URGENT >> BULLETIN >> MOVING: (3rd Update 10:03 a.m. ET Dec. 10 U.S.A.) The federal judge presiding over clawback cases against alleged Zeek Rewards “winners” has dismissed jurisdictional challenges and a claim by the winners that Zeek was not selling securities under the Howey Test.
The rulings mean that clawback claims seeking millions of dollars from the winners remain intact.
Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina also has ruled that the receiver’s request to impose a constructive trust against the winners to prevent further dissipation of Zeek winnings was proper.
The clawback defendants, including Trudy Gilmond, Trudy Gilmond LLC, Jerry Napier, Darren Miller, Durant Brockett, Rhonda Gates, Innovation Marketing LLC, Aaron Andrews, Shara Andrews, Global Internet Formula Inc., T. Lemont Silver and Karen Silver, had contended the fact they performed some work to score their winnings took a Howey prong out of play because they did not expect profits based solely upon the efforts of others. Absent this prong, the winners argued, receiver Kenneth D. Bell could not prove Zeek was selling unregistered securities as investment contracts.
“Defendants’ emphasis upon the long hours they worked to recruit . . . others is misplaced,” Mullen ruled. “Without the essential managerial efforts of [Zeek President Paul] Burks and [Zeek operator Rex Venture Group], no profits would have been generated at all.”
And, Mullen added, “As the Court finds that it clearly has subject matter jurisdiction, it is unnecessary to address the Receiver’s ancillary and supplemental jurisdiction argument or his argument that the Court also has diversity jurisdiction.”
Meanwhile, Mullen ruled that the winners’ claims that Bell could not pursue fraudulent-transfer claims under North Carolina law were without merit.
“Defendants argue that this claim must be dismissed because neither the Receiver nor RVG (in whose shoes he stands) is a ‘creditor’ as defined in the North Carolina Uniform Fraudulent Transfer Act (‘NCUFTA’) and therefore he has no standing to pursue fraudulent transfer claims. Defendants’ argument is without merit.”
On the issue of the imposition of a constructive trust against the winners, Mullen ruled (italics added):
“Defendants’ argument that they should not be subjected to the imposition of a constructive trust because their own fraud is not the subject of the complaint fails. The Complaint sets forth allegations sufficient to show that ‘some other circumstance’ makes it inequitable for these Defendants to retain the funds they received . . . This ‘other circumstance’ is that Defendants received the funds from an admitted Ponzi and pyramid and that the funds are nothing more than other people’s money wrongfully diverted from RVG. Therefore, Defendants have received property which they ‘ought not, in equity and good conscience, hold and enjoy.’”
Zeek figures Dawn Wright-Olivares and Daniel Olivares pleaded guilty to investment-fraud conspiracy earlier this year.
