BULLETIN: Receiver Says $12 Million In Zeek Money Located ‘In An Eastern European Country’ — But Has Not Been Returned
BULLETIN: (2ND UPDATE 8:47 P.M. ET U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi-scheme case says he has located $12 million in receivership assets held in an unspecified “eastern European country” — but the funds have not been returned.
“This account is owned and was used by a payment processor outside the United States to provide funds to a foreign e-wallet that processed payments for ZeekRewards,” receiver Kenneth D. Bell said in court filings. “The Receiver previously caused the Freeze Order to be sent to the foreign financial institution which holds this account and demanded that the funds held in that account be turned over to the Receivership Estate. The foreign payment processor who owns this account was also sent the Freeze Order and a demand notice for the turnover of the funds in this account. However, neither the financial institution nor the foreign payment processor responded to the demands sent by the Receiver. Additionally, the Receiver has worked with the foreign e-wallet to seek to have these funds returned. While cooperative, the foreign e-wallet was unable to cause their customer to provide the funds held in this account to the Receiver.”
Bell also confirmed today that the U.S. Secret Service “continues to pursue” money related to Zeek. Meanwhile, he announced a “Final Liquidation Plan” and proposed claims process will be filed tomorrow in U.S. District Court for the Western District of North Carolina. Zeek was based in Lexington, N.C. Senior U.S. District Judge Graham C. Mullen is presiding over the Zeek case.
Massive Paper Chase Under Way
In August 2012, the SEC described Zeek as a $600 million Ponzi- and pyramid scheme. What has transpired since then speaks to the enormous logistical challenges law enforcement and court-appointed receivers may confront when a fraud scheme goes viral on the Internet and spreads globally.
Bell noted today that the receivership has communicated to “over 7,000 financial institutions” on the subject of cashier’s checks sent to Zeek by affiliates. Some affiliates also sought to fund their accounts with “certified checks, personal checks, bank money orders, and personal money orders.”
One of the earliest problems with marshaling assets was the sheer volume of instruments sent to Zeek, according to Bell’s filing.
“As of December 31, 2012, the Receiver presented over 140,000 financial instruments for deposit,” Bell said. “Many of these items were returned and not paid for various reasons. The Receiver Team is working with financial institutions to re-present instruments that were returned in error, and it is working to identify all instruments that were improperly returned.”
One Zeek vendor alone was in possession of 85,000 cashier’s checks and other instruments, Bell said.
“After reviewing these instruments, reviewing the records of the Receivership Defendant, communicating with [Zeek vendor Preferred Merchant Services] and working with a forensic accounting vendor, the Receiver Team was unable to definitively ascertain which instruments had already been processed and presented for payment by PM,” Bell said. “In order to maximize recovery to the Receivership Estate, the Receiver Team elected to present all of these instruments for payment. Approximately 34,000 of these instruments worth approximately $15 million were accepted and paid. Approximately 50,000 of these PM instruments were returned, which resulted in returned check fees of approximately $450,000.”
Bell negotiated to reduce the return charges by 25 percent, he said.
Beyond that, Bell said, “[t]he Receiver has been receiving numerous communications from financial institutions and Affiliate-Investors regarding cashier’s checks that have never been presented for payment,” adding that he is “unaware of any additional locations where cashier’s checks payable to the Receivership Defendant might be stored.”
The receiver “determined that he does not have rights under the Uniform Commercial Code or the Receiver Orders to claim an interest in cashier’s checks that were never received by the Receiver or the Receivership Defendant,” Bell said. “Therefore, the Receiver has taken the position that although any cashier’s check that is subsequently received by the Receiver is a Receivership Asset and will be deposited, financial institutions should consider any cashier’s check that has not been presented by the Receiver or the Receivership Defendant as having been lost, and may refund the remitters of such cashier’s checks without fear of liability to the Receiver.”
Crunching Numbers
Zeek’s database included 1.6 billion records, which are now being analyzed, Bell said.
“This analysis has taken longer than initially anticipated due to several issues: problematic transactions with questionable accuracy, the validity of database records, and the lack of available documentation (including look-up tables, database dictionaries, and source code documentation which are commonly used to understand the organization and function of a database’s components). In the absence of these tools, [receivership team member FTI Consulting Inc.] has been required to perform extensive testing of the data to validate the proposed calculations and to rely on disparate third-party sources, including Paul Burks, e-wallet vendors, financial institutions, and subpoena responses, for understanding the organization and function of the database components.”
