BULLETIN: Zeek Mystery Deepens: Receiver Says He Discovered ‘Foreign’ Account That Has NOT Been Seized; Meanwhile, $5 Million In Cashier’s Checks From Single U.S. Bank Found At Zeek Headquarters; Firm’s Records Described As ‘Inadequate Or Incomplete’; Secret Service Has Recovered Lion’s Share Of $293 Million Found So Far

BULLETIN: (5TH UPDATE 6:13 P.M. EDT) The court-appointed receiver in the Zeek Rewards Ponzi scheme case says he discovered that Zeek has “at least one foreign account” that has not been seized.

It was “not clear” whether the funds would be recoverable despite the fact the bank that holds the account has been served with a freeze order, receiver Kenneth D. Bell said in court filings yesterday.

Bell did not name the bank or its home country in the filings. Nor did he say how he discovered the account.

But Bell advised Senior U.S. District Graham C. Mullen of the Western District of North Carolina that he was working with the SEC, the U.S. Secret Service and federal prosecutors to determine “the most efficient and cost effective manner to recover the funds from the entity that controls or the bank that holds this account so that the funds can be used in the distribution plan for this case.”

The amount allegedly held in the account was not disclosed. Zeek was operated by North Carolina-based Rex Venture Group LLC and Paul R. Burks, the SEC said in August. The agency described Zeek as a $600 million Ponzi- and pyramid fraud operating domestically and internationally.

Whether Zeek had silent partners or a special class of members is just one of the many mysteries still surrounding the purported “opportunity.”

Receiver May Have Cooperation Of Certain Insiders

Bell’s filings yesterday — on the Columbus Day holiday in the United States — made it plain that certain individuals associated with Zeek were cooperating in the receivership probe, sometimes through lawyers. The names of those individuals were not disclosed. Nor was the degree of their cooperation.

Filings, however, at least hinted that some people close to Zeek had stories to tell.

“Initial interviews of the Receivership Defendant’s employees and officers who were willing to be interviewed, as well as communications with various third parties, have revealed the identities of numerous other individuals and entities that might have relevant information regarding the Scheme, including potential business associates and investors of the Receivership Defendant and its principals,” Bell advised Mullen.

Moreover, the report revealed that the U.S. Secret Service largely was responsible for recovering the lion’s share of more than $293 million in Zeek-related financial accounts.

Forensic Accounting Firm Hired

Mullen ordered Bell in August to submit a preliminary liquidation plan by Oct. 8 that would update the court on the receivership’s efforts to date and lay out the early groundwork on how Zeek members could file claims.

Bell described his investigation as “still in its preliminary stages” and “ongoing.”

During the receivership’s first 52 days, Bell advised Mullen, it was learned that Zeek had about 2.2 million “affiliates,” but that some of those affiliates appeared to have “more than one user id.”

Approximately 1 million affiliates “paid money into the Zeek Rewards Program,” Bell advised Mullen.

Bell has hired FTI Consulting Inc., a forensic accounting firm, to assist in the receivership probe, according to yesterday’s receivership filing.

Meanwhile, the McGuireWoods law firm is counsel for the receiver. Kroll Ontrack is assisting with data recovery and storage, and Gilardi & Co. is hosting the receivership website and providing a means for Bell to communicate with potentially millions of individuals affected by the alleged epic fraud, Bell said in the filing.

Zeek’s Aug. 17 shutdown by consent after the SEC brought the Ponzi allegations did not stop bills from coming in, Bell said.

The estate, for example, already has disbursed more than $55,000 for payroll and benefits due employees, “taxes due the United States, North Carolina, and Arkansas” and for property rent and certain ongoing business expenses.

During the preliminary examination, Bell identified more than $922,000 in accounts payable, including “certain invoices for professional services,” according to the filing.

Bell advised Mullen that he still was “in the process of determining the validity and amounts of these accounts payable” and ascertaining the priority in which expenses will be paid.

Zeek Documentation ‘Inadequate Or Incomplete’

In a passage that may read like a familiar refrain to HYIP Ponzi analysts, Bell advised Mullen that certain Zeek-related financial documentation “has been found to be inadequate or incomplete.”

Examining paperwork and data will be time-consuming because of “the significant lack of documentation and the organization of this data,” Bell advised the judge.

Regardless, Bell said, the receivership team would follow the trail “to identify additional assets, trace the proceeds of any fraudulent conduct, evaluate claims of creditor and investors, and identify potential claims against former employees, third parties (including Affiliate-Investors), and others that may have received assets of the Receivership Estate.”

As the receiver’s probe moves forward and more evidence is gathered and analyzed, clawback claims will be contemplated under “applicable fraudulent transfer statutes against those who ran the operations and ‘net winner’ participants . . .” Bell said.

Bell envisions an approach that would “first offer those who are required to return money to the Receivership Estate the opportunity to do so cooperatively in an effort to avoid costly litigation for all concerned,” according to yesterday’s filing.

Below a subhead of “Miscellaneous Assets Recovered,” Bell advised Mullen that $5 million in cashier’s checks from BB&T Bank were located in [Rex Venture Group’s] main office.”

Zeek mysteriously announced on May 28 — Memorial Day — that it was closing its BB&T account, along with an account at NewBridge Bank. Why Zeek allegedly was in possession of $5 million in cashier’s checks that originated at BB&T was unclear in the receiver’s filing.

