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Tag: David Kettner

  • EDITORIAL: On The War In Zeekland And HYIP Rabbit Holes

    From a promo for Zeek online in 2012.
    From a promo for Zeek online in 2012. The “program” operated through Rex Venture Group and later was charged by the SEC with selling unregistered securities as investment contracts.

    EDITOR’S NOTE: On Feb. 5, 2014, Zeek figures and alleged insiders Dawn Wright-Olivares and Daniel Olivares pleaded guilty to federal crimes. Wright-Olivares pleaded guilty to investment-fraud conspiracy and tax-fraud conspiracy. Olivares pleaded guilty to investment-fraud conspiracy. Federal prosecutors in the Western District of North Carolina are maintaining an information site here.

    Kenneth D. Bell, the court-appointed receiver in the SEC civil case, also is the special master in the criminal prosecution. The charging document in the criminal case references unnamed “co-conspirators” who are “known and unknown” to federal prosecutors.

    UPDATED 5:10 P.M. EDT U.S.A. In court filings apt to find favor in MLM HYIP Ponzi Land, some alleged “winners” in the Zeek Rewards “program” have tried to turn the tables on the court-appointed receiver by claiming he owes them “treble” damages for alleged violations of the North Carolina Unfair and Deceptive Trade Practices Act.

    Similar claims were made from the sidelines of the AdSurfDaily MLM Ponzi scheme in 2008. Some ASD members contended that then-Florida Attorney General Bill McCollum should be charged with Deceptive Trade Practices, apparently for having the temerity to bring a pyramid-scheme action against ASD.

    Other ASD members contended at the time that federal prosecutors and a U.S. Secret Service agent should be investigated and charged with crimes for their roles in the ASD Ponzi prosecution.

    Among the alleged winners in Zeek who’ve filed a counterclaim against receiver Kenneth D. Bell are Rhonda Gates of Nashville, an alleged winner of more than $1.425 million; Durant Brockett of Las Vegas, an alleged winner of more than $1.72 million; and Aaron and Shara Andrews of Lake Worth, Fla., alleged winners of more than $1 million through a Florida shell entity known as Innovation Marketing.

    In addition to claiming Bell owes them damages for Deceptive Trade Practices, the counterclaimants assert Bell interfered in contracts with payment processors such as Payza and NXPay and violated their rights under the Fourth Amendment to the U.S. Constitution.

    Bell sued them in late February, alleging in a clawback action that their gains were illicit because Zeek was illicit. He also sued several other Zeek alleged winners, including former ASD members Todd Disner of Miami and  Jerry Napier of Owosso, Mich. Disner allegedly received more than $1.875 million through Zeek; Napier allegedly received more than $1.745 million.

    Disner, in 2011, sought unsuccessfully to sue the United States for alleged violations of his Fourth Amendment rights in its prosecution of the ASD Ponzi case. His co-plaintiff in the case was Dwight Owen Schweitzer, whom filings by Bell described as a Zeek winner of more than $1,000. Several alleged Zeek winners ventured into the “program” after earlier stints at ASD, including Terralynn Hoy, a Florida MLMer who moderated a forum that called purported “sovereign” being Curtis Richmond a “hero” for his efforts to derail the civil-forfeiture action against ASD-related assets.

    Richmond, a Californian, was a member of a “sham” Utah “Indian” tribe that once sought to have U.S. Marshals serve bogus arrest warrants against federal judges. ASD figure Kenneth Wayne Leaming later was arrested by an FBI Terrorism Task Force, after allegedly harboring federal fugitives from a separate home-business caper, being a felon in possession of firearms and filing false liens against a judge and prosecutors involved in the ASD case.

    Other alleged Zeek winners sued by Bell in clawback litigation include Trudy Gilmond of St. Albans, Vt. (more than $1.75 million); Darren Miller of Coeur d’Alene, Idaho (more than $1.635 million); Michael Van Leeuwen, also known as “Coach Van” of Fayetteville, N.C. (more than $1.4 million); David Sorrells of Scottsdale, Az. (more than $1 million); T. Le Mont Silver Sr. of Orlando, Fla. (more than $773,000 under at least two user names, and more than $943,000 through a Florida shell entity known as Global Internet Formula Inc. with one or more Zeek user names); Karen Silver, Silver’s wife (more than $600,000); David and Mary Kettner of Peoria, Az. (more than $930,000 via one or more user names and shell companies known as Desert Oasis International Marketing LLC and Kettner & Associates LLC); and Lori Jean Weber of Land O’Lakes, Fla. (more than $1.94 million through a shell company known as P.A.W.S. Capital Management LLC.)