Compounding matters, according to today’s filing, was the sheer number of Zeek participants, including participants who had multiple usernames.
“There are approximately 2.2 million unique users (“Affiliates” or “usernames”) in ZeekRewards,” Bell said. “The number of Affiliates does not reflect the number of unique individuals who participated in ZeekRewards, as it is likely that some individuals had more than one username. Approximately 1 million Affiliates paid money into the ZeekRewards Program . . .”
And, Bell noted today, “[a]t this time, the Receiver has identified over 800,000 net-loser usernames in the Receiver Defendant’s records.”
Taxing Matters
The section below is verbatim from the receiver’s filing today (italics added):
During the fourth quarter, the Receiver Team worked to determine which federal tax filings needed to be made with respect to income taxes, payments made to service providers, and payments made to Affiliate-Investors. The efforts were focused on the latter two issues because of the earlier filing deadline (January 31, 2013). The Receiver Team, including FTI, had discussions with RVG’s outside tax and accounting advisors to ascertain what had been filed for 2011 and earlier. After analyzing the issues, consulting with these various entities, and reviewing [Zeek operator Rex Venture Group LLC] ’s records, the Receiver Team determined that it would be necessary to file and issue 1099s to certain Affiliate-Investors and began the process of compiling the data necessary to issue the 1099s.
Since the receivership began in August, Bell said, it has been determined that “some individuals who RVG classified as ‘independent contractors,’ to whom it had issued 1099s, were misclassified pursuant to IRS regulations.
“Accordingly,” he continued, “the Receiver Team has reclassified them as employees and is issuing them W-2s. The Receiver Team will begin the process of identifying, misclassified employees, paying back taxes, and determining whether the Receivership Estate should pay any back wages owed to such employee as a result of RVG’s misclassification.”
Pursuing International ‘Winners’
Offshore members of Zeek expecting a free pass from the receivership may have to think again if they are classified as “winners.”
“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,” Bell said. “While the pursuit of ‘clawback’ claims against these foreign net winners raises various service issues and other 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.”
Claims Process
Bell said he will file with the court tomorrow “the proposed claims process” as part of a “Final Liquidation Plan.”
From Bell’s filing today (italics added):
The Receiver anticipates filing a motion seeking approval of the Claims Submission Process by the conclusion of the first quarter of 2013. The Claims Motion will seek (i) approval of the claims submission process, (ii) to establish the date by which claims must be filed against the Receivership Defendant (the “Bar Date”), and (iii) approval of the noticing procedures to be used in providing notice of the Bar Date and the claims submission process.
The stuff about going after employees, advisors and what not was interesting too.
There’s a lot of well-known MLM figures attached to Zeek Rewards in one way or another who definitely should have known better.
Of course they knew better and yet they still got involved. I hope they like orange jumpsuits….
At least Troy changed his stripes after months of disagreement with the critics, including most of your frequent commentators on PPBlog and RealScam. One could say it is water under the bridge and Troy always left himself a little wiggle room saying ihs first video had red flags, but the part I’m interested in seeing play out is whether Troy’s advocacy carries any liability or culpability. This is not a comment rooting for Troy to get busted, but rather a question as to whether an ‘industry expert’ who also is a ‘journalist’ that covers the industry is held to a different standard? Or as some have written in various plays, “how could he have not known better?”
The only issue I take with Dooly’s coverage of Zeek was the admittance that he supported the company in the wake of facts and analysis that portrayed the company in a negative light.
I’d like to think I too would have some wriggle room if I analysed an opportunity only to later find out it was a scam of some sort. That said you’re never going to catch me pushing one side of a discussion purely to counter the other for nothing more than the sake of it.
That said, Troy has admitted his shortcomings (and issued multiple apologies) in that department and no doubt going forward the experience will prevent the same from happening again.
As for the $18,000 consulting fee and liability… it’ll be interesting to see if anything comes of it. Personally I’d rather they focus on the executives, lawyers, members of the Association of Network Marketing Professionals (ANMP), merchant services, all of Greg Caldwell’s team (including Craddock) and affiliate ringleaders who were involved.
The industry needs a wakeup call and the Herbalife drama could take years.
Hi Oz,
This is from today’s filing by the receiver:
____________________________________________________
“The Receiver Team has been evaluating options and strategies for pursuing funds fraudulently transferred by the Receivership Defendant. However, the likelihood of success in reducing the thousands of potential claims to judgment and collecting such judgments is too early to estimate. In addition, the Receiver is investigating potential claims against certain professionals, contractors, financial institutions, and vendors that may be liable to the Receivership Defendant.”
