BULLETIN: (2nd update 9:54 p.m. EDT U.S.A.) MLM attorney Kevin Grimes and a companion entity known as MLM Compliance VT LLC received $843,000 from the Zeek Rewards pyramid- and Ponzi scheme through the sale of a “bogus compliance course,” receiver Kenneth D. Bell has alleged in an amended complaint.
The amended complaint, filed yesterday, includes MLM Compliance as a defendant. The original complaint filed last month did not. Also new in the amended complaint is the figure of $843,000. The original complaint did not specify a specific sum.
Co-defendants also include Grimes and the Grimes & Reese law firm.
“In total, Grimes and MLM Compliance received approximately $843,000 from RVG for the bogus course,” Bell alleged. “The final payment from [Zeek operator Rex Venture Group] to Grimes and MLM Compliance was, upon information and belief, a check rushed to and indorsed by Kevin D. Grimes for $342,510, which posted on August 13, 2012, less than a week prior to ZeekRewards’ shutdown.”
The course, Bell alleged, served as “window dressing” for the Zeek fraud. The SEC shut down Zeek on Aug. 17, 2012.
Some MLMers immediately raced to other fraud schemes — after participating not only in Zeek, but in the AdSurfDaily MLM Ponzi scheme and other “programs.”
Zeek gathered on the order of $850 million in a combined pyramid- and Ponzi scheme that operated for about two years. It was “an internet based so-called ‘MLM’ (multi-level marketing) program,” Bell said.
Grimes and MLM Compliance engaged in “Unfair and Deceptive Trade Practices” by creating the course, which “served to bolster what they knew to be an unlawful scheme,” Bell alleged.
Bell is suing Grimes and the Grimes and Reese firm for a sum in excess of $100 million, alleging they were unjustly enriched and engaged in Legal Malpractice, Negligence, Breach of Fiduciary Duty and Aiding and Abetting Breach of Fiduciary Duty.
Florida “Expat” and Zeek Rewards Ponzi-scheme figure T. LeMont Silver yuks it up earlier this year in the Dominican Republic. Source: YouTube.
MLM, witness your latest PR train wreck — as voiced by alleged Zeek “winner” and purported “revenue sharing” consultant/trainer and Florida “Expat” T. LeMont Silver. (Video below.)
In a consolidated motion in response to motions by various alleged Zeek “winners” to dismiss the clawback lawsuits against them, the court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has asked the court to take “judicial notice” of two YouTube videos featuring Silver, a veteran HYIP huckster.
In typical HYIP fashion that marries the merely imponderable to the truly bizarre, one of them painfully is titled, “(T. Le Mont Silver, Sr.), (7 Figure Producer) shares about Plan B part #2.” (Bold emphasis added by PP Blog.)
The HYIP sphere, the staging waters for boat sharks who throw purported rescue jackets to victims bloodied in the water from earlier scams and desperately struggling to stay afloat, is infamous for Plans B.
Although the “program” isn’t identified in the video, Silver’s Plan B appears to be the ill-fated JubiRev/JubiMax. (See June 18, 2013, BehindMLM.com story.)
MLM may have a problem with “serial participants” in Zeek-like schemes to defraud, Zeek receiver Kenneth D. Bell suggests in the motion asking the court to take judicial notice of the Silver videos.
The language chosen by the receiver is similar to language the SEC used in 2013 to describe MLM HYIP huckster Matthew John Gagnon. Gagnon, the SEC said at the time, was a “serial fraudster.”
The context of the SEC’s Gagnon prosecution may be important. Indeed, one of the “programs” he was accused of promoting was the infamous Legisi scheme, a semi-offshore debacle the SEC took down in 2008. Like Zeek, the Legisi case started with asset freezes and the appointment of a receiver.
Time slowly marched on. But in 2009, the receiver sued Gagnon. In 2010, the SEC filed civil charges against him. He was charged criminally in 2011.
Legisi, the SEC said, operated a “classic pooled investment vehicle.” In one of the Silver videos cited by the receiver, Silver describes his “Plan B” program as the operator of a “pot.”
Women between the ages of 30 and 55 were the financial targets of the “opportunity,” according to one of the videos referenced by Bell.
The video tends to suggest that Silver understood how Zeek got caught by using highly questionable “bids” as its “product” and that the MLM’s trade’s serial fraud wing immediately sought more clever disguises — hiding an HYIP scam behind the purported sale of ostensibly legitimate products such as cosmetics and diet shakes, for instance.