    Whether other alleged winners would join Gates, Brockett and Aaron and Shara Andrews in asserting claims for damages against Bell was not immediately clear.

    What is clear is that a legal war has broken out over Zeek, with alleged winners challenging Bell’s clawback claims by asserting Zeek wasn’t selling unregistered securities as alleged in 2012 by the SEC, that they worked for the money they received or were due, that the alleged winners were not investors, that the SEC’s case against Zeek cannot withstand scrutiny under the “Howey Test” for what constitutes a security, that the SEC had a duty to catch Zeek much earlier — and, in any event and if all else fails, attorneys Bell sued last week and Bell himself are to blame for the unpleasantness.

    On June 25, Bell sued MLM attorney Kevin Grimes and tax attorney Howard N. Kaplan, alleging they helped Zeek thrive while helping Zeek gain unwarranted credibility by lending their professional reputations to a fraud scheme.

    From Brockett’s June 30 “affirmative defenses” to the receiver’s clawback claims (italics added):

    The Receiver has filed suit against two attorneys who provided legal advice to [Zeek operator Rex Venture Group] and Affiliates, including Brockett. Brockett relied on that advice in concluding that RVG was a legitimate business and in committing over $100,000 in his personal resources to grow his now defunct business. Because Brockett’s damages were caused in part by the conduct of the two lawyers, Brockett is entitled in equity at and at law to a credit for all money the Receiver recovers from the two attorneys as a result of his claims against them.

    Also from Brockett’s “affirmative defenses” (italics added):

    On information and belief, the SEC knew or should have known of the RVG Ponzi scheme, but delayed unreasonably in its prosecution of claims against RVG. Alternatively, the SEC knew for some time that RVG was operating as a Ponzi scheme but intentionally delayed disclosing that information to Affiliates and to the public. That unreasonable delay has prejudiced Brockett because he has paid taxes on the money he earned working on behalf of RVG, contributed a significant portion of his earnings to his retirement plan, and has incurred business expenses as a part of his work on behalf of RVG. The Receiver in this action stands in the SEC’s shoes and also delayed to Brockett’s detriment and now seeks return of all monies Brockett earned in connection with RVG, with no credit for the taxes or business expenses that Brockett legitimately paid, but that could have been avoided had the SEC or the Receiver timely advised Brockett of RVG’s true nature or acted in a more expeditious manner.

    And from Brockett’s counterclaims against the receiver (italics added/editing for space performed):

    On information and belief, RVG was not involved in the sale or marketing of any securities, so the SEC was without jurisdiction and the Court did not have subject matter jurisdiction over the SEC Action. Consequently, the appointment of the Receiver was void and of no effect, and all of the Receiver’s actions in his capacity as receiver for RVG have been unlawful and without justification . . .

    RVG’s and the Receiver’s conduct described above and in the Complaint constitutes unfair methods of competition, unfair trade practices, and deceptive trade practices in violation of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. GEN. STAT. § 75-1.1, et seq.

    The conduct was illegal, offends public policy and is immoral, unethical, oppressive, unscrupulous, and deceptive.

    Bell, the Zeek receiver, is a former federal prosecutor who once received a prestigious award from the U.S. Department of Justice for his work prosecuting a Hezbollah terrorist cell operating in North Carolina.

    But some of the alleged Zeek winners now describe him with adjectives that could peel paint.

    And as they do this, they seek to gut or circumvent the SEC’s authority to prosecute HYIP schemes while contending the agency fumbled the ball in investigating and prosecuting Zeek — that is, if anything was worth investigating and prosecuting at all.

    It is a narrative apt to go over well in MLM HYIP Ponzi Land, the latest major expression of which  is TelexFree, a rabbit hole case if ever there was one.

    NOTE: Our thanks to the ASD Updates Blog.

