Some investors in the $194 million Ponzi scheme orchestrated by Trevor Cook recently learned that, as a result of a clerical error by the U.S. District Clerk's office in making interim distributions, they inadvertently received more than the allotted pro rata share that was due to each investor. As a result, the Receiver and the U.S. Treasury are now demanding that overpaid investors return the excess funds. The problem is, not all investors are complying.
R.J. Zayed, the receiver appointed to recover and marshal funds for victims of Cook's scheme, has been receiving assistance in preparing the interim distributions to investors from the District Court clerk's office by order of Chief U.S. District Judge Michael Davis. Judge Davis reasoned that, by enlisting the assistance of the clerk's office, the Receiver would avoid the expense associated with the immense amount of work preparing distributions to the 723 investors determined to have suffered losses in Cook's scheme. The process worked without issue for several distributions in 2010 and 2011.
The receiver recently settled with two financial firms, Western International Securities, Inc. ("Western") and NRP Financial, Inc. ("NRP Financial"), who he alleged provided substantial assistance to Cook and other individuals behind the $194 million scheme. After reaching the settlements, which raised nearly $2 million for investors, Zayed petitioned the court for authority to distribute the funds to investors with allowed claims. Following court approval, the clerk's office prepared and mailed distribution checks to investors. However, an apparent administrative error resulted in 92 investors receiving underpayments and 91 getting overpayments. To complicate matters, the U.S. Treasury Department, which issued the checks, will not cover the deficits owed to the underpaid investors until the excess payments have been returned. While most overpaid investors have complied, some have resisted, leading the receiver to remark that, while he had limited power to correct the situation,
the United States Treasury Department will collect the money back from them one way or another -- and that is not an outcome that will be good for anybody.
This marks the fourth distribution made by the receiver to Cook's defrauded investors. The first three distributions resulted in pro rata distributions to investors of 1.58%, .71%, and .95%, respectively. With the most recent settlement representing a distribution of .8% of an investor's allowed claim, the cumulative distribution to investors thus far still remains under 5% at 4.3%.
From 2005 to July 2009, Trevor Cook masterminded a Ponzi scheme that solicited investors by promising above-average returns through a foreign currency trading program known as Universal Brokerage Services ("UBS"). Through the efforts of Cook and several co-conspirators, approximately $194 million was contributed by investors. Of this $194 million, roughly half was actually used for currency trading, while nearly $70 million was lost in higher-risk trading and $52 million was paid out to investors in fictitious interest payments. Cook was sentenced to 25 years in federal prison in August 2010; the trial of three of his co-conspirators began in mid-April.
The Receivership website is located here.
The Receiver's history of distributions is here.