Silver has appeared in “many” online videos and has promoted “several ‘revenue sharing’ schemes in addition to Zeek,” receiver Kenneth D. Bell advised Senior U.S. District Judge Graham C. Mullen.
Bell supplied the court links to the videos.
In the HYIP sphere, the term “revenue sharing” is used to make schemes appear to be innocuous.
As noted above, the HYIP sphere is infamous for purported Plans B, which typically are cosmetically tweaked reload schemes designed to fleece an initial group of marks for a second time.
Here, it’s appropriate to revisit HYIP history for a second time. If you believe AdSurfDaily Ponzi schemer Andy Bowdoin caused an almost inconceivable amount of PR damage to the MLM trade by comparing the U.S. Secret Service to “Satan” and the 9/11 terrorists, wait until you get a load of what T. LeMont Silver does in one of his videos cited by the receiver. (Video appears at bottom of this column.)
By way of background, the HYIP sphere is infamous for dropping the names of famous entities and people, even if they have no ties whatsoever to the “opportunity” being presented.
Although Silver apparently isn’t selling Avon or Amway or Mary Kay or Herbalife or ViSalus in the video, he drops the names of all of them (and more). Along the way he drops in a veiled reference to Zeek, describing it as a penny auction “program” in which affiliates would “make large purchases of . . . let’s say ‘bids’,” with Zeek’s product creating a “big issue” with regulators.
Silver notes that he’ll provide “training” for the upstart “program,” positioning it as a way for average MLMers to make money without having to recruit or to orchestrate “dog and pony” presentations. Regardless, Silver assures the audience that he’s a master of the MLM dog and pony. He further suggests that, because Zeek’s “bids” had caught the attention of regulators, the trade’s braintrust now is turning toward “more traditional MLM-type products and services.”
Putting lipstick on brand-new HYIP pigs or evolving ones is part and parcel to the HYIP sphere. Silver’s video suggests that the HYIP trade has learned that sketchy products such as Zeek’s bids might not fly and now was concentrating on attracting women between the ages of 30 and 55 by wrapping cosmetics, weight-loss shakes, home products and travel into a purported “revenue sharing” model in which participants who bought in would receive “pro rata” shares from a giant revenue pot.
After suggesting he has inside information about the new HYIP regime, Silver curiously observes that he is “very, very key on genealogical integrity.” We interpret this to mean that he’d be exceptionally pleased if people with existing MLM organizations within traditional companies would port them into his next scam.
Even though he’s apparently not selling Amway in the video, he bizarrely also prompts viewers not to dare “call Amway Scamway.” Equally bizarrely, Silver congratulates the company for “legitimizing this industry” back in the 1970s by purportedly “kick[ing] the backside” of the U.S. government and the government’s “[p]atootie.”
“My goodness,” he says. “Thank you, Amway.”
Yes. T. LeMont Silver has now publicly thanked Amway for kicking the government’s ass 35 years ago and, under his interpretation of In the Matter of Amway Corporation, Inc., et al., paving the way for people to send tremendous sums of money to companies with presumptively better disguises than Zeek.
Amway is a lot of things — good and bad — to a lot of people. Unlike Zeek, however, it is not an HYIP that offered “passive” investors who sent in $10,000 or smaller sums a laugh-out-loud, average daily return of 1.5 percent, basically in perpetuity.
Gawd!
Our take on Silver’s take of the 1979 non-HYIP Amway decision is that it somehow made preposterous “revenue sharing programs” as seen in the HYIP sphere lawful or that all HYIP schemes are lawful if they have product such as those offered by Avon, Amway, Herbalife and the others. But the pyramid analysis, of course, does not exclusively hinge on whether a company has a “product.” If it did, Zeek (“bids”) and BurnLounge (“music”) would still be in business. Moreover, there would be no Bill Ackman/Herbalife dichotomy, no question about whether Herbalife was Jurassic Park or Disneyland. In short, MLM heaven on earth would not be a rumor, it would be a reality.
“Plan B,” meanwhile, is a virtual calling card of HYIP swindles, with prospects typically given instructions to join at least two “programs” in case one of them fails or to quickly join another “program” when a favored one collapses or encounters regulatory scrutiny.
Silver is a longtime pusher of “Plan B” MLM HYIPs, which, as noted above, typically call themselves “revenue sharing programs.” He’s hardly alone. Zeek figure and purported MLM expert Keith Laggos pushed the Lyoness “program” to Zeekers as a “Plan B” just prior to the Aug. 17, 2012, collapse of Zeek. (See Aug. 12, 2012, PP Blog editorial: “Karl Wallenda Wouldn’t Do Zeek.”)
Lyoness, among other things, dropped the name of Nelson Mandela in sales promos.
Among the tips Laggos provided to listeners of a Lyoness conference call was this: “Don’t put no more than 70 percent back in [Zeek]. Take out 20 or 30 percent [on] a daily basis. [Unintelligible.] This would be a good place. But, by the same token, if you put $10,000 in Zeekler, if nothing happens over the next year, you’ll probably make $30,000 or $40,000, if that’s all you do without building the front end, the matrix . . . The same amount of money in Lyoness, you’re looking . . . and not doing anything else, without single sponsoring . . . you can probably make a quarter-million dollars.”
One of the problems with HYIP schemes is that they cause polluted money to flow between and among scams, in part because the scams have serial promoters in common. The inevitable result is that payment vendors become warehouses for fraud proceeds, prompting the government to apply for asset freezes and account seizures to stop the flow of tainted cash.
Receiver Cites Second Silver Video
The second video featuring Silver — an alleged winner of more than $1.71 million in Zeek — is titled “Internet Entreprenuer Family Chooses Cabrera [Dominican Republic] For Their New Expat Lifestyle.” It shows Silver and his wife — another alleged Zeek winner — lounging in the Dominican Republic after the collapse of the Zeek scheme.
Prior to relocating to the Dominican Republic, Silver told his downline in a failed MLM “program” known as GoFunPlaces to take advantage of “low-hanging fruit” (other disaffected GoFunPlaces members) and become recruiters for a “program” known as Jubimax. The “programs” ultimately accused each other of fraud.
Silver also promoted “OneX,” which federal prosecutors in the District of Columbia described as an AdSurfDaily-like, money-circulating scheme. ASD operator Andy Bowdoin, now jailed after the collapse of the ASD fraud in 2008, also promoted OneX, explaining to prospects that they’d earn $99,000 very quickly and that he’d use the money he’d earned to pay for his criminal defense in the ASD case.
Bowdoin asserted OneX was great for college students. Silver asserted that positions being given away were worth $5,000.
Prosecutors also linked Bowdoin to AdViewGlobal, an ASD reload scam that operated as a “Plan B.” AdViewGlobal, which purported to operate offshore but actually was operating from Florida and Arizona, mysteriously vanished in the summer of 2009.
Zeek receiver Bell, who connected alleged Zeek winner Todd Disner to the ASD Ponzi scheme in court filings this week, now says in court filings that certain Zeek clawback defendants “may well be serial participants in these types of schemes.”
One of the things that makes Zeek-related litigation unique in the history of actions flowing from HYIP schemes is that Bell is not limiting his lawsuits to a relatively small universe of alleged major winners such as Silver. In a proposed class action, he’s also pursuing more than 9,000 alleged winners of smaller sums (more than $1,000 but less than $900,000), something that could have a long-needed chilling effect on serial promoters who may enter an HYIP Ponzi knowingly but less publicly.
Some early HYIP Ponzi entrants may recruit heavily at first and be satisfied with smaller sums, because the larger plan is to get out quickly on the theory smaller winners won’t be pursued.
Regulators have warned for years about the online phenomenon of “riding the Ponzi.”
Some money could be in the hands of Zeek victims on Sept. 30. Senior U.S. District Judge Graham C. Mullen has approved a motion by the court-appointed receiver to make an interim, partial distribution of allowed claims.
EDITOR’S NOTE: Zeek receiver Kenneth D. Bell has issued the following statement (below). The original is here and is dated July 30, 2014. “RVG” stands for Rex Venture Group, the operator of Zeek. Zeek is alleged to be a Ponzi- and pyramid scheme that gathered on the order of $850 million. The receiver’s statement addresses U.S. domestic class-action claims against more than 9,000 alleged “winners.” Still engaging in willful blindness, pushing HYIP schemes and hoping to harvest “commissions” from them — and perhaps deluding yourself into believing there will be no consequences?
Zeek-related matters have been inside the courts for nearly two years, meaning the litigation is at an advanced stage compared to, say, TelexFree. Zeek’s history therefore may provide a roadmap of sorts on what’s in store downstream for the TelexFree “program” and certain insiders and promoters. On a side note, the trustee in the TelexFree bankruptcy case is seeking court approval to issue subpoenas to many businesses and people who came in contact with that “program.” TelexFree, which operated in the United States, Brazil and other countries and appears to have gathered more than $1 billion, is known to have had promoters in common with Zeek. By one account, Zeek had 100,000 promoters in Brazil alone.
Bell is expected to file litigation against alleged international Zeek “winners.” How deeply that will touch Brazilian affiliates is unclear.
** Editor’s Note update at 2:08 p.m. Please see Comments thread below for possible Zeek promoter tie-ins to the Profitable Sunrise and Text Cash Network schemes. **
** _____________________________ **
Zeek receiver Kenneth D. Bell. December 2013 screen shot.
ANNOUNCEMENT FROM THE RECEIVER – JULY 30, 2014
On March 3, 2014, I announced the filing of a lawsuit to obtain the return of the money paid out to net winners in the ZeekRewards scheme in excess of the amount they paid into RVG. In that lawsuit, Kenneth D. Bell v. Todd Disner, et al., Civil Action No. 3:14-cv-91, I made claims against more than 10 of ZeekRewards’ largest “net winners” in the United States asking that the Court order them to repay the net winnings they received from the scheme. I also made class action claims against approximately 9,400 ZeekRewards net winners in the United States who each won more than $1,000.
Today, I have filed with the Court a motion asking the Court to certify this Net Winner Class and asked that the Court appoint one or more of the largest net winners sued by name as class representatives because they will, by virtue of their own defense to the same claims, be adequate and appropriate representatives for the rest of the Net Winner Class. Proposed Net Winner Class members are not required to file any response to the motion, but may, of course, discuss this matter with legal counsel if they choose to do so. The deadline for the named defendants to respond to the motion has been set for August 18, 2014.
A copy of the Motion to Certify the Net Winner Class and the Memorandum of Law in Support of the Receiver’s Motion to Certify the Class can be found here: Motion and Memorandum. Also, a list of those individuals whom the Receiver believes won more than $1,000 and therefore would be included in the Net Winner Class can be found here.
BULLETIN: (UPDATED 4:29 P.M. EDT U.S.A.) Zeek Rewards receiver Kenneth D. Bell — for the first time — has referenced the AdSurfDaily Ponzi case in a federal court filing. Zeek, believed to have gathered on the order of $850 million, is known to have had participants in common with ASD, a $119 million fraud.
Some MLM HYIP promoters proceed from fraud scheme to fraud scheme, racking up windfalls along the way.
Bell’s specific reference to ASD is in the context of alleged Zeek “winner” Todd Disner, already the subject of a clerk’s entry of default in a Zeek receivership lawsuit against Disner and other alleged winners.
Disner was defaulted for not entering a defense.
After not defending against the receiver’s claims, Disner then sought to file pro se to set aside the default. Bell is seeking more than $2 million from Disner, including more than $1.8 million in alleged Zeek winnings, plus interest.
Bell said today in court filings that the default entry should stand. Meanwhile, the receiver strongly suggested that Disner, after earlier having played games in ASD-related litigation, now was trying to do the same thing with Zeek.
“Mr. Disner is no stranger to litigation,” Bell said. “For instance, as a promoter of the Ad Surf Daily Ponzi Scheme, Disner earned significant funds and filed a twenty-nine page pro se Complaint for Declaratory Relief against the federal government in late 2011 claiming wrongful seizure of his Ad Surf Daily Ponzi scheme winnings . . . ”
Disner eventually lost the case he filed against the government in the Southern District of Florida — this after he earlier lost a pro se bid to intervene in the ASD case in the District of Columbia.
Disner’s co-plaintiff in the Southern Florida case was former AdSurfDaily pitchman Dwight Owen Schweitzer, potentially a Bell Zeek target along with Disner. Schweitzer, a former attorney whose license to practice law was suspended in Connecticut, is listed as a “winner” of more than $1,000 on the Zeek receivership website.
“Mr. Disner also has a history of dilatory action in litigation,” Bell said. “In the [ASD-related] case he filed against the United States, the government filed a motion to dismiss on May 18, 2012. However, Disner failed to provide any response to the motion to dismiss. As a result, the court was forced to order Disner to file a response . . .
“In light of his history, Mr. Disner was aware of the severe consequences of a failure to plead or defend [in the action against Zeek winners],” Bell said. “Despite this clear knowledge, he nonetheless failed to raise a hand until after default had been entered in this matter. For this reason as well, the motion should be denied.”
