The court-appointed receiver tasked with recovering funds for victims of the $600 million ZeekRewardsPonzi scheme has filed a fresh wave of clawback lawsuits seeking to recover more than $6 million in false profits" realized by the scheme's European and South American investors. Receiver Kenneth D. Bell continued his efforts to recover false profits from international investors in filing eight lawsuits in the Western District of Carolina, where the receivership is pending, against dozens of investors residing in Israel, Ireland, France, Denmark, Netherlands, Brazil, Germany, and Sweden. Each of the defendants profited by at least $50,000 from their participation in the scheme, with some defendants receiving hundreds of thousands of dollars in what was nothing more than the redistribution of funds received from other investors. The Receiver is seeking a judgment in the amount of each defendant's net winnings, as well as the entry of an injunction prohibiting the dissipation of each defendant's assets pending satisfaction of that judgment.
Courts routinely favor the use of clawback litigation to recover false profits from investors under the Uniform Fraudulent Transfer Act (“UFTA”), which has been passed by nearly every state in substantially similar form. Under the UFTA, transfers made to a creditor are deemed fraudulent when, among other factors, no reasonably equivalent value was exchanged. An investor is understood to give reasonably equivalent value, assuming they received the transfer in good faith, for any amount up to that investor’s total investment. Thus, an investor who received 100% of their total contribution cannot typically be compelled to return those funds unless they did not receive the transfers in good faith. (A recentPonzitracker article describes such a scenario). However, an investor who received funds in excess of their original investment is not as lucky, for in a Ponzi scheme, those purported “profits” are, in reality, simply the redistribution of other investor funds. Courts have found that an investor cannot give value in receiving these false profits, and routinely allow the recovery of such transfers as fraudulent transfers.
The Receiver is seeking the following aggregate amounts from each set of net winners:
- Israel: $1,880,176.80;
- Ireland: $633,947.67;
- France (one additional defendant): $446,613.38;
- Denmark: $681,716.57;
- The Netherlands: $172,482.99;
- Brazil: $1,344,131.41;
- Germany: $421,078.10; and
- Sweden: $430,639.17.
Rather than initiate litigation in each of the countries where the net winners reside, Bell is proceeding with the suits in the Western District of North Carolina - where the receivership is being conducted out of and where Zeek was headquartered before its collapse - based on those defendants' contacts with the district through their involvement in (and receipt of funds from) the ZeekRewards program. However, even if the Receiver is able to obtain judgments against those foreign defendants, additional litigation may be required in those defendants' home countries to enforce and collect on those judgments.
Bell began filing international clawbacks last year with a suit against Canadian investors, and has since filed suits against investors from countries including Australia, the British Virgin Islands, New Zealand, and Norway. While Bell had indicated that he intended to pursue foreign net winners who received at least $1,000 in false profits from the scheme, this initial wave of clawback lawsuits has focused on net winners who profited by more than $50,000 from the scheme. Bell also recently won approval to pursue nearly 10,000 American net winners who received at least $1,000 in false profits.
A copy of the Israeli Complaint is below. As always, thank you to Don at ASDUpdates.com.