A law firm that touts itself as the "premier law firm servicing the direct sales industry" has agreed to pay over $1 million to settle charges that it played an "indispensable role" in the massive ZeekRewards Ponzi scheme that defrauded thousands of investors out of hundreds of millions of dollars. The court-appointed receiver tasked with recovering assets for defrauded victims, Kenneth Bell, has sought court approval of a $1.175 million settlement reached with Kevin D. Grimes and his law firm, Grimes & Reese P.L.L.C. ("G&R"). If approved, the settlement will be added to the over-$300 million recovered by Bell that will ultimately be distributed to victims.
ZeekRewards was an online penny auction website that attracted users at an exponential pace due to a lucrative investment program that promised annual returns exceeding 200% and provided recruitment-based incentives to participants.. The program, masterminded by Paul Burks, attracted over one million participants before the Securities and Exchange Commission filed an emergency enforcement action in August 2012 alleging the venture was a massive Ponzi and pyramid scheme. Following Bell's appointment, his subsequent investigation revealed that over 700,000 participants suffered collective losses exceeding $700 million.
Grimes is a well-known attorney in the multi-level-marketing arena, operating www.mlmlaw.com and touting his firm as the "premier law firm servicing the direct sales industry." According to Bell, Grimes served as counsel to Zeek beginning no later than January 2012 up to August 2012 when the Commission's enforcement action was filed. According to the complaint filed by Bell, Grimes was allegedly aware that Zeek was a Pyramid/Ponzi scheme and that investors were being rewarded solely for the recruitment of new investors without any regard to any efforts to sell any products. Despite this alleged knowledge, Grimes was accused of creating a "compliance course" specifically designed to encourage investors and potential investors that completion of such a course somehow bestowed an air of legitimacy to the scheme. Bell alleged that Zeek required completion of this course, for which it charged each affiliate $30 - of which $5 was paid to Grimes.
Bell also alleged that Grimes, a well-known figure in the multi-level marketing world, knowingly allowed Zeek to use his association with the company as an implicit endorsement of the company's legitimacy in order to attract more investors. This not only included Grimes' participation in Zeek conference calls with investors, but the use of his name in marketing and promotional materials disseminated to prospective investors.
Bell sued Grimes and G&R last year and sought over $100 million in damages. The parties participated in a mediation earlier this year, which resulted in subsequent settlement discussions that ultimately resulted in the $1.175 million settlement. In the motion seeking approval of the settlement, the Receiver cited the complexity of the litigation and the potential difficulty of settlement as reasons weighing in favor of approval of the settlement. The Court approved the settlement earlier this week.
The Motion for Approval of Settlement is below. Thanks to ASDUpdates for their coverage of the scheme.