Bell also moved today to certify a class of more than 9,000 net-winner defendants from Zeek, all of whom allegedly won more than $1,000. Schweitzer potentially could be a member of this class, given the appearance of his name in a document on the receivership website maintained by Bell.
BULLETIN: (2nd Update 8:29 p.m. EDT U.S.A.) Three individuals alleged to be key insiders of the Zeek Rewards Ponzi- and pyramid scheme have agreed to a $600 million consent judgment with the court-appointed receiver.
Receiver Kenneth D. Bell sued several alleged insiders, including Zeek operator Paul R. Burks, former COO Dawn Wright-Olivares and programmer Daniel Olivares, in late February.
Now, Burks, Wright-Olivares and Olivares have agreed to a consent judgment of $600 million “to be satisfied with substantially all of their assets,” Bell said in court filings today.
The settlement must be approved by the court. Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina is presiding over the cases of the alleged insiders.
Other alleged insiders continue to challenge Bell’s complaint. If judgments are entered against Burks, Wright-Olivares and Olivares, continued litigation by other alleged insiders increasingly could become an uphill climb.
Bell’s filing today also reveals that the receivership has recovered $107,697 from an FXDirectDealer (FXDD) account linked to Wright-Olivares through an entity known as “Wandering Rex.”
FXDD was sued by the U.S. Commodity Trading Futures Commission (CFTC) last year, amid allegations it failed in its supervisory obligations by “employing a trading system that gave FXDD pricing advantages over [customers] and harmed thousands of its retail customers.”
Whether Wandering Rex was a harmed customer was not immediately clear.
“Wandering Rex was an entity established by Dawn Wright-Olivares and/or her affiliates through which Rex Venture Group funds were fraudulently transferred,” Bell advised Mullen today in a quarterly report to the court.
Summary of Todd Disner’s alleged Zeek winnings. Source: Exhibit by court-appointed receiver.
Zeek Rewards “winner” Todd Disner owes the receivership estate $2,079,757.88, according to a motion asking the court clerk to enter a default judgment.
Receiver Kenneth D. Bell filed for the judgment July 9 in federal court for the Western District of North Carolina, seeking not only Disner’s alleged Zeek haul of $1,800,037.06, but also interest of $279,720.82.
Zeek’s records show that Disner paid $11,810.49 into the “program,” beginning with an initial outlay of $480 on March 4, 2011, shortly after Zeek started business.
From that initial outlay and others, $1,811,847.55 flowed back to him, the receiver advised Senior U.S. District Judge Graham C. Mullen and the court clerk. The lion’s share of Disner’s outlay — $10,000 — was paid to Zeek on July 6, 2012. Zeek collapsed six weeks later, on Aug. 17, 2012.
Disner’s last Zeek withdrawal totaled $102,617.73 and occurred on July 30, 2012, less than three weeks prior to the SEC action that spelled doom for the “program.” His largest withdrawal, according to the receiver’s filing, was for $177,026.27 on July 9, 2012.
A former AdSurfDaily Ponzi pitchman who once sued the United States for alleged misdeeds in the ASD case, Disner regularly withdrew tens of thousands of dollars at a time from Zeek, according to the receiver’s filing.
Zeek operated as part of Rex Venture Group.
Bell also filed today for clerk’s default judgment against alleged winners David Sorrells and Michael Van Leeuwen. The receiver is seeking $1,197,241.12 from Sorrells, including $157,672.63 in interest. Meanwhile, he is seeking $1,617,444.99 from Van Leeuwen, including $213,012.07 in interest.
Disner’s unsuccessful lawsuit against the United States for allegedly violating his right to privacy in the ASD case was docketed on Nov. 7, 2011.
Bell’s filing shows that Zeek paid Disner $7,199.49 on the same day.
BULLETIN: (UPDATED 9:55 A.M. EDT, JULY 3, U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has moved for default against alleged Zeek winner Todd Disner. Disner, of Miami, also was a pitchman for the 2008 AdSurfDaily Ponzi scheme, a $119 million fraud that put ASD operator Andy Bowdoin in federal prison.
Disner received more than $1.875 million through Zeek, receiver Kenneth D. Bell alleged. Zeek launched after the U.S. Secret Service exposed the ASD Ponzi scheme. ASD was a 1-percent-a-day scam. Zeek, according to court filings, sucked in participants with claims payouts averaged more than 1.4 percent a day over the course of a week.
Bell said in court filings today that Disner was among a number of Zeek winners who have failed to plead or otherwise defend against the clawback lawsuits filed against them in February. June 30 was the deadline for filing responsive pleadings.
