Government Cries Foul Over Alleged Ponzi Mastermind's Recently Discovered "Handwritten Notebooks"

As trial nears for a North Carolina man accused of running one of the largest Ponzi and pyramid schemes in history, the government has raised questions over the defendant's intention to use recently-disclosed "handwritten notebooks" that, while allegedly dating back to 2011, were never turned over or otherwise disclosed to the government.  Paul Burks, 69, was indicted in October 2014 on multiple fraud charges over his operation of ZeekRewards, which the Securities and Exchange Commission had previously accused of being a Ponzi and pyramid scheme that duped tens of thousands of victims out of hundreds of millions of dollars.  

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 incentives for participants to recruit new investors.  The program, allegedly masterminded by Burks, attracted over one million participants before the Commission filed an emergency enforcement action in August 2012 alleging the venture was a massive Ponzi and pyramid scheme.  After a receiver was appointed, a subsequent investigation revealed that over 700,000 participants suffered collective losses exceeding $700 million.

As Burks and the government prepare for trial, a trial that has already been delayed several times due to the massive amount of documentary and computer evidence, the government has made several requests to limit or exclude Burks from using certain evidence.  These requests, known as motions in limine, ask the court to rule in advance of trial on certain evidence that might be prejudicial, irrelevant, or inadmissible.  On June 28, 2016, the government filed a Motion in Limine Regarding Defense Experts (the "Motion"), asking the court to limit Burks' use of recently-produced "Handwritten Notebooks" that were marked as an exhibit Burks intended to use at trial.

As the Motion explains, Burks first disclosed in April 2016 that he had discovered notebooks containing his handwritten notes and impressions during 2011 - a time when authorities allege that ZeekRewards was a full-blown Ponzi and pyramid scheme that was growing exponentially and taking in hundreds of millions of dollars from unwitting participants.  The government highlights the convenience of this revelation, noting that Burks had not disclosed the existence of the notebooks despite receiving a grand jury subpoena, testifying before the grand jury that he had produced everything to the best of his knowledge, and being ordered by the court to turnover all relevant discovery.  As the Motion notes,

There can be no legitimate dispute that the Handwritten Notebooks – if they actually existed on the dates they purport to have been created – were responsive to the Grand Jury Subpoena, and, thus, Defendant’s failure to produce them was in violation of that Subpoena and his testimony that he had produced all documentation responsive to the subpoena was untrue.

The Motion does not take issue with the introduction of the Handwritten Notebooks as evidence; rather, it seeks to limit the methods used to introduce the notebooks into evidence.  As the government notes, the Handwritten Notebooks factor prominently in reports prepared by experts retained by Burks in an effort to "offer (improper) opinions regarding Defendant’s state of mind at the time of the offense."  While the contents of the notebooks and the accompanying expert reports are unknown, it is likely that they are in contrast with the government's burden to demonstrate that Burks had criminal intent.  The Motion argues that, before the Handwritten Notebooks may be referenced by other witnesses, they must first be introduced through and authenticated by Burks himself through his testimony.

The motive for the government's position becomes clear: Burks is faced with the choice of whether or not to testify at trial.  There is no obligation for a defendant to testify on his or her own behalf, and that decision cannot be used as a factor for conviction or acquittal by the jury.  Anecdotal evidence suggests that the majority of criminal defendants are advised by their counsel not to testify at trial on the theory that the government has failed to prove their case beyond a reasonable doubt.  The government argued that presenting Burks with such a choice is consistent with pertinent caselaw, quoting authority that "a defendant’s rights would not be violated simply because he had to choose between not testifying and laying [the required] foundation."  

The Motion also suggests that Burks could be subject to contempt proceedings for his failure to produce the notebooks.  

A copy of the Motion is below.  As always, Ponzitracker is grateful to ASDUpdates for monitoring the Zeek docket.

motion in limine