____________________________________________________
For more background:
https://patrickpretty.com/2012/10/09/bulletin-zeek-mystery-deepens-receiver-says-he-discovered-foreign-account-that-has-not-been-seized-meanwhile-more-than-5-million-in-cashiers-checks-from-single-u-s-bank-found-at-zeek-headq/
Good to see you, Oz.
Patrick
Quick note: Some Zeekers contemplating how events could proceed may be interested in this story about the Trevor Cook Ponzi scheme receiver suing a bank:
https://patrickpretty.com/2013/01/29/urgent-bulletin-moving-alarming-new-allegations-surface-in-cookkiley-scheme-receiver-accuses-associated-bank-of-aiding-and-abetting-massive-ponzi-amid-allegations-that-mysterious-jordanian-tr/
The receiver filings in the Cook case are among the best I have ever read. All receiverships are different, and there is no knowing right now precisely how the Zeek receiver will proceed. But the Cook receiver’s site is well worth reviewing.
http://www.cookkileyreceiver.com//index.cfm
Patrick
Hey Pat, those are the two I was talking about.
“Certain professionals, contractors, financial institutions, and vendors” is pretty open in scope and it’ll be interesting to see who falls in their sights.
He didn’t learn after the first time of shilling for a friend in a telecom scam and got caught so don’t count on it.
I was the one pointing out EXACTLY which article/video we were criticizing, the NMBJ review from April 2012. We were criticizing MORE than that one, but I choosed to limit the critique to something identifiable, something he easily could check, something that CLEARLY was his own work.
* In that video, he’s clearly “promoting” Zeek rather than being neutral. He’s reading from a 6 page marketing inlay in Network Marketing Business Journal, written by Zeek’s COO, presenting it like it was a neutral review rather than a marketing inlay.
* And I connected a comment from another reader (on his own website, in a relatively recent article) to the critique, a reader who had been fooled by Troy’s review and had lost money.
* And I connected some affiliate websites where the review was used to it, to show him that the misleading info had been frequently used by others, as a tool to mislead people. “Endorsed by Troy Dooly”.
My comment was partly supported by someone else (Gregg Evans I believe?), a little more “polite” than I had been. That made Troy check the facts and publish the apology. He handled the situation correctly, admitting that something had gone wrong rather than defending it. And that’s fair enough.
I’m wondering about Keith Laggos. I think the disclaimer he put on his “Company of the Month” articles about Zeek ~should~ steer him clear of trouble with the permanent injunction he agreed to with the SEC back in 2005, but there was the infamous Lyoness call where Keith talked of the $40/month he was making in Zeek.
And I don’t need to remind people here about the “Legality Statement” he submitted citing his professional expertise to the court in effort to demonstrate that Ad Surf Daily wasn’t a ponzi. He has held himself out to be an expert on compensation plans and was well paid by Zeek to lend it his professional reputation.
If any of the Network Marketing “Dream Team” needs to have their contributions to promoting Zeek recognized and acknowledged by the courts and the Receiver, it’s Dr. Keith Laggos.
Which isn’t to say he’s the only one worthy of such attention.
I believed that statement came from Gerry Nehra?
Keith Laggos isn’t exactly qualified as an “expert witness”. He’s first and foremost a PUBLISHER, and he isn’t much more than that. He will have very little “weight” in a court.
Gerry Nehra has lots of “weight” if he speaks solely from his own profession, not adjusted to what a client likes to hear. I believe he failed having that independent role in the ASD case, trying to protect his former client rather than protecting justice.
In a declaration, Laggos opined that ASD was not a “Ponzie [sic] scheme.” Andy Bowdoin made the declaration available from the old Andys Fundraising Army site he was using to raise funds for his criminal defense from the people who was accused of defrauding.
ASD figures Todd Disner and Dwight Owen Schweitzer — later of Zeek — used Laggos’ opinion when they sued the government in November 2011.
There are so many interesting sidebars that it’s hard to keep track of them all. Just about every one of them, at a minimum, creates a PR nightmare for ASD and MLM in general — and some of those touch on Zeek.
For example, the U.S. government released $55 million in seized ASD proceeds to thousands of ASD victims in late September 2011. The Justice Department issued a news release in which ASD was described as “insidious” and in which the Secret Service described ASD as a “criminal enterprise.”