The receiver also is seeking default against alleged Zeek winner and clawback defendant Michael Van Leeuwen, also known as “Coach Van,” of Fayetteville, N.C., and David Sorrells of Scottsdale, Az. Van Leeuwen allegedly received more than $1.4 million through Zeek, and Sorrells allegedly received more than $1 million.
Meanwhile, Bell also is seeking default against alleged Zeek insider Darryle Douglas of Orange, Calif.
Douglas received more than $1.975 million from Zeek, Bell said in court filings in February.
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.
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.
URGENT >> BULLETIN >> MOVING: (11th Update 9:43 p.m. EDT U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has sued MLM attorney Kevin Grimes and the Grimes & Reese law firm, alleging malpractice, negligence and breach of fiduciary duty.
In the Grimes action, the receiver is seeking “an amount in excess of $100 million.”
In another action concerning a professional who worked for Zeek or was associated with purported “opportunity,” the receiver has sued attorney and tax consultant Howard N. Kaplan. Zeek operated an MLM “program” tied to a purported penny auction.
As is the case in the Grimes action, the receiver is seeking a sum of more than $100 million against Kaplan for alleged damages.
Both Kaplan and Grimes should have known better, but nevertheless helped Zeek thrive while helping Zeek gain unwarranted credibility by lending their professional reputations to a fraud scheme that gathered hundreds of millions of dollars, receiver Kenneth D. Bell alleged.
“By virtue of his knowledge of [Zeek operator Rex Venture Group] and ZeekRewards and his legal expertise, Grimes knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and/or a Ponzi scheme. Despite this knowledge, Grimes actively encouraged investors to participate in the scheme by creating a so-called ‘compliance’ program that provided a false façade of legality and legitimacy and knowingly allowed his name to be used to promote the scheme,” Bell said in the complaint against Grimes.
Bell accused Grimes of turning a “blind eye” to markers of fraud at Zeek such as unusually consistent payout percentages.
“This fake consistency should have, at a minimum, caused reasonably diligent legal counsel to inquire further about the validity of the alleged profits,” Bell alleged. “Indeed, the program publicly advertised historical average returns of 1.4% per day, which no legitimate investment could accomplish. But, Grimes deliberately turned a blind eye to these incredible claims and chose not to seek further information.”
And Kaplan, Bell alleged, “knew or should have known that insufficient income from the penny auction business was being made to pay the daily ‘profit share’ promised by ZeekRewards.
“Kaplan knew or should have known that the money used to fund ZeekRewards’ distributions to Affiliates came almost entirely from new participants rather than income from the Zeekler penny auctions,” Bell continued. “Further, Kaplan knew or should have known that the alleged ‘profit percentage’ was nothing more than a number made up by [Zeek operator Paul R.] Burks or one of the other Insiders. Rather than reflecting the typical variances that might be expected in a company’s profits, the alleged profits paid in ZeekRewards were remarkably consistent, falling nearly always between 1% and 2% on Monday through Thursday and between .5% and 1% on the weekends, Friday through Sunday.”
From Bell’s complaint against Kaplan (italics added):
Instead of properly informing Affiliates of the different tax implications they would face if their Zeek payments were properly characterized as coming from an ‘investment’ rather than a ‘trade or business,’ Kaplan failed to inform Affiliates, either on the calls or in his FAQs, of the material fact that payments to Affiliates should be characterized as investment income for tax reporting purposes.
For example, in the FAQs that he drafted and allowed ZeekRewards to post to its website, Kaplan advised that Affiliates should use IRS Schedule C (“Profit or Loss from Business”) to record their income, making no mention of the fact that they shoulduse IRS Schedule D (“Capital Gains and Losses”) . . . If Kaplan had candidly disclosed the material fact that Affiliate income would be properly characterized by the IRS as capital gains, the obvious negative tax implications would have caused many Zeek Affiliates to remove their cash earnings from the program rather than reinvesting them, short-circuiting the scheme much earlier. Since he did not, Affiliates were placated in their misguided belief that ZeekRewards was a lawful program.
It has been a remarkably awkward time for MLM attorneys. Gerald Nehra, Richard Waak and their law firm have been accused by plaintiffs in TelexFree-related litigation with racketeering and violations of the federal securities laws. TelexFree plaintiffs have asserted Nehra also counseled Zeek.
