The court-appointed receiver tasked with recovering assets for victims of the $600 million ZeekRewards Ponzi scheme announced that he had obtained court approval to move forward with a preliminary distribution of up to 40% of each investor's approved loss. Kenneth D. Bell, the receiver, announced that the first distribution would be made on September 30, 2014, to eligible victims that had satisfied certain requirements. Indicating he was "confident" that additional distributions would take place, Bell also indicated that he planned to commence "clawback" suits against foreign investors in the near future.
The Securities and Exchange Commission filed an emergency enforcement action against ZeekRewards approximately two years ago, alleging that the company's promise of exorbitant returns through online auctions was the result of a massive Ponzi and pyramid scheme that had taken in hundreds of millions of dollars from hundreds of thousands of victims. Following his appointment soon thereafter, Bell has worked to reconstruct the complex operations and recover funds for victims, and over $300 million has been secured to date.
In March 2013, the Receiver sought Court approval to commence a claims process. Due to the sheer number of potential victims, Bell sought approval to deviate from typical claims procedures that were primarily done through written submissions in favor of an online portal that would not only save significant amounts but would also allow a more efficient review of the hundreds of thousands of claims expected. The Court approved the claims process and procedures in May 2013, and victims were given a September 2013 deadline to submit claims. Ultimately, over 174,000 claims were received asserting total losses of nearly $600 million.
To date, Bell's team had sent out approximately 160,000 claim determinations to victims, who were then required to accept the determination and provide a release and OFAC certification before August 15, 2014 to be eligible to receive a distribution. To date, more than 80,000 claimants have satisfied these requirements and are eligible to receive distributions beginning on September 30, 2014. Those who have not completed the requirements by August 15, 2014 will be forced to wait longer to receive their distribution.
In his announcement, Bell expressed confidence that ongoing and future efforts would allow him to make additional distributions. These efforts include lawsuits against more than 9,000 "net winners" that were fortunate enough to profit from their ZeekRewards investment, as well as ongoing efforts to recover receivership assets currently in the possession of financial institutions. Additionally, Bell also confirmed that he planned to soon initiate "clawback" lawsuits against foreign net winners.
In a motion filed August 15, 2014, Bell requested Court approval for:
leave to file one or more actions in this Court and in foreign courts to pursue claims for the return of fraudulently transferred money and disgorgement of net funds received against significant “net winners” who reside outside the United States. The foreign “net winners” to be pursued all won at least $1000, the threshold previously approved by this Court. With due regard for the interests of efficiency, cost and judicial economy, the Receiver intends to consolidate cases against net winners from each foreign country and from more than one country when possible and appropriate.
While Bell did not expand on the specific procedures for pursuing foreign clawback victims, previous guidance provided in an earlier quarterly status report may shed some light on his strategy. In a Quarterly Status Report from late 2013, Bell stated that:
The group of net winners identified to date includes numerous individuals residing outside of the United States, with the largest foreign winners living mainly in countries with established legal systems which are signatories to the Hague Convention for international service of process. While the pursuit of “clawback” claims against these foreign net winners raises various challenges, the Receiver intends to include these winners as parties to domestic litigation based on their contacts with the ZeekRewards Program in the United States so long as doing so will not delay the litigation against domestic winners. The Receiver will also pursue cost-effective foreign litigation to establish the repayment obligation and/or to collect judgments where necessary and appropriate.
Thus, it appears that Bell plans to initiate some or a majority of litigation against foreign net winners that profited by at least $1,000 in the Western District of North Carolina, which has exclusive authority over claims and property relating to ZeekRewards, based on those net winners' minimum contacts with Zeek by virtue of their investment and related transactions. Upon securing a judgment against any net winner(s), the absence of any assets in the United States available to execute on to satisfy the judgment will likely necessitate the filing of foreign actions to enforce and collect on the judgments.
Previous Ponzitracker coverage of ZeekRewards is here.
The Motion to Institute Actions Against International Net Winners is below. Thanks as always to ASDUpdates: