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Tag: Kenneth D. Bell

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

URGENT >> 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.

Feb 7, 2013
FOR ZEEKERS: Receiver Shows Judge Preliminary Mock-Up Of Online Claims Form; Kenneth D. Bell Says He’ll Seek Court Approval For Claims Process By End Of First Quarter

The court-appointed receiver in the Zeek Rewards Ponzi scheme case has proposed an electronic-filing process for claims. Pictured above is one of the screens from a preliminary mock-up of the online claims submission process. The “GCG” reference above stands for The Garden City Group, the claims agent recently retained by the receiver.

Kenneth D. Bell, the court-appointed receiver in the Zeek Rewards Ponzi-scheme case, has proposed a process by which claims would be filed online. Filers would proceed through a series of screens to enter information and would be permitted to upload information to substantiate their claims.

The proposed filing process — still in preliminary form — would require affiliates to submit separate claims for each Zeek Rewards username. Bell has said that an untold number of Zeek affiliates had multiple usernames.

Bell advised Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina that he “anticipates filing a motion seeking approval of the claims submission process . . . by the conclusion of the first quarter of 2013.”

View preliminary mock-up.

Read story by Jordan Maglich.

Visit the ASDUpdates Blog.

Visit the site of the Zeek receiver.

Feb 1, 2013
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.

Jan 30, 2013
LETTER TO READERS: Our Choice For The Most Important PP Blog Post Of 2012

Dear Readers,

The PP Blog’s choice for the “Most Important” story to appear on the Blog in 2012 is this one, dated July 28: “Site Critical Of Zeek Goes Missing After HubPages Receives Trademark ‘Infringement’ Complaint Attributed To Rex Venture Group LLC — But North Carolina-Based Rex Not Listed As Trademark Owner; Florida Firm That IS Listed As Owner Says It Has ‘No Knowledge’ Of Complaint.”

The story tells the bizarre tale of how purported Zeek “consultant” Robert Craddock, beginning on July 22, tried to gag K. Chang, a Zeek critic.

Our reasoning for selecting the Craddock tale appears below . . .

** __________________________________ **

UPDATED 1:30 P.M. ET (U.S.A.) This Blog is well aware that some MLMers would have you believe that nothing that appears here is important. The “case” against the Blog normally involves ad hominem attacks, along with bids to change the subject or cloud issues. Some of the campaigns against the PP Blog have been almost comical, falling along lines such as these: ASD can’t be a Ponzi scheme because it rained on Tuesday. Your [sic] an idiot and looser [sic] !!!!!

Other campaigns have been much more menacing.

One of the least-appreciated aspects of the Zeek Rewards story is that Zeek launched after Bernard Madoff made the word “Ponzi” a part of the national (and international) consciousness. Setting aside Zeek’s epic legal problems, Zeek and its “defenders” have a PR problem from which they’ll never recover. In short, it is fatal. The reason that it’s fatal is that it creates a dynamic that is virtually unique to the MLM HYIP sphere: While the rest of the world rails against Ponzi schemes and Ponzi schemers, the MLM HYIP sphere defends them.

But it gets stranger than that. Certain inhabitants of the HYIP sphere in effect are lobbying for the legalization of Ponzi schemes to make their lives more convenient. To this group, the answer to Ponzi schemes is even more Ponzi schemes. Their message is remarkably similar to the message of the gun lobby, which appears to be arguing that the answer to gun violence is even more guns — in strategic locations, of course, perhaps in educational institutions at the grade-school level through college. (And maybe at movie theaters and at the scene of rural house fires, in case first responders such as firefighters and EMTs encounter an ambush.)

You’ve heard by now that the rural town of Webster, N.Y., turned into Israel last week, we’re sure.

In fairness to the gun lobby, it must be pointed out that HYIP “defenders” who are lobbying for more Ponzi schemes even as the gun lobby lobbies for more guns have less legal standing than the gun lobby. Guns already are legal. Ponzi schemes are not.

But, getting back to Zeek’s PR problem . . .