From the Zeek receiver’s complaint against Grimes and Grimes & Reese (italics added):
Defendants played an indispensable role in the scheme. Because of the lucrative, seemingly ‘too good to be true’ claims being made by RVG and ZeekRewards, many potential investors were skeptical of whether the scheme was legal and legitimate. So, RVG enlisted the aid of Grimes and other legal counsel to assist in promoting and legitimizing the scheme.
Grimes helped in several ways. First, despite his knowledge that ZeekRewards was a fundamentally flawed and unlawful pyramid and/or Ponzi scheme and was selling unregistered securities, Grimes offered to create and did create a so-called ‘compliance course’ specifically designed to encourage investors and potential investors to believe that if they satisfied the course then it would be a lawful enterprise.
Thus, Grimes knowingly allowed Zeek to portray a false appearance of legality through his bogus ‘compliance’ course.
Grimes profited personally from the compliance courses while allowing ZeekRewards yet another source of investor money. Upon information and belief, Grimes received payments from ZeekRewards not only for his legal counsel, but also for sales of his compliance course to Affiliates. Upon information and belief, Grimes provided the compliance course to ZeekRewards for $5 per affiliate, while allowing ZeekRewards to charge affiliates $30 each for the course, personally profiting from it and allowing RVG yet another means of extracting money from unsuspecting Affiliates.
Zeek collapsed in August 2012. The SEC and federal prosecutors now say the “program” gathered on the order of $850 million in less than two years. Two months after the collapse, two members of Zeek sent Senior U.S. District Judge Graham C. Mullen a copy of the “compliance” certification allegedly provided by Grimes (pictured below):
Both Grimes and Kaplan were aware that the Zeek “program” raised issues about the sale of unregistered securities, but nevertheless marched forward, Bell alleged.
In February 2012, Bell said, Grimes emailed a Zeek adviser, saying, “I am still in the process of getting my arms around its program, but I have some SERIOUS concerns that it very likely meets the definition of an ‘investment contract.’ It may have other issues as well, but I’m still reviewing their documents.”
By June 2012, according to Bell, a Zeek participant contacted Grimes, saying, “I have completed your compliance course with Zeek and really loved it. I am a great advocate of Zeek and have signed up 31 people whom I feel responsible for. . . . One of my downline is asking questions . . . there is a tremendous amount of income going into Zeek and he is concerned the profit share is coming from the new affiliates – which would make it a ponzi scheme. Can you direct me as to what is the best way to confirm this is not a ponzi scheme[?]”
In response, Grimes emailed Zeek executive Dawn Wright-Olivares, stating, “Do you want me to forward these types of communications to you or anyone else, or would you prefer that I simply discard them? I get several of these each week.”
Grimes, Bell alleged, appeared to have “no concern” about the affiliate’s email.
The MLM lawyer “took advantage of the situation, creating and marketing a compliance training course as window dressing for this illegitimate scheme, allowing the course to be sold to the Affiliates for his own profit,” Bell alleged.
BULLETIN: (5th Update 9:20 p.m. EDT U.S.A.) How absurd and abusive is HYIP Ponzi Land?
The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case says a Zeek affiliate who appears to have invested only $10 has filed a claim seeking $30 million.
Receiver Kenneth D. Bell asserted in a court filing today that the $30 million claim is the highest encountered in the case. Precise details about the claim, whose denial is pending, were not immediately available.
Viewed another way, a Zeek member who invested $10 appears to believe he or she is entitled to tens of millions of dollars that otherwise would go to thousands of Zeek victims.
A separate claim for $14.9 million filed by an asserted Zeek vendor known as Plastic Cash International LLC (PCI) may have a gall factor nearly as high, court filings by Bell today suggest.
The $14.9 million claim by PCI was the second-highest in the Zeek case, exceeded only by the affiliate seeking $30 million on an apparent $10 investment, Bell said.
PCI “was a trade creditor of the Receivership Defendant that processed credit card payments from Affiliates for the Receivership Defendant,” Bell said in court filings. “The processed payments were deposited into an account to be held for the benefit of the Receivership Defendant. PCI contends that it should be permitted to ‘retain’ funds that it collected for the Receivership Defendant in its role as a trade creditor.”
Bell said in court filings today that PCI had a “role in perpetuating the ZeekRewards Ponzi Scheme,” but now was behaving disingenuously — in part by asserting in had no knowledge of the asset freeze ordered by a federal judge in 2012.
The proposition that PCI did not know about the freeze was “absurd,” Bell said.