     

  • URGENT >> BULLETIN >> MOVING: Zeek Receiver Sues Alleged Insiders, Winners; Emails, Skype Chats Helped Expose Fraud; ‘We’ve Already Attracted A Great Many Big Fishes,’ Wright-Olivares ‘Excitedly’ Told Paul Burks Early In Scheme, Kenneth D. Bell Alleges

    Dawn Wright-Olivares
    Dawn Wright-Olivares

    URGENT >> BULLETIN >> MOVING: (8th Update 2:40 p.m. ET March 4, U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid-scheme case has sued alleged insiders and net winners, including members of the 2008 AdSurfDaily Ponzi scheme.

    Parts of the complaint read like a re-living of the ASD scheme, with Zeek Receiver Kenneth D. Bell alleging Zeek’s penny-auction arm (Zeekler) was in trouble early on and that Zeek operator Paul Burks borrowed money from another insider to keep things going. The fraud later expanded massively, Bell alleged.

    At one point, according to Bell, former Zeek COO Dawn Wright-Olivares “excitedly” told Burks, “I think we can blow this OUT together — we’ve already attracted a great many big fishes.”

    But the insiders “were aware that the payouts to Affiliates would be funded by new participants rather than retail profits from the penny auctions,” Bell alleged.

    Named defendant “insiders” were Burks of Lexington, N.C.; Wright-Olivares of Clarksville, Ark.; Daniel Olivares of Clarksville, Ark.; the estate of the late Roger Anthony Plyler of Charlotte; Alexandre “Alex” de Brantes, the husband of Wright-Olivares and a resident of Clarksville, Ark.; and Darryle Douglas of Orange, Calif.

    Burks, the receiver alleged, received “in excess” of $10 million from Zeek; Wright-Olivares received more than $7.8 million; Daniel Olivares received more than $3.1 million; Plyler, who once lent money to Burks, received more than $2.3 million; Douglas received more than $1.975 million. An amount was not listed for de Brantes.

    Named winners were former AdSurfDaily member Todd Disner of Miami (more than $1.875 million); former ASD member Jerry Napier of Owosso, Mich. (more than $1.745 million); Trudy Gilmond of St. Albans, Vt. (more than $1.75 million); Durant Brockett of Las Vegas (more than $1.72 million); Darren Miller of Coeur d’Alene, Idaho (more than $1.635 million); Rhonda Gates of Nashville (more than $1.425 million); Michael Van Leeuwen, also known as “Coach Van” of Fayetteville, N.C. (more than $1.4 million); David Sorrells of Scottsdale, Az. (more than $1 million); T. Le Mont Silver Sr. of Orlando, Fla. (more than $773,000 under at least two user names, and more than $943,000 through a Florida shell entity known as Global Internet Formula Inc. with one or more Zeek user names).

    One of Silver’s usernames was “mentor,” Bell alleged.

    Also named winners were Karen Silver, Silver’s wife (more than $600,000); veteran HYIP pitch team Aaron and Shara Andrews of Lake Worth, Fla. (more than $1 million through a Florida shell entity known as Innovation Marketing); David and Mary Kettner of Peoria, Az. (more than $930,000 via one or more user names and shell companies known as Desert Oasis International Marketing LLC and Kettner & Associates LLC); Lori Jean Weber of Land O’Lakes, Fla. (more than $1.94 million through a shell company known as P.A.W.S. Capital Management LLC).

    Bell also sued a “Net Winner Class” of as many as 9,000 U.S. residents or entities who allegedly harvested illicit gains of $1,000 or more from Zeek. Lawsuits against international winners will come later, Bell said.

    In December 2013, Wright-Olivares and Olivares were charged criminally. They pleaded guilty last month for their roles in the scheme and are liable for more than $11.4 million in restitution and penalties, the SEC said.

    As the SEC previously alleged, Zeek relied on a so-called “80/20” program to sustain the Ponzi deception. Bell today built on that theme. From the complaint against insiders (italics added/spacing modified):

    Dawn Wright-Olivares explained and promoted the plan in a Skype chat as follows:

    Here’s a scenario here where you could be receiving $3,000 per month RESIDUALLY. Let’s use a 1% daily cash-back figure in this example (Please note: This is only an example and the actual amount will vary day to day).

    When you reach 50,000 points in your account, then you could start doing an 80/20 cash-out plan. Pay close attention? When you hit 50,000 points in your account, if the daily cash-back percentage is 1%, ZeekRewards will be awarding you with $500.00 each day. First of all, did you catch that? … you’re making $500 per day … it’s your money! Ok, the 80/20 plan works like this, take 80% of that $500 (or $400) and purchase more VIP bids to give away to new customers as samples to continue growing your points balance.

