PatrickPretty.com

Tag: Rex Venture Group

  • ZEEK: Key Figures — And Paul Burks’ Defense

    EDITOR’S NOTE: Prosecutors and Paul Burks are clashing over expert witnesses and the admissibility of certain evidence. The article below reproduces the anticipated core of Burks’ trial defense, as advanced by his lawyers. This article is not intended to be all-encompassing. Prosecutors, of course, have an altogether different take. They have posted the indictment against Burks here.

    paulburkszeekUPDATED 10 A.M. EDT JULY 5 U.S.A. The Ponzi-related criminal trial of Paul Burks of Zeek Rewards is scheduled to begin tomorrow (July 5) in federal court in Charlotte, N.C. Burks is 69. He is charged with wire fraud, mail fraud, conspiracy to commit both and tax-fraud conspiracy. Prosecutors say he fabricated numbers, sent bogus tax forms and duped Zeek members into believing he was at the helm of an enormously profitable enterprise.

    If convicted of the charges, Burks potentially could face decades in prison — effectively a life sentence.

    His defense is led by Noell P. Tin, C. Melissa Owen and Jacob H. Sussman of Tin Fulton Walker & Owen of Charlotte. The firm has carded some notable wins for clients.

    The office of U.S. Attorney Jill Westmoreland Rose is handling the prosecution. Among those on the prosecution team are Jenny Grus Sugar and Corey Ellis, both Assistant U.S. Attorneys. The judge’s calendar also shows Assistant U.S. Attorney Benjamin Bain-Creed as a member of the prosecution team.

    Rose is well-known as the lead prosecutor in the classified-leaks case against Gen. David Petraeus, who pleaded guilty. Some Zeekers bizarrely have tried to portray the Tin Fulton firm as country bumpkins. Here we’ll point out that Sussman, one of Burks’ lawyers, was on the Petraeus defense team. The general was sentenced to probation.

    U.S. District Judge Max O. Cogburn Jr. is presiding over the Burks’ case. He has presided over other Ponzi cases. The judge complimented the Burks’ defense team last year.

    What follows are snippets from June 28 trial brief by the Burks defense team (italics added/light editing performed):

    **________________________**

    INTRODUCTION The defense anticipates presenting lay and expert testimony, and numerous exhibits, in support of a defense that goes to the heart of the charges against Mr. Burks. The defense will dispute, among other things: (1) that Mr. Burks made material misrepresentations regarding the ZeekRewards program; (2) that Mr. Burks’ company, Rex Ventures Group, had no books and records; (3) that ZeekRewards was a Ponzi or pyramid scheme; and (4) that Mr. Burks ever intended to mislead ZeekRewards affiliates.

    STATEMENT OF ANTICIPATED FACTS Mr. Burks was previously the owner of Rex Ventures Group (“RVG”), a single member L.L.C. that began in 1997. During the time frame alleged in the indictment, RVG was comprised of two divisions: (1) Zeekler, a penny