From Bell’s filings (italics/carriage returns added):
As disclosed in the PCI Claim, PCI acted as a credit card processor for the Receivership Defendant for the two-month period from June 2012 to the appointment of the Receiver. The PCI Claim further asserts that PCI either held a security interest in the funds that it held for the benefit of the Receivership Defendant or, in the alternative, PCI owned all of the amounts that it had collected for the Receivership Defendant pursuant to its contracts with the Receivership Defendant.
No disclosure regarding the amounts collected by PCI during the time it acted as a credit card processor for the Receivership Defendant was made in the PCI Claim.
Prior to the filing of the PCI Claim, the Receivership Team did not know that PCI had been involved in perpetrating the ZeekRewards Ponzi Scheme, nor did the Receivership Team know that PCI held Receivership Assets generated by the ZeekRewards Ponzi Scheme. The filing of the PCI Claim caused a preliminary investigation into the assertions made in the PCI Claim.
This initial review of the records of the Receivership Defendant did not show any significant economic relationship between PCI and the Receivership Defendant because no payments were made by PCI to the Receivership Defendant in the two-month period in which PCI was operating for the Receivership Defendant.
Moreover, the Receiver never received any funds from PCI or accounts held by PCI upon entry of the Freeze Order.
Subsequent investigation unearthed a relationship between SecureNet and PCI, leading to a bank account at Eagle Bank that, even though it was held in SecureNet’s name, held approximately $812,433.96 (the “Eagle Bank Account”) in Receivership Assets. Upon its discovery, the United States Secret Service sought and obtained a seizure warrant to recover those funds. The United States Secret Service thereafter seized all of the funds contained in the Eagle Bank Account.
At that time, PCI did not identify any additional accounts that were involved in the RVG transactions that PCI processed, and it represented that it did not hold any additional Receivership Assets. When the Receivership Team subsequently interviewed PCI’s counsel, the Receivership Team specifically asked about any additional accounts that held RVG [Rex Venture Group] funds or through which RVG funds flowed. PCI failed to identify any additional accounts.
As the Receivership Team investigated further and obtained documents from PCI, the Receivership Team determined that PCI had collected approximately an additional $8.9 million over the two-month period in which they acted for the Receivership Defendant. This $8.9 million was held and/or distributed from Los Angeles Firemen’s Credit Union n/k/a Firefighters First Credit Union (the “Firemen’s Account”).
PCI never paid any of the approximately $9.8 million in Receivership Assets it collected to the Receivership Defendant or the Receiver. Only $812, 433.96 of the $9.8 million in Receivership Assets has been recovered, and those assets were recovered solely through a seizure by the United States Secret Service.
Moreover, PCI never informed the Receiver that it held such Receivership Assets. Instead, after the entry of the Freeze Order, PCI remained silent regarding the funds it held and i) withdrew or otherwise expended approximately $4.5 million of the Receivership Assets in the Firemen’s Account to allegedly pay certain processing fees, alleged fines, alleged chargebacks, and “commissions” to its insiders; and ii) converted the remaining approximately $4.5 million for its own uses (this $4.5 million was removed from the Firemen’s Account by PCI and has never been accounted for) on the alleged theory that such withdrawals were covered by the governing contracts, which the Receiver disputes, and their contractual rights are somehow superior to the express terms of the Freeze Order.
And, Bell advised Senior U.S. District Judge Graham C. Mullen:
“It is disingenuous for PCI to assert that it did not have notice of the Freeze Order or that it was not somehow constrained from dissipating the Receivership Assets in its care. It is beyond reason that PCI would not inquire as to why thousands of credit card transactions that it was processing and generated revenue of in excess of $4.5 million per month would suddenly cease. Moreover, the Receiver caused a notice reflecting the entry of the Freeze Order to be published across the United States. Finally, significant transfers from the account that held Receivership Assets just prior to and after the freeze order suggests that PCI was on notice of the freeze and was seeking to avoid the constraint to its revenue stream. Any assertion that PCI did not know of the pendency of the Freeze Order is absurd.”
Bell further contended today that efforts by PCI to inject itself into the distribution plan proposed to the court in which distributions to victims would begin Sept. 30 should be short-circuited by Mullen.
Bell said the receivership already has denied PCI’s claim.
BULLETIN: (2nd update 9:54 p.m. EDT U.S.A.) MLM attorney Kevin Grimes and a companion entity known as MLM Compliance VT LLC received $843,000 from the Zeek Rewards pyramid- and Ponzi scheme through the sale of a “bogus compliance course,” receiver Kenneth D. Bell has alleged in an amended complaint.