    Then, keep doing what you’ve been doing every day, which primarily consists of giving free bids away as samples and placing one free ad per day for Zeekler.com’s penny auctions and submitting into your ZeekRewards back office. Then, pull out 20% of the $500 (or $100) and request a check weekly. That’s $700 per week, or about $3,000 per month in residual income! And keep in mind, these amounts can continue to grow day after day and month after month.

    HYIP schemes, including ASD and Zeek, often implement deceptions such as 80/20 programs as part of a bid to reduce cashout amounts to let the scheme continue to live. Insiders and veteran Ponzi pushers typically know they’re a crock.

    Daniel Olivares, Bell said, has a Zeek user name of “dcolive.”

    On June 14, 2012, about two months prior to the collapse of Zeek, RealScam.com moderator and PP Blog poster “Glim Dropper” posted a link on the PP Blog that established a tie between Zeek promoters and ASD promoters. ASD was a $119 million Ponzi scheme operated by now-jailed operator Andy Bowdoin.

    RealScam.com is an antiscam forum.

    The link “Glim Dropper” posted was at a URL styled “dcolive.com.”

    From “Glim Dropper’s” observations at the time (italics added):

    I’d draw your attention to about five minutes into the call when Dawn recalls a conversation with Jerry Napier. Jerry was quoted as loving ZR and never wanting to have to build another organization with another program and mentioned a previous program and the litigation it was still facing and he mentioned “similarities” between ZR and that previous program.

    It is common in the HYIP sphere for promoters to move from one fraud scheme to another.

    Napier’s exposure to ASD is unknown. But the Zeek receiver now says Napier received illicit gains of more than $1.745 million. The alleged illicit Zeek gains of former fellow ASD member Todd Disner are even higher: $1.875 million.

    Precisely how many ASD members went on to join Zeek is unclear. What is clear is that both firms used similar business models and sweetened the deal for certain members.

    Bell alleged today that Zeek had a “Sweet 16” deal in which participants paid $999 to mine even more “passive” gains.

    “The Sweet 16 was another means by which [Rex Venture Group] made payments on a passive investment,” Bell alleged. “It did not involve the sale of a product, nor did it require a member to recruit other participants into the program.”

    Zeek operated through Rex Venture.

    To read the lawsuits, visit the ASD Updates Blog.

    Disner once filed suit against the United States, alleging its ASD Ponzi case was a “tissue of lies” and a “house of cards.” A federal judge tossed the lawsuit, after Bowdoin pleaded guilty to wire fraud and admitted ASD was a Ponzi scheme.

    Visit the receiver’s website.

  • URGENT >> BULLETIN >> MOVING: Lawsuits Against Zeek Insiders, Winners Believed Imminent; Paul Burks, Dawn Wright-Olivares, Darryle Douglas Among Alleged Insiders; AdSurfDaily Figures Todd Disner And Jerry Napier Among Alleged Winners; Prospective Defendants’ List Also Includes Legendary HYIP Hucksters T. LeMont Silver And Aaron/Shara

    breakingnews72URGENT >> BULLETIN >> MOVING: (UPDATED 5:27 P.M. ET DEC. 16 U.S.A. ) The court-appointed receiver in the Zeek Rewards Ponzi scheme case has advised a federal judge that he intends to sue Zeek operator Paul R. Burks and five alleged insiders, amid allegations they developed and operated a colossal fraud, breached their fiduciary duties, converted and wasted corporate assets and enriched themselves unjustly.

    Included with Burks as alleged insiders are former Zeek COO Dawn Wright-Olivares, Daniel Olivares, Roger Plyler, Darryle Douglas and Alexandre “Alex” De Brantes. De Brantes and Wright-Olivares are husband and wife.

    Receiver Kenneth D. Bell suggested the lawsuit could be filed within days and has asked Senior U.S. District Judge Graham C. Mullen to approve the filing of the complaints.

    And in a move that could send shockwaves across the HYIP Ponzi landscape, Bell advised Mullen that he intends to sue alleged net winners Todd Disner and Jerry Napier, both of whom were AdSurfDaily Ponzi pitchmen. Disner, Bell advised the court, is associated with an entity known as Kestrel Spendthrift Trust and will be sued in his individual capacity and in his capacity as trustee for Kestrel.