Madoff was exposed in 2008 as a Ponzi schemer, a financial criminal of unprecedented hubris. Not only did Zeek debut after Madoff, it came after Scott Rothstein was exposed (in 2009) as a racketeer/Ponzi schemer — and after AdSurfDaily, a purported MLM “advertising” company, was exposed (in 2008 and 2009) as the largest online Ponzi scheme ever and was sued by its own members amid allegations of racketeering.

For some Zeek promoters, this well-known fact set makes them vulnerable to charges they are nothing less than members of an organized mob of habitual criminals who thrive by choosing to be willfully blind.

But, incredibly, it gets even stranger . . .

Zeek had members in common with AdSurfDaily and, like AdSurfDaily, told members that a purported “advertising” function was central to its business model. Meanwhile, Zeek became popular in North Carolina, after the infamous Black Diamond Ponzi caper was exposed in that very state. (Among other things, the Back Diamond fraud led to criminal charges being filed against a bank.)

Along those lines, Zeek (in May) began to show signs that it was experiencing banking problems after it had become popular in a region known to have served up another colossal mess, this one in nearby South Carolina. (The South Carolina mess was known as the “3 Hebrew Boys” scheme. It resulted in the longest Ponzi scheme sentences in the history of the South Carolina federal courts and, like AdSurfDaily and Zeek, served up a heaping helping of the bizarre, including claims by “sovereign citizens” that prosecutors had no authority over them.)

Moreover, the Zeek scheme for which some “defenders” continue to cheer featured recruitment commissions on two levels (like AdSurfDaily) and an “RPP” payout (like ASD’s 1-percent-a-day “rebates”). Finally, the Zeek scheme came to the fore after the U.S. Secret Service described ASD as a “criminal enterprise” and after the Attorney General of the United States made a special public appearance in Florida — fertile recruitment grounds for schemes such as Zeek and the stomping grounds of Madoff and Rothstein — to announce that the Justice Department was serious about putting people in jail for ravaging the U.S. economy with their Ponzi schemes.

“Palm Beach is, in many respects, ground zero for the $65 billion Ponzi scheme perpetrated by Bernard Madoff — the largest investor fraud case in our nation’s history,” Eric Holder said on Jan. 8, 2010, in southern Florida. “Before the house of cards Madoff built collapsed in 2008, before he was sentenced to 150 years in prison last June, before he became a notorious criminal on the cover of newspapers around the world, he was one of your neighbors.

“His former home sits just north of us,” Holder continued. “An 8,700-square-foot mansion that’s worth . . . well, we’ll know what its worth once the U.S. Marshals Service auctions it off and the proceeds are distributed to Madoff’s victims.”

Holder’s words are best viewed as a warning against willful blindness: Neither victim nor perpetrator be. There is unqualified pain and misery for both.

Despite Holder’s appearance in Florida — despite his reference to Madoff’s “house of cards” — AdSurfDaily promoters Todd Disner and Dwight Owen Schweitzer later sued the United States, claiming that its Ponzi case against ASD was a “house of cards.” Naturally they made this claim even as they were promoting Zeek.

And from what region were they promoting Zeek? Why, Southern Florida, of course, the same region Holder visited in 2010 to throw down the gauntlet against Ponzi schemers and their enablers.

Amid the historical circumstances cited above, Zeek Rewards began to encounter some heat from the media and from its own members. Some of the members did not understand why things at Zeek appeared to be so circuitous and why they were being asked to use payment processors such as AlertPay and SolidTrustPay that had been associated with fraud scheme after fraud scheme operating online, including ASD.

What to do if you’re Zeek?

Well, according to Florida resident Robert Craddock, a self-described Zeek consultant, you hire, well, Robert Craddock — and you use Robert Craddock to go after Zeek critics such as K. Chang.

The Most Important Story Of 2012

In the PP Blog’s view, the most important story to appear on the Blog in 2012 is this one, titled, “Site Critical Of Zeek Goes Missing After HubPages Receives Trademark ‘Infringement’ Complaint Attributed To Rex Venture Group LLC — But North Carolina-Based Rex Not Listed As Trademark Owner; Florida Firm That IS Listed As Owner Says It Has ‘No Knowledge’ Of Complaint.”