Background:
https://patrickpretty.com/2011/09/26/urgent-bulletin-moving-adsurfdaily-ponzi-scheme-example-of-insidious-financial-crime-head-of-justice-deparments-criminal-division-says-top-officials-u-s-secret-service-issue-statement/
But even with the words “insidious” and “criminal enterprise” floating around, Disner and Schweitzer sued just weeks later, alleging in court filings that ASD was a legitimate business and that the government had engineered a conspiracy against ASD/Bowdoin by using “operatives” in the Washington, D.C., area. Not only had the civil portion of the ASD case proceeded to final judgment when they sued the government, both of Bowdoin’s appeals had been rejected by the U.S. Court of Appeals for the D.C. Circuit.
Moreover, there was still a RICO (racketeering) lawsuit pending against Bowdoin and attorney Robert Garner, who is associated with the ASD “Legality Statement.” Beyond that, Bowdoin was still under criminal indictment, a problem he tried to address at least in part by publishing the Laggos opinion.
While all of this was going on in the fall of 2011, Zeek appears to have been gaining a head of steam.
Laggos later opined (on tape) that Zeek became the “momentum company” in November 2011. That’s the same month Disner and Schweitzer sued the government AFTER the ASD remissions money had been released to victims.
One has to wonder how much of Zeek’s growth was fueled by ASD members who took their remissions money and plowed it right into Zeek, which more or less was using the ASD 1-percent-a day and two-tiered commissions business model that had:
1.) Led to the seizure of more than $80 million amid allegations that Bowdoin had co-conspirators.
2.) Led to final judgments against ASD and to a smear campaign by Bowdoin against his own lawyers.
3.) Led to a grand jury investigation and the criminal indictment against Bowdoin.
4.) Led to the RICO lawsuit against Bowdoin and Garner.
5.) Led to the arrest of ASD figure Kenneth Wayne Leaming, a purported “sovereign citizen” accused of filing false liens against at least five public officials in the ASD case. (Leaming was arrested in November 2011, the same month Disner and Schweitzer sued the government. Court filings suggest he’d been under surveillance by an FBI Terrorism Task Force prior to his arrest.)
Bowdoin pleaded guilty to wire fraud in May 2012, acknowledging that ASD was a Ponzi scheme that had never operated lawfully from its inception in 2006. Bowdoin’s plea more or less destroyed the Laggos opinion. Remarkably, however, Disner and Schweitzer insisted that the ASD Ponzi case was a “house of cards.”
The SEC’s Zeek action followed in August 2012. Within days, Disner was on one or more conference calls with Robert Craddock to raise funds for some sort of action against the SEC or the receiver or both.
Some of those calls occurred after Bowdoin had been formally sentenced to federal prison.
Patrick
More background:
https://patrickpretty.com/2010/11/13/disturbing-email-received-by-some-asd-members-suggests-they-could-be-sued-for-participating-in-refund-program-records-suggest-legal-opinion-was-offered-by-man-named-in-complaints-for-unauthori/
https://patrickpretty.com/2011/08/30/update-asds-bowdoin-says-hurricane-irene-knocked-his-fundraising-website-offline-accused-ponzi-schemer-says-hes-confident-jury-will-acquit-him-messages-follow-earlier-claims-from-asd-figures-th/
https://patrickpretty.com/2011/10/03/update-federal-prosecutors-have-no-comment-on-asd-related-email-that-encouraged-members-to-identify-public-officials-as-thieves-and-send-certified-copy-of-theft-claims-to-home-of-u-s-chi/
https://patrickpretty.com/2011/03/28/urgent-bulletin-moving-andy-bowdoin-adsurfdaily-lose-appeal-of-65-8-million-forfeiture-order-panel-unanimously-upholds-district-judge/
https://patrickpretty.com/2012/10/09/bulletin-adsurfdaily-figure-kenneth-wayne-leaming-was-founder-of-sovereign-groups-armed-enforcement-wing-and-had-assault-rifle-with-bayonet-at-time-of-arrest-prosecutors-say-probe-was-par/
https://patrickpretty.com/2012/08/14/bulletin-adsurfdaily-apologists-circulate-plan-to-flood-judge-with-letters-of-support-for-jailed-ponzi-schemer-andy-bowdoin-forwarded-email-includes-2-ads-for-zeek-rewards-program-and-clai/
https://patrickpretty.com/2012/05/09/adsurfdaily-figure-christian-oesch-named-defendant-in-lawsuit-filed-by-fannie-mae-utah-man-calls-himself-fiction-transmitting-utility-in-response-to-complaint/
Patrick