    How a spendthrift trust somehow became involved in Zeek could not immediately be determined. Such trusts typically exist to protect the assets of individuals who may be irresponsible with money.

    Also on Bell’s defendants’ list are legendary hucksters T. LeMont Silver, Aaron Andrews and Shara Andrews. The Andrews are known as “Team Aaron Shara.”

    Other alleged Zeek winners Bell advised the court he intends to sue include Trudy Gilmond, Trudy Gilmond LLC, Darren Miller, Rhonda Gates, David Sorrells, Innovation Marketing LLC, Global Internet Formula Inc., Karen Silver, Michael Van Leeuwen, Durant Brockett, David Kettner and Mary Kettner.

    Lawsuits will not be limited to just these 17 alleged winners, Bell advised the court. The plan, he said, was to sue “those who received at least $1,000 more from ZeekRewards than they paid in.”

    Their profits “came from the scheme’s victims,” Bell said, proposing to the judge that they be treated as a “defendant class of the remaining ‘net winners.’”

    The final list of defendants is expected to include many names. Bell has asked the court to impose the rules of complex litigation and to order an initial conference to be held as early as Jan. 13.

    Gilmond’s clawback exposure may exceed $1.364 million, according to court filings in December 2012. Sorrells’ exposure may exceed $943,000. The Kettners may have exposure that exceeds $1 million.

    How much exposure the other prospective defendants have was not immediately clear.

    What is clear is that Zeek’s alleged $600 million Ponzi- and pyramid scheme that was popularized in part on infamous Ponzi forums could land promoters in court soon.

    After the U.S. Secret Service exposed the $119 million ASD Ponzi scheme in 2008, Disner sued the United States — and lost. Disner’s lawsuit was filed even as he was promoting Zeek, a “program” that planted the seed it paid out even more than ASD’s 1 percent a day. Alongside the SEC, the Secret Service also is investigating Zeek.

    Among Disner’s contentions when he sued the government over its ASD-related actions was that the Ponzi case was a “house of cards” and a “tissue of lies.”

    ASD operator Andy Bowdoin, however, later admitted ASD was a Ponzi scheme and that his company never operated lawfully from its inception in 2006 through its collapse in 2008.

    Bowdoin, now 79, was sentenced in August 2012 to 78 months in federal prison. He pleaded guilty to wire fraud in May 2012, after prosecutors produced evidence that Bowdoin had participated in at least two other MLM fraud schemes while out on signature bond and awaiting trial in the ASD Ponzi case.

    NOTE: Our thanks to the ASDUpdates Blog.

     

  • URGENT >> BULLETIN >> MOVING: Federal Judge Denies Motion To Appoint ‘Examiner’ In Zeek Ponzi Case; Court Rejects Contention By Alleged Zeek ‘Winners’

    breakingnews72URGENT >> BULLETIN >> MOVING: Senior U.S. District Judge Graham C. Mullen has denied a motion by Zeek Rewards affiliates aligned with Robert Craddock to appoint an “examiner.”

    Craddock’s Fun Club USA and Zeek members and alleged “winners” David Sorrells, David Kettner and Mary Kettner asked for their attorney — Michael Quilling of Dallas — to be appointed examiner late last year. Mullen said no today.

    “First of all, it is readily apparent to the Court that such an examiner would be unable represent the interests of both the net winner and net loser affiliates, two groups with inherently adverse interests,” Mullen said in an order dated today. “Secondly, the Court is of the opinion that appointing an examiner would cause unnecessary and significant depletion of the assets of the receivership.”

    Although Craddock has sought to demonize Zeek receiver Kenneth D. Bell, Mullen today said the court had “utmost confidence” in Bell.

    “The receiver is working diligently to maximize and protect the assets and the Court has utmost confidence in the receiver’s efforts,” Mullen wrote.

    The Kettners and Sorrells potentially have about $1.94 million in combined clawback exposure, according to court filings.

    Both the SEC and Bell opposed the appointment of Quilling.

    In a blistering memo in December, the SEC accused Craddock of encouraging Zeek affiliates “not to cooperate” with Bell. Craddock has not been charged with wrongdoing.

