The court-appointed receiver overseeing efforts to recover funds for victims of the $600 million ZeekRewards Ponzi scheme has again reserved strong words for efforts by certain victims' lawyers to have distributions sent to their law offices, rather than directly to victims, saying that it "ought not to be the responsibility of the Receiver to act as the Movants’ attorneys’ collection agent." The Receiver, Kenneth D. Bell, filed his Reply in Opposition to a Motion for Clarification And/or Reconsideration filed by a group of several hundred scheme victims. While Bell initially characterized the efforts to compel the mailing of distribution checks to victims' attorneys as "at least questionable" back in January, he used stronger words in his Reply, arguing that the victims' attorneys were simply "unable to let go of their pecuniary interests."
The dispute arose in December 2013, after the Receiver filed his Motion for an Order Approving Distribution Procedures and Certain Other Related Relief ("Motion"). The Motion sought court approval for distribution procedures that included, among other things, a provision that payments would be made directly to victims. Of the nearly-200,000 individuals that submitted claims for the Receiver's determination, an objection was filed by a small subset of approximately 740 victims which had previously entered into a contingency agreement with a Louisiana law firm (the "Louisiana Firm") for the purpose of filing a class action lawsuit - a lawsuit that was later halted by a federal court and deemed "ill-timed." In his response to that objection, the Receiver observed that
whether or not the fee agreement would permit Movants’ counsel to claim a large contingent fee (as much as 25%) for simply providing administrative assistance in filing a claim through the Receiver’s claim portal is uncertain.
There are substantial potential fees at stake. Considering that the average claim amount was approximately $3,100, and the fact that the Louisiana Firm claimed 740 clients, this would represent an average per-claim fee of $775, and a cumulative total fee of over half a million dollars for simply assisting victims in filling out a claim form. (Obviously, the number could fluctuate based on the actual dollar amounts of the claims of the 740 victims.)
On April 1, 2014, the Court approved the Receiver's Motion in all aspects. Several days later, the Louisiana Firm filed a Motion for Clarification and/or Reconsideration, which, in the Receiver's words, "again challeng[es] the Court’s decision by seeking to change the approved distribution process to require the Receiver to aid the Movants’ attorneys in collecting their attorneys’ fees from the Movants." Characterizing the reason for the motion as the Louisiana Law Firm's inability "to let go of their pecuniary interests," the Receiver explained that he sought to make payments directly to victims to prevent duplicative payments, to ensure aggregate net winners do not receive distributions by using multiple addresses, and even ensuring that the Receiver does not unwittingly violate the Department of Treasury’s Office of Foreign Assets Control’s (OFAC) regulations. While observing that his plan "may not assist Movants’ attorneys’ efforts to collect their fees," he argued that no clarification of the Order was necessary.
A copy of the Receiver's Reply is below (h/t ASDUpdates):