The story details efforts in July by Craddock to have K. Chang’s Zeek “Hub” at HubPages removed from the Internet just weeks before the SEC accused Zeek of being a $600 million Ponzi- and pyramid fraud. By early estimates, the alleged Zeek fraud was about five times larger than ASD in pure dollar volume ($600 million compared to $120 million) and perhaps 20 times larger in terms of the membership base (2 million compared to 100,000).

Incredibly, Craddock went after K. Chang after Deputy Attorney James Cole, speaking in Mexico, said that international fraud schemes have been known to “bring frivolous libel cases against individuals who expose their criminal activities.” And Cole also pointed out that fraudsters have a means of “exploit[ing] legitimate actors” and may rely on shell companies and offshore bank accounts to launder criminal proceeds.

If ever a company exploited legitimate actors, it was Zeek. Kenneth D. Bell, the court-appointed receiver, says there were approximately 840,000 Zeek losers who funded the ill-gotten gains of 77,000 winners. And Bell also says 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.”

There can be no doubt that some of those winners are longtime residents of the woeful valley of willful blindness. Not only do they “play” HYIP Ponzis for profit, they now publicly announce their intent to keep their winnings. Zeek has exposed the epicenter of willful blindness, the criminal underworld of the Internet. It is easy enough to view Craddock’s efforts as a means of institutionalizing willful blindness, first by seeking to chill speech and, second, by scrubbing the web of information that encourages readers to be discriminating so they won’t be duped by a Ponzi fraudster.

Bizarrely, it appears as though someone inside of Zeek believed it prudent to hire Craddock to go after K. Chang. If that weren’t enough, only days later Zeek used its Blog to plant the seed that unnamed “North Carolina Credit Unions” were committing slander against Zeek.

After the SEC brought the Zeek Ponzi complaint in August, Craddock quickly went in to fundraising mode. As incredible as it sounds, ASD’s Todd Disner — also of Zeek — was on the line with him.

What Craddock did was deplorable. It was as though he slept through the past four years of Ponzi history, all the cases that showcase the markers of fraud schemes and all the government warnings to be cautious. (Nongovernment/quasigovernment entities such as FINRA also publish such warnings, like this one on HYIP fraud schemes outlined by the PP Blog.)

The FINRA warning was published in 2010, prior to Zeek but after the Legisi, Pathway To Prosperity and ASD schemes were exposed. Legisi operator Gregory McKnight potentially faces 15 years in federal prison. He was charged both civilly (SEC) and criminally (U.S. Secret Service) — and Legisi pitchmen Matthew John Gagnon also was charged civilly and criminally by the same agencies. The SEC called Gagnon a “threat to the investing public.”

Any number of Zeek promoters pose a similar threat. They are at least equally willfully blind.

It is clear that some Zeek promoters also were promoting JSSTripler/JustBeenPaid, the debacle-in-waiting purportedly organized by Frederick Mann, a former ASD promoter. JSS/JBP has morphed into “ProfitClicking” amid reports of the “retirement” of Mann. Now, ProfitClicking “defenders” are threatening lawsuits against critics.

Naturally the stories advanced by ProfitClicking “defenders” are being improved by “defenders” of other obvious fraud schemes such as BannersBroker. A BannersBroker “defender” is over at RealScam.com — an antiscam site — suggesting that RealScam is a terrorist organization.

My God.

These claims are being made just days after Zeek figure Robert Craddock suggested he had contacts in law enforcement who were going to charge Blogger Troy Dooly with cyber harassment.

It wouldn’t sell as fiction.

Craddock’s bid to gag K. Chang easily was the most important story on the PP Blog in 2012. It’s the one that signaled that things are destined only to get crazier in MLM La-La Land and that the threat to U.S. national security only will grow.

Dec 27, 2012
Florida Man Who Hosts Zeek Calls Featuring Robert Craddock Was Winner In Botfly LLC Ponzi Scheme

UPDATED 3:57 P.M. ET (U.S.A.) Gregory Baker, a Florida man who hosts calls featuring Robert Craddock in the aftermath of the SEC’s Ponzi-scheme case against Zeek Rewards, is listed as a winner in the Botfly LLC Ponzi scheme case, one of the Sunshine State’s ugliest fraud schemes.

Prosecutors said that David Lewalski, Botfly’s now-imprisoned operator, tried to dupe investors into not cooperating with investigators and to coach investors on their testimony. The SEC last week accused Craddock of encouraging Zeek affiliates “not to cooperate” with Kenneth D. Bell, the court appointed receiver.

No charges have been brought against Craddock.

Court records show that Baker, who has used an address in the Tampa suburb of Valrico, was sued for his Botfly winnings by Michael E. Moecker, the court-appointed receiver in the Botfly case. Other records show that Baker presided over a now-defunct Florida entity known as Integrity Currency Traders LLC.

Integrity was formed on March 15, 2010. Less than three weeks later — on April 1, 2010 — then-Florida Attorney General Bill McCollum alleged that Botfly was a massive Ponzi scheme that affected at least 550 investors, gathered tens of millions of dollars and got its name from “an insect whose larvae burrow under the skin of mammals and eat their flesh until they mature into an adult fly.”

Bell asserted last week that he had “obtained information indicating that large sums of [Zeek] Receivership Assets may have been transferred by net winners to other entities in order to hide or shelter those assets.” The receiver did not identify winners who may be hiding assets.

Moecker sued Baker in December 2011, alleging that Baker had received $8,580 in ill-gotten gains from Botfly, a purported Forex company prosecutors said promised a return on “promissory notes” of 10 percent a month. Under the terms of a settlement with the receiver, Baker agreed on Jan. 31, 2012 — only weeks after being sued — to pay the Botfly receivership estate $7,722, according to court filings. The sum represented a discount of $858 from Baker’s alleged winnings.

Zeek planted the seed that it provided a return of 1.5 percent a day.

Whether Baker was a member of Zeek when he paid back his Botfly winnings is unclear. In August 2012, the SEC described Zeek as a $600 million Ponzi- and pyramid scheme that potentially had defrauded more than 1 million people. Baker now is listed on a website styled gofunplaces.info as a member of the “Top Team” and a leader of Go Fun Places, a nascent MLM program.

Lewalski operated Botfly in part from the Florida home of his 82-year-old mother, according to prosecutors.

After McCollum sued Lewalski/Botfly, Lewalski chartered a private Gulfstream IV jet at a cost of $172,744 to fly from the United States to Belgium, prosecutors said. He eventually became the target of a federal criminal probe and, in November 2011, was sentenced to 20 years in federal prison. Moecker, the receiver, sued Baker a month later.

Lewalski became infamous for wretched conduct before, during and after the Botfly probe. He directed conspiracy theories at investigators, complaining about “recent ‘Orwellian’ totalitarian tactics” allegedly employed by U.S. investigators in Ponzi scheme cases. He described a female attorney working for the receiver as a “c[$%!]” and a “Nazi,” and further described a female investigator for the Florida Department of Law Enforcement (FDLE) as “nuts” and a “bitch” — all while seeking to obstruct the Botfly probe, according to prosecutors.

After the SEC brought the Zeek Ponzi prosecution, Craddock dropped the name of McCollum in a conference call, describing the former Attorney General now in private practice at the SNR Denton law firm as a good friend. Craddock’s efforts to secure counsel through SNR Denton for a purportedly “protected” group of Zeek affiliates upset by the actions of the SEC and the appointment of a receiver in the Zeek case ultimately failed.

On the line with Craddock in one of his Zeek-related conference calls was Todd Disner, a Zeek pitchman and a figure in the AdSurfDaily Ponzi scheme story. McCollum sued ASD in 2008. His office later provided the names of ASD victims to the Feds as part of remissions program by which ASD members received compensation as crime victims from proceeds seized by the U.S. Secret Service in 2008. In November 2011, Disner sued Rust Consulting Inc., the remissions administrator. A federal judge eventually tossed Disner’s claim against Rust. That claim was brought in the same case in which Disner sued the United States, alleging that ASD was a legitimate enterprise and that the government had violated his Constitutional rights by seizing ASD’s database and business records.

A judge tossed Disner’s claims against the government, too. He is now appealing. Disner’s co-plaintiff in the case was fellow ASD and Zeek pitchman Dwight Owen Schweitzer, a former attorney whose license was suspended in Connecticut.

