes article I posted shortly after the scheme was uncovered, I estimated that the prospect of "clawback" lawsuits was "amost certain" once the Receiver had completed his initial investigation. While Mr. Bell later confirmed that he would be pursuing those affiliates "who took more out of Rex Ventures than they put in," he did not provide specific numbers on the amount of potential clawback victims or recovery.
Apparently having completed his initial investigation, the Receiver disclosed that "there are more than 100,000 User IDs" that took more out of the scheme than they invested. While declining to provide specifics on the potential amount of clawback recoveries, Mr. Bell did disclose that the 'false profits' enjoyed by these individuals numbered in the "hundreds of millions of dollars." Mr. Bell indicated that subpoenas would be sent out "this week" to approximately 1,200 of these likely clawback targets, seeking documentation of financial dealings with the scheme and, if necessary, depositions and litigation.
While not mentioned in the letter, it is likely that these 1,200 individuals received the highest amount of distributions from the scheme. Additionally, in an attempt to allow settlement without litigation, a letter will also be included with the subpoena offering the possibility of negotiating the voluntary surrender of profits without litigation. While the letter does not elaborate, it is likely that a slight discount will be offered as an incentive to avoid litigation costs. These 1,200 likely represent the first batch of clawback targets, as Mr. Bell also indicated that subpoenas and demand letters will be served on "thousands more" in the upcoming weeks.
With over $300 million in the bank and an estimated "hundreds of millions of dollars" in potential clawback recoveries, there is an increasing possibility that Zeek victims could eventually recover an amount close to, if not equal to, their net investment. While Mr. Bell was quick to caution against counting on a 100% recovery, he stated that "if we don't it won't be for lack of trying."
The Receiver's letter is here.