BULLETIN: $30 Million Claim Filed By Zeek Affiliate Who Appears To Have Invested Only $10, Receiver Says

BULLETIN: (5th Update 9:20 p.m. EDT U.S.A.) How absurd and abusive is HYIP Ponzi Land?

The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case says a Zeek affiliate who appears to have invested only $10 has filed a claim seeking $30 million.

Receiver Kenneth D. Bell asserted in a court filing today that the $30 million claim is the highest encountered in the case. Precise details about the claim, whose denial is pending, were not immediately available.

Viewed another way, a Zeek member who invested $10 appears to believe he or she is entitled to tens of millions of dollars that otherwise would go to thousands of Zeek victims.

A separate claim for $14.9 million filed by an asserted Zeek vendor known as Plastic Cash International LLC (PCI) may have a gall factor nearly as high, court filings by Bell today suggest.

The $14.9 million claim by PCI was the second-highest in the Zeek case, exceeded only by the affiliate seeking $30 million on an apparent $10 investment, Bell said.

PCI “was a trade creditor of the Receivership Defendant that processed credit card payments from Affiliates for the Receivership Defendant,” Bell said in court filings. “The processed payments were deposited into an account to be held for the benefit of the Receivership Defendant. PCI contends that it should be permitted to ‘retain’ funds that it collected for the Receivership Defendant in its role as a trade creditor.”

Bell said in court filings today that PCI had a “role in perpetuating the ZeekRewards Ponzi Scheme,” but now was behaving disingenuously — in part by asserting in had no knowledge of the asset freeze ordered by a federal judge in 2012.

The proposition that PCI did not know about the freeze was “absurd,” Bell said.

From Bell’s filings (italics/carriage returns added):

As disclosed in the PCI Claim, PCI acted as a credit card processor for the Receivership Defendant for the two-month period from June 2012 to the appointment of the Receiver. The PCI Claim further asserts that PCI either held a security interest in the funds that it held for the benefit of the Receivership Defendant or, in the alternative, PCI owned all of the amounts that it had collected for the Receivership Defendant pursuant to its contracts with the Receivership Defendant.

No disclosure regarding the amounts collected by PCI during the time it acted as a credit card processor for the Receivership Defendant was made in the PCI Claim.

Prior to the filing of the PCI Claim, the Receivership Team did not know that PCI had been involved in perpetrating the ZeekRewards Ponzi Scheme, nor did the Receivership Team know that PCI held Receivership Assets generated by the ZeekRewards Ponzi Scheme. The filing of the PCI Claim caused a preliminary investigation into the assertions made in the PCI Claim.

This initial review of the records of the Receivership Defendant did not show any significant economic relationship between PCI and the Receivership Defendant because no payments were made by PCI to the Receivership Defendant in the two-month period in which PCI was operating for the Receivership Defendant.

Moreover, the Receiver never received any funds from PCI or accounts held by PCI upon entry of the Freeze Order.

Subsequent investigation unearthed a relationship between SecureNet and PCI, leading to a bank account at Eagle Bank that, even though it was held in SecureNet’s name, held approximately $812,433.96 (the “Eagle Bank Account”) in Receivership Assets. Upon its discovery, the United States Secret Service sought and obtained a seizure warrant to recover those funds. The United States Secret Service thereafter seized all of the funds contained in the Eagle Bank Account.

At that time, PCI did not identify any additional accounts that were involved in the RVG transactions that PCI processed, and it represented that it did not hold any additional Receivership Assets. When the Receivership Team subsequently interviewed PCI’s counsel, the Receivership Team specifically asked about any additional accounts that held RVG [Rex Venture Group] funds or through which RVG funds flowed. PCI failed to identify any additional accounts.

As the Receivership Team investigated further and obtained documents from PCI, the Receivership Team determined that PCI had collected approximately an additional $8.9 million over the two-month period in which they acted for the Receivership Defendant. This $8.9 million was held and/or distributed from Los Angeles Firemen’s Credit Union n/k/a Firefighters First Credit Union (the “Firemen’s Account”).

PCI never paid any of the approximately $9.8 million in Receivership Assets it collected to the Receivership Defendant or the Receiver. Only $812, 433.96 of the $9.8 million in Receivership Assets has been recovered, and those assets were recovered solely through a seizure by the United States Secret Service.

Moreover, PCI never informed the Receiver that it held such Receivership Assets. Instead, after the entry of the Freeze Order, PCI remained silent regarding the funds it held and i) withdrew or otherwise expended approximately $4.5 million of the Receivership Assets in the Firemen’s Account to allegedly pay certain processing fees, alleged fines, alleged chargebacks, and “commissions” to its insiders; and ii) converted the remaining approximately $4.5 million for its own uses (this $4.5 million was removed from the Firemen’s Account by PCI and has never been accounted for) on the alleged theory that such withdrawals were covered by the governing contracts, which the Receiver disputes, and their contractual rights are somehow superior to the express terms of the Freeze Order.

And, Bell advised Senior U.S. District Judge Graham C. Mullen:

“It is disingenuous for PCI to assert that it did not have notice of the Freeze Order or that it was not somehow constrained from dissipating the Receivership Assets in its care. It is beyond reason that PCI would not inquire as to why thousands of credit card transactions that it was processing and generated revenue of in excess of $4.5 million per month would suddenly cease. Moreover, the Receiver caused a notice reflecting the entry of the Freeze Order to be published across the United States. Finally, significant transfers from the account that held Receivership Assets just prior to and after the freeze order suggests that PCI was on notice of the freeze and was seeking to avoid the constraint to its revenue stream. Any assertion that PCI did not know of the pendency of the Freeze Order is absurd.”

Bell further contended today that efforts by PCI to inject itself into the distribution plan proposed to the court in which distributions to victims would begin Sept. 30 should be short-circuited by Mullen.

Bell said the receivership already has denied PCI’s claim.

NOTE: Our thanks to the ASD Updates Blog.