On the line with Craddock in another Zeek conference call was T. LeMont Silver. Like ASD’s Andy Bowdoin, Silver was a pitchman for a scheme known as OneX. In April, about four months before the SEC’s Zeek action, federal prosecutors described OneX as a “fraudulent scheme” and pyramid that was recycling money in ASD-like fashion. ASD was a Ponzi scheme that gathered at least $119 million, according to prosecutors.

Zeek appears not to have been Silver’s first encounter with an alleged Ponzi scheme. During the call with Craddock, Silver identified himself as a victim of a separate Ponzi scheme he did not name. He complained bitterly during the call about the purported lack of action by an unnamed receiver in the second scheme.

Craddock has been leading a chorus of boos against the SEC and the receiver in the Zeek case, planting seeds of doubt that Zeek was a Ponzi scheme. Court filings suggest that Zeek winners potentially have tens of millions of dollars in clawback exposure in the Zeek case.

When Baker was sued by the receiver in the Botfly case, the lawsuit effectively was filed on the same theory the Zeek receiver is using: that proceeds from a Ponzi scheme are ill-gotten gains. Whether Baker has exposure as a Zeek winner is unclear.

What is clear is that Craddock says reporters are spreading misinformation about Zeek. In a call last week, Craddock said he intended to file a police report against Blogger Troy Dooly after hearing from Zeek members who complained about how Dooly is covering the Zeek fallout on his MLMHelpDesk Blog.

Dooly once was a fan of Zeek and has acknowledged he was reimbursed for certain expenses by Zeek while covering Zeek. His reports on the scheme apparently have become too negative for Craddock, who once spoke positively of Dooly.

“I am always looking for a new Epic Adventure, so this should be fun to experience,” Dooly said on his Blog on Friday, in response to Craddock’s claims that he’ll use police contacts against Dooly.

As was the case when he dropped McCollum’s name while collecting funds to challenge the actions of the SEC and the receiver in the Zeek case, Craddock last week dropped the name of the Florida Department of Law Enforcement in his remarks about the police action he has planned against Dooly.

Dooly, Craddock ventured, needed to be charged with cyber harassment and gotten “rid of” by law enforcement.

Whether FDLE would take kindly to Craddock’s dropping of its name was not immediately clear.

In the 2010 Botfly case, McCollum’s office said this (italics added):

The order to freeze assets and the injunction were obtained yesterday after an investigation by a dedicated team in the Attorney General’s Office that works under the Florida Securities and Investor Protection Act, a new law championed last year by the Attorney General and bill sponsors Representative Tom Grady and Senator Garrett Richter. The law provides the Attorney General’s Office with greater authority to pursue investment and securities fraud.

Dec 24, 2012
Conference Call By Zeek Receiver Under Way [Call Ended At 6:03 P.M.]

EDITOR’S NOTE: This post was updated at 2:48 p.m. on Dec. 20 to include this link to a recording of the receiver’s Dec. 17 call. The information below reflects the PP Blog’s original notes from the call on Dec. 17 . . .

UPDATED 7:27 A.M. (DEC 18, U.S.A.) A conference call by Kenneth D. Bell, the court-appointed receiver in the Zeek Rewards Ponzi scheme case, is ~~under way.~~ (Call ended at 6:03 p.m., as noted below.) The call began at 5 p.m. ET (U.S.A).

UPDATE 5:15 p.m. Bell, formerly a federal prosecutor, has said he knows what a Ponzi scheme is — and “this was one.” Somewhere between $500 million and $600 million was lost. The receivership estate has recovered about half of that. “We’re roughly half-way home, but that’s a huge gap,” Bell said.

UPDATE 5:18 p.m. A claims form for victims should be ready by the end of January, Bell said. It’s doubtful that victims can be made 100 percent whole.

UPDATE 5:21 p.m. There are some sad, Zeek-related stories of loss out there. Bell said he had emails from people who’d lost anywhere from $49 to $10,000.

Some folks are worried they can’t establish their loss because they sent money to their sponsor, not Zeek parent Rex Venture Group, Bell said. A means of addressing such claims is being established.

