One of the individuals leading an advocacy group openly critical of the Securities and Exchange Commission’s (“SEC”) handling of the alleged $600 million Zeek Rewards Ponzi scheme has reportedly been subpoenaed to appear before the SEC. The individual, Robert Craddock, made this disclosure in a September 22, 2012 mass email directed to victims who have rallied behind claims that the SEC may have mis-handled the case. While the SEC did not provide the reason for the subpoena, some have speculated that recent comments attributed by Craddock to the SEC concerning purported admissions of fault in the SEC's case against Zeek which were later refuted may have piqued the SEC's interest.
The SEC shut down Zeek in mid-August, alleging that the operation was nothing more than an elaborate Ponzi scheme that paid existing investors with funds raised from new investors. The same day the SEC filed its complaint containing these allegations, it also disclosed that the two defendants, Rex Venture Group, which was the parent company of Zeek, and Paul Burks, the company's founder, had agreed to enter into consent judgments to resolve the case without admitting or denying the conduct alleged. Burks also agreed to pay a $4 million civil penalty. With the cases against RVG and Burks all but resolved, the SEC then obtained the court's approval to appoint Kenneth Bell as receiver over Zeek's assets.
However, within days after Zeek was shut down, several groups were formed protesting Zeek's shutdown and rallying victims by promising to take action. The groups appeared to be operating in tandem, and one group, "Zeek Rewards Affiliates United Against The SEC," claimed that the SEC had "mislead" the federal judge overseeing the Zeek case and began soliciting funds from victims for the establishment of a "united legal front" to petition the court to re-open Zeek. The group, in conjunction with Zteambiz.com, claimed it was formed by the "leaders of Zeek Rewards," and promised that "donating anything from $20 dollars to $100 dollars (sic) will allow us to hire one of the best if not the best firm in the country to protect us." The quest seemed to be quite successful; in a chart posted on Zteambiz (but later removed), it appeared to show that at least 6,000 victims had contributed a minimum of $20 towards this "legal fund" – if true, this indicates that over $100,000 had been raised.
As the group grew in number, the regular updates continued to lambaste the SEC's handling of the case and appeal for donations. An August 25th message from another "leader" of the group, Dave Kettner, promised recipients that information would be provided "which will disprove everything the SEC has stated”, and, in return for their donation, they would be "part of the protected group who will be fully represented by our law firm that will be retained."
However, it was a September 8th update that gained immediate attention when a law firm purportedly hired by the group disclosed several "facts" to Craddock in a phone call, including:
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.
If true, the SEC would be taking the nearly-unprecedented step of admitting a massive mistake even though the company and individual behind the alleged scheme had already entered consent judgments in which they did not deny the allegations made. However, several issues with the revelation raised suspicions, including that such admissions would be highly unlikely to originate from the SEC and especially to an unrelated party to the civil proceeding. Ponzitracker confirmed these suspicions several days later during a conversation with an SEC lawyer involved in the case who categorically denied the allegations as "inaccurate" and "false". A later update from Zteambiz decried the "junk and lies being posted around the internet," and began directing victims to join a private mailing list to avoid future updates from being posted publicly.
The group continued to criticize the SEC, and in a September 12, 2012, update, Dave Kettner urged victims to "disregard" letters from the receiver, Ken Bell, as they were "nothing important." An update several days later on September 18th from Craddock cautioned victims not to "fall for the trap the receiver would like everyone one (sic) of you to fall into," questioning why victims should fill out a claim form for the receiver "thus saying they were a victim." Just after that announcement, Craddock reported that he had been served with a notice to appear in front of the SEC - the timing of which he deemed "highly suspect."
According to Washington, D.C. white collar defense lawyer Mark Schamel with Womble Carlyle Sandridge & Rice, assuming Craddock did indeed receive an SEC subpoena, “he has picked up a sufficiently large stick to poke the tiger in the eye." By making statements to a mailing list of likely thousands of victims purporting to contain admissions of fault by the SEC and urging non-compliance with the court-appointed receiver, the SEC may have felt it had no choice but to act to prevent the spread of misleading information on such a large scale, especially in the infancy of what may be the largest receivership proceeding ever conducted. While Craddock is certainly entitled to make the statements, according to Schamel, "it is not freedom of speech if you are obstructing an investigation." In an update several days later, Craddock hinted at the SEC's focus, indicating that:
“My day has been filled with getting the requested files showing my involvement with Zeek.”
The move also comes as a Texas law firm has sought court approval to appear as legal counsel for Fun Club USA, Inc. and other victims whose “assets were seized” as a result of the receivership. As discussed in a previous article, Fun Club is a Florida entity operated by Craddock.
It appears the alleged subpoena may have had its desired effect; in an update yesterday, Craddock indicated that "after speaking with the attorneys today they have requested that I go silent for a while and not give any more updates."