Despite Zeek’s claim online that it was closing the accounts and its prompt to affiliates to cash or deposit Zeek commission checks drawn on the banks before June 1 or they would bounce, court records show that NewBridge still had $11.64 million in Zeek-related funds on deposit.

Some observers have speculated that events that led to the August collapse of Zeek began in May, with the report from Zeek that it was closing the accounts voluntarily. If the account closures were less than voluntary, however, it may suggest that the banks had become suspicious of Zeek and that the Rex Venture-owned “opportunuity” was engaged in a scramble to find vendors to accept and maintain deposits.

Court records claim that Zeek used at least 15 domestic and offshore vendors, including Canada’s AlertPay and SolidTrustPay.

As of Oct. 8, the court-appointed receiver has identified these U.S. domestic companies as providers of services for Rex Venture Group LLC, the operator of the alleged Zeek Rewards Ponzi scheme. The receiver noted in court filings that “certain of the accounts listed above were closed, inactive or had a zero balance” before his August appointment.

‘Professionals’ To Receive Scrutiny

Bell advised Mullen in yesterday’s filing that he also planned to “investigate potential claims against professionals and others” involved with Zeek to determine “who may be liable for the role they played in facilitating the operation.”

Claims against the unidentified “professionals” and others will be pursued, if warranted, Bell advised the judge.

Bell further advised Mullen that the receivership would “streamline” operations as much as possible so that Zeek victims and other creditors could receive a disbursement as soon as possible. He did not rule out the possibility of a “preliminary distribution” from seized proceeds.

No specific timetable was laid out in the filings, but the task of formulating a claims process that potentially needs to accommodate 1 million or more people has begun, Bell said.

Read the receiver’s filing for more details. (Document provided courtesy of the ASDUpdates Blog.)

 

About the Author

9 Responses to “BULLETIN: Zeek Mystery Deepens: Receiver Says He Discovered ‘Foreign’ Account That Has NOT Been Seized; Meanwhile, $5 Million In Cashier’s Checks From Single U.S. Bank Found At Zeek Headquarters; Firm’s Records Described As ‘Inadequate Or Incomplete’; Secret Service Has Recovered Lion’s Share Of $293 Million Found So Far”

  1. Could one of the professionals be the attorney Kevin Grimes who indirectly endorsed the plan as compliant by offering his training course and accepting a retainer from the company? That should be interesting.

      (Quote)

  2. AsdUpdates have a link to a Forbes story which has this to say on the “professionals”:

    While the Receiver has primarily focused on locating and securing assets since his appointment, he has indicated that he intends to begin focusing on “recovery efforts to include claims against officers, employees, participants, professionals, and others who benefited from the Scheme.” The “professionals” the Receiver alludes to include individuals or entities that provided services to Zeek and helped to facilitate its operation, such as banks, law firms, or accountants.

    I wonder if it also includes individuals or entities that provided web hosting facilities, technical support, DDoS security services, programming of web sites etc.

      (Quote)

  3. I also think Mr. Dooly may be re-thinking his involvement in Zeek right about now. I am sure he is one of the “Others” who benefited from the Scheme mentioned.

    I only hope that the Receiver in allowing a “discount” to those who cooperate with returning their ill-gotten gains doesn’t take pennies on the dollar as happened in the CEP case with many of the major winners. I have no problem with a discount equal to what it would cost to file a lawsuit to recover without their cooperation, but that would be my limit of any “discount” they should be given.

      (Quote)

  4. Ha ha ha ha. Craddock is so screwed.

      (Quote)

  5. If I were O.H.Brown of Ushbb I’d be cooperating up a storm with the receiver team. His involvement here goes beyond being the video and capture page suppler of choice to Zeek, I’ll bet dollars to donuts that he was a high earning affiliate as well and perhaps being one of the “Founders.” I’ve found blog posts mentioning his connection back to 2010, he was in on the ground floor.

    That and he was the vendor of the mandatory “compliance course” videos as well as the only officially approved marketing websites. We all recognized what it meant when Ushbb’s service to Zeek affiliates went from an optional $15/month to a mandatory $30/year, it was a naked cash grab and a portend of doom. They were basically admitting that from the date of the change they weren’t expecting themselves to be in buisness for more than two months. And they were right.

    So Owen Brown had several hundred thousand people pay him $30 each for the mandatory compliance and marketing program just weeks before Zeek was shuttered. How much do you want to bet that O.H. is one of the “Professionals” that the receiver investigating potential claims against?

      (Quote)

  6. GlimDropper: That and he was the vendor of the mandatory “compliance course” videos

    Actually, that “certificate” for “2 Zeek victims suffered financial devastation” thing proves that the video compliance course came from Kevin Grimes’s mlmcompliancevt.com, not USHBB

      (Quote)

  7. Kevin: Could one of the professionals be the attorney Kevin Grimes who indirectly endorsed the plan as compliant by offering his training course and accepting a retainer from the company? That should be interesting.

    Kevin Grimes is NOT listed as one of the employees or consultants in the list compiled by receiver, but Waak (Gerald Nehra’s partner) is.

    The only one so far who said Grimes took a retainer from Zeek is Troy Dooly. I want to see third-party confirmation though.

      (Quote)

Leave a Reply