UPDATE 5:25 p.m. Bell said some people have questioned whether he is dragging out the receivership to drive up legal fees. He asked listeners to trust him, and he denied foot-dragging. His “goal is to be the most cost-effective receivership in history,” Bell said.

UPDATE 5:33 p.m. Bell said he did not know if other people will be charged by authorities in connection with Zeek. (Zeek/Rex operator Paul R. Burks is the only person charged to date — civilly by the SEC.)

He added that he’ll be prepared to prove Zeek was a Ponzi scheme as he pursues winners in clawback litigation. A motion by Zeek winners to appoint attorney Michael Quilling examiner was “absurd,” he said. He did not reference Quilling by name.

UPDATED 5:38 p.m. Bell also will oppose a motion by attorney Ira Lee Sorkin to dissolve the receivership. He did not mention Sorkin’s name. (Sorkin was Bernard Madoff’s defense attorney.)

UPDATED 5:41 pm. Bell is contemplating an interim distribution to victims. More study needs to be done, but “I don’t see any reason to sit on $300 million,” he said. No timetable has been established for an interim distribution.

UPDATED 5:44 p.m. Zeek’s database “is a real mess,” Bell said. He is studying a means by which victims could gain access to their back offices to gain access to information, but such a capability could be cost-prohibitive.

UPDATED 5:48 p.m. Some Zeek members have poor records, but others have good records that are helping fill in gaps in Zeek’s database. “We will try to help you establish your claim,” Bell said. The more records members can submit, the better.

UPDATED 5:50 p.m. The plan is to treat all Zeek members equally. Distributions likely will occur all at once. No one has received money from the receivership to date.

UPDATED 5:52 p.m. In the early days of the receivership, Bell said he received “tens of thousands” of emails.

UPDATED 5:54 p.m. Bell will sell real estate and furnishings owned by Zeek, he said.

UPDATED 5:58 p.m. There are “eight to 10” core members of the Zeek receivership team. At the moment, some of the lawyers are arguing with lawyers on the other side of the issues, Bell said.

UPDATED 6 p.m. Bell said if Paul Burks still has Zeek receivership property, he’ll be treated as a winner. The case was not over simply because Burks paid a $4 million fine to the SEC, he said. It was not up to the receivership to determine if Burks would be charged criminally, Bell said.

UPDATED 6:03 p.m. Call ended. Bell thanked those supporting his efforts and said he understood why some people would not.

MISC NOTES AT 6:05 p.m. What happens to possible Zeek “ringleaders” is the responsibility of law enforcement, Bell said during the call.

The current math, he said, looks something like this: 840,000 losers and 77,000 winners. “A lot” of people had more than one Zeek username, Bell said. Every dollar the receivership estate spends on court battles is a dollar that won’t go to victims, Bell said. Prudent choices have to be made when deciding how to fund the receivership estate in a cost-effective manner to maximize the distributions to victims, Bell said. There were “boxes and boxes” of cashier’s checks at Rex headquarters, Bell said.

Those cashier’s checks were receivership property under the law, Bell said.

Dec 20, 2012
BULLETIN: Zeek Receiver Says ‘Large Sums . . . May Have Been Transferred By Net Winners To Other Entities In Order To Hide Or Shelter Those Assets’

BULLETIN: (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.

Dec 20, 2012
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’

URGENT >> 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.

Dec 18, 2012
BULLETIN: Zeek Receiver Opposes Appointment Of ‘Examiner’; Zeek Cheerleaders, ZTeamBiz Missives Get A Mention; Let Them ‘Employ Counsel At Their Own Expense,’ Bell Urges Judge

“The ZeekRewards scheme has claimed hundreds of thousands of victims who lost hundreds of millions of dollars at the hands of the scheme’s winners who solicited their participation. Now, apparently not appreciating the irony, the lawyer for hundreds of the largest net winners asks the Court to pay him to be an ‘examiner’ or ‘representative for the affiliates,’ yet again at the expense of the scheme’s victims. The requested appointment is unnecessary and ill-advised because it would duplicate and complicate this Court’s, the Receiver’s, and the SEC’s efforts to compensate the victims, not to mention directly reduce the Receivership Assets available to pay them. Furthermore, the individual whom the net winners recommend for appointment (or more correctly who recommends his own appointment) ignores the inherent conflict of interest in seeking to somehow represent both the scheme’s ‘winners’ and ‘losers,’ two groups with irreconcilably adverse interests.” — Zeek receiver Kenneth D. Bell, Dec. 17, 2012

Section from an email received by the court-appointed receiver in the Zeek Rewards Ponzi scheme case. The note asks the receiver to oppose efforts by Zeek winners to intervene in the case. Source: federal court files.