     

  • BULLETIN: Zeek Receiver Says ‘Large Sums . . . May Have Been Transferred By Net Winners To Other Entities In Order To Hide Or Shelter Those Assets’

    breakingnews72BULLETIN: (UPDATED 2:34 P.M. ET U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi scheme case has advised a federal judge that he “has obtained information indicating that large sums of Receivership Assets may have been transferred by net winners to other entities in order to hide or shelter those assets.”

    The dramatic assertion by receiver Kenneth D. Bell that Zeek winners may have hidden cash appeared in a motion to Senior U.S. District Judge Graham C. Mullen to compel certain alleged Zeek “winners” to produce documents in advance of anticipated clawback actions.

    Bell’s move may send shudders across the HYIP sphere because it signals an effort to unmask bids by willfully blind hucksters and professional Ponzi players — known derisively as “pimps” — to benefit from serial scamming on a national and international scale. It is known, for instance, that some Zeek participants also pitched AdSurfDaily, which the U.S. Secret Service described in 2008 — at least two years before the launch of Zeek — as an international Ponzi scheme that had gathered tens of millions of dollars.

    ASD operator Andy Bowdoin pleaded guilty to wire fraud in May. In August, he was sentenced to 78 months in federal prison.

    HYIP schemes thrive in part because serial scammers race from scheme to scheme to scheme while turning blind eyes to obvious markers of fraud, including purported returns that dwarf the marketplace and are unusually consistent. Zeek planted the seed that it provided a daily return of between 1 percent and 2 percent. In August, the SEC said Zeek’s payout “consistently has averaged approximately 1.5% per day.”

    Zeek operator Paul R. Burks, the SEC charged, “unilaterally and arbitrarily” determined the daily dividend rate to give “investors the false impression that the business is profitable.”

    In 2009, the U.S. Secret Service effectively accused Bowdoin of doing the same thing. ASD purported to pay 1 percent a day. In August 2012, the Secret Service said it also was investigating Zeek. Court filings in the ASD case show that some members of ASD established entities through which to receive proceeds from ASD. One was described as a “ministry of giving,” for instance. Another was described as a nonprofit religious entity.

    The Secret Service described ASD as a “criminal enterprise” that directed tainted proceeds potentially to thousands and thousands of participants while scamming the very people it purported to be helping earn money through its 1-percent-a-day revenue-sharing “program.”

    Zeek also described itself as a revenue-sharing program and, like ASD, preemptively denied that anything untoward was occurring. Burks did not contest the SEC’s case against his firm, neither admitting nor denying wrongdoing. ASD’s Bowdoin eventually acknowledged that he was at the helm of a massive Ponzi scheme and that ASD had never operated lawfully from its inception in 2006 through it collapse in 2008.

    Bell also revealed in the filing that he had filed paperwork in “all” 94 U.S. federal court districts to inform judges and court officials that he was presiding over the receivership ordered by Mullen in August after the SEC described Zeek as a $600 million Ponzi- and pyramid scheme operated through Rex Venture Group LLC (RVG) and Burks. The move was designed to consolidate jurisdiction over clawback actions in a single place: Mullen’s courtroom in the Western District of North Carolina, the home base of Zeek.

    Among other things, Bell is seeking “All documents constituting or relating to any communication involving or related to RVG.”

    “The Receiver has asked for these documents to learn more about how the recipient was involved in Zeek, portrayed the scheme to others, solicited others, and otherwise conducted activities related to Zeek,” Bell said in court filings.

    Meanwhile, Bell is seeking “All documents constituting or related to any communication to any affiliate, vendor, customer or client of RVG related to RVG.” At the same time, he is seeking “Documents sufficient to show all user names, passwords, email addresses and accounts used . . . in connection with RVG.”

    That information is needed because many “individuals used multiple user names, and this information will clarify which user names a given net winner used,” Bell advised Mullen. “In addition, the account information will help to allow the Receiver to verify the financial figures calculated from RVG’s records.”

    Bell’s motion to compel specifically references Zeek affiliates Robert Craddock, David Sorrells, David Kettner and Mary Kettner as the recipients of subpoenas from the receivership. In October, Bell mailed a first wave of subpoenas to about 1,200 Zeek affiliates. He effectively is seeking the same information from them that he is seeking from Craddock, the Kettners and Sorrells.

    Craddock, the Kettners and Sorrells “have failed to produce any of the documents requested by the Receiver despite multiple requests,” Bell advised Mullen. “Therefore, the Receiver has filed a motion to compel production of a portion of the documents originally requested by the Receiver.”