Shortly after the SEC described Zeek Rewards on Aug. 17 as a $600 million Ponzi- and pyramid scheme, Zeek figure Robert Craddock solicited donations purportedly to hire an attorney and form a “protected” group of affiliates. Whether Zeek losers gave to the effort conducted at ZTeamBiz through Fun Club USA, Craddock’s Florida-based entity, remains unclear.

On Aug. 29, PP Blog guest columnist Gregg Evans questioned how Zeek winners and losers ever could be on the same side.

Today the court-appointed receiver effectively was asking the same question. His conclusion was that they could not — and he asked Senior U.S. District Judge Graham C. Mullen to reject a contention by certain Zeek “winners” that they could.

“The net winners have already been put on notice that they will be asked to return their winnings to the Receiver for reimbursement to the net losers,” Bell said in court filings. “On the other hand, the net losers hope that they can recoup some of their losses from the gains of the scheme’s net winners . . . Thus, the winners and losers are plainly opposed in their respective interests regarding the winners’ efforts to keep their winnings.”

Presumptive Zeek clawback targets Dave Kettner, Mary Kettner and David Sorrells asked Mullen last month to appoint Dallas attorney Michael Quilling as “examiner” over all Zeek affiliates. That should not be permitted to happen, Bell contended, because Quilling “has appeared in this case already as an attorney for Fun Club USA and represents the interests of those net winners.”

In a bid to bolster his claim, Bell cited Craddock ties to Dave Kettner through ZTeamBiz and quoted from a letter attributed to Kettner.

“In a similar vein, Mr. Kettner sent a letter seeking donations from affiliates that stated, “The SEC has tried to make us all believe that Zeek Rewards was an ‘investment’ and a Ponzi scheme. All the pages that were submitted by the SEC indictment [sic] has [sic] all been one sided and what we believe to be a misrepresentation of the truth and facts of what Zeek Rewards was as a viable and legal business,” Bell advised the judge in a footnote that included the URL to ZTeamBiz.

Beyond that, Bell argued, the Craddock entity, the Kettners and Sorrells had no standing in the case brought by the SEC.

And Bell said he has heard from Zeek members who want him to oppose the appointment of Quilling as examiner.

Here, according to Bell, is a passage from one such Zeek member who contacted Bell after learning about the “examiner motion”:

As one of the many losers in Zeek Rewards I wish to encourage you to do whatever is possible to block the motion filed on behalf of Fun Club USA (Robert Craddock) David & Mary Kettner and David Sorrells, asking that their personal attorney Michael J Quilling be appointed as the Examiner to oversee and represent the interest of ALL former Zeek Rewards affiliates.

To many of us this is just another way for another attorney firm to slow up your process of recovery and to diminish the amount of funds to be returned to those of us who are in hopes of being able to recover some of our losses.

Personally I feel that their agenda is also to help block your efforts to recover funds from the 1200 who received subpoenas.

The Kettners and Sorrells potentially have exposure of nearly $2 million in receivership clawback litigation, Bell said.

At least two apparent Zeek winners represented by attorney Ira Lee Sorkin also oppose the appointment of Quilling as examiner, according to filings last week.

Todd Disner, a Zeek affiliate and figure in the AdSurfDaily Ponzi scheme story, once was on a conference call with Craddock.

In recent remarks, Craddock said Disner was in Hong Kong with a “lost” passport.

Reports now have surfaced that Craddock is pitching a “program” known as Offer Hubb that uses a Wyoming mail drop as its address. Disner’s name was listed on the Offer Hubb pitch, according to BehindMLM.com.

Dec 17, 2012
URGENT >> BULLETIN >> MOVING: Ira Lee Sorkin, Bernard Madoff’s Attorney, Files Motion For Clients Who Are Potential Clawback Targets For More Than $1.56 Million In Zeek Case

URGENT >> BULLETIN >> MOVING: (3RD UPDATE 11:33 P.M. ET (U.S.A.) Famed defense attorney Ira Lee Sorkin is seeking pro hac vice admission to practice in U.S. District Court for the Western District of North Carolina on behalf of two prospective clawback targets in the Zeek Rewards Ponzi scheme case.

Sorkin is with Lowenstein Sandler PC in New York. He perhaps is best known as Ponzi schemer Bernard Madoff’s defense counsel. Sorkin also is the former head of the SEC’s New York regional office.

Sorkin’s clients are Zeek affiliates Trudy Gilmond and Kellie King, and Sorkin is arguing that Zeek did not sell securities and that the receivership should be dissolved.

Gilmond is the prospective target of a clawback action for more than $1.364 million, with receiver Kenneth D. Bell asserting she put in only $3,105, according to Sorkin’s motion. King potentially faces a claim from Bell for more than $205,180 after paying in only $1,492, Sorkin said in the filing.

Sorkin, according to a separate motion, also contests how the receiver issued subpoenas and is opposing a motion late last month by Dallas attorney Michael J. Quilling to be appointed “examiner.”

Quilling sought “to represent the collective interests of the Affiliates and all creditors of the receivership estate” and desired to “be compensated out of the receivership estate,” Sorkin argued.

But that should not be permitted to happen, Sorkin contended.

From Sorkin’s motion (italics added):

It is quite clear from the Receiver’s Preliminary Liquidation Plan and the defective subpoena issued to Ms. Gilmond that Qualified Affiliates have inherently conflicting positions as to one another, and thus cannot be jointly represented. To illustrate, it is in the interests of a Qualified Affiliate who is a “net-winner” to challenge the Receiver’s authority to clawback funds because the Receiver intends to use the “net-winner’s” money to pay net-losers. To the contrary, it is in the interests of a Qualified Affiliate who is a net-loser to support the Receiver’s efforts because the Receiver will take money from the “net-winner” and distribute it to the “net-loser” Qualified Affiliate. As such, an Examiner cannot be appointed to represent all of the Qualified Affiliates because the Examiner would have clients with inherently contradictory positions as to one another.

The motion by Sorkin potentially puts Gilmond and King at odds with positions taken by Quilling clients and potential Zeek clawback targets Dave Kettner, Mary Kettner and David Sorrells. The Kettners and Sorrells, for example, moved to have Quilling appointed examiner.

The Kettners and Sorrells potentially have a combined clawback exposure of nearly $2 million, according to court filings.

Zeek records, according to letters from Bell cited by the trio, suggest Sorrells received $945,539 from Zeek while paying in only $1,695. Dave Kettner received $537,577.95 while paying in only $1,378, and Mary Kettner received $465,866.67 while paying in only $1,495.

Dec 14, 2012
BRIEF: Zeek Receiver Broadens Reach, Files In Southern District Of Florida — And In Northern Mariana Islands Nearly 15,000 Miles Away

Bird Island, Saipan. Source: website of U.S. District Court for the Northern Mariana Islands.

In yet another demonstration of the reach of the alleged Zeek Rewards Ponzi scheme, court-appointed receiver Kenneth D. Bell has filed paperwork in the Southern District of Florida — and in Northern Mariana Islands District Court.

The Northern Mariana Islands are a U.S. Commonwealth. Saipan is perhaps the best-known island in the chain. The flight distance between Saipan and Miami — the city in which the receiver made the filing in the Southern District of Florida — is about 14,571 miles, according to Flightpedia.

Saipan is more than 3,500 miles southwest of Hawaii, the U.S. island state in the Pacific.

Bell previous filed in Guam, a U.S. territory in the western Pacific.

In August, the SEC described Zeek as a $600 million Ponzi and pyramid scheme with international reach.

Records suggest Bell has filed in more than 70 of the 94 U.S. districts in advance of anticipated clawback actions against Zeek winners.

Dec 13, 2012