    The Kettner and Sorrells potentially have nearly $2 million in combined clawback exposure, according to court filings. Craddock’s exposure is unclear. He has referred to himself as a Zeek “consultant.”

    One of the authorities Bell pointed to in advance of Zeek clawback actions and in his motion to compel the production of documents is a case involving Michael Quilling, an attorney for Craddock, the Kettners and Sorrells. Quilling himself has presided over SEC receiverships.

    Bell pointed out to Mullen that Quilling once sued the estate of a a deceased individual who’d received proceeds from the Frederick J. Gilliland Ponzi scheme in 2002. That lawsuit was filed on the same legal theory Bell is pursuing in the Zeek case: that recipients of fraudulent proceeds from a Ponzi scheme are not entitled to keep them.

    See post on ASDUpdates.

  • URGENT >> BULLETIN >> MOVING: SEC Files Motion In Zeek Case To Oppose Appointment Of Examiner; In Blistering Memo, Agency Accuses Robert Craddock Of Encouraging Affiliates ‘Not To Cooperate With The Receiver’

    breakingnews72URGENT >> BULLETIN >> MOVING: (UPDATED 11:58 A.M. ET (U.S.A.) The SEC has gone to federal court in the Western District of North Carolina to oppose a motion by Zeek “winners” to appoint an “examiner” over all Zeek affiliates. In a blistering, 12-page memo, the agency accused Zeek figure Robert Craddock of encouraging Zeek affiliates “not to cooperate” with Kenneth D. Bell, the court appointed receiver.

    “Moreover,” the SEC claimed, “Craddock has asserted (incorrectly) that the SEC has acknowledged to his lawyers that the SEC has doubts or concerns about its case and is looking for ways to ‘back out’ in order to allow ZeekRewards to re-start its operations. Another Quilling client, David Kettner has repeated assertions similar to those made by Craddock in written communications to former ZeekRewards affiliates.”

    The agency also confirmed in its filing that its Zeek investigation was ongoing. The “confidential nature” of the probe, the agency said, potentially could make it difficult to respond to motions filed by opposition attorneys.

    There could come a time, the SEC said, that it would ask “to provide the Court with additional information under seal or in a closed hearing.”

    The SEC’s filing was dated yesterday — the same day Bell also asked Senior U.S. District Judge not to approve the sought-after appointment of Dallas attorney Michael J. Quilling as examiner. Quilling, Bell said, had an obvious conflict of interest. The SEC argued along the same lines.

    Quilling, the SEC said, is representing “certain significant net ‘winners’ in the ZeekRewards Ponzi scheme alleged in the Complaint” and seeks “to have himself appointed ‘Representative for Affiliates,’ provided with counsel, and compensated out of the Receivership Estate.”

    From the SEC’s motion (italics added):

    The Quilling Motion suffers from several obvious flaws:

    (1) The Motion offers no compelling factual or legal basis for the Court to consider appointing a “Representative for Affiliates” – the Commission continues to work closely with and monitor the Receiver to ensure that as much money as possible is returned to injured investors in the most efficient manner possible;

    (2) Appointment of a “Representative for Affiliates” would serve only to complicate this already complex matter, obstruct the Receiver’s ability to efficiently marshal Receivership Assets, and significantly and unnecessarily deplete the pool of assets available to be distributed to injured investors (given that Quilling and [Charlotte attorney Rodney E.] Alexander seek to be compensated from Receivership Assets); and

    (3) The interests of Quilling and Alexander’s current clients – significant net “winners” in the Ponzi scheme alleged in the Complaint – are diametrically opposed to the vast majority of ZeekRewards investors that were net “losers” in the Ponzi scheme.

    One of the potential issues is whether Craddock — through his Florida-based entity Fun Club USA — gathered money from Zeek losers and used it to bolster the aims of Zeek winners in the early days after the SEC’s Aug. 17 Ponzi complaint. Such an act potentially could have put losers in opposition to their own best interests, given that Bell intends to file clawback lawsuits against winners to help fund the receivership estate.

    In its motion, the SEC said that Fun Club USA appears to have been formed 11 days after the SEC’s actions and that it and other nonparties had “yet to explain why an entity formed after the Court froze ZeekRewards assets and appointed the Receiver should be heard on the subject matter” of the motion to appoint an examiner.

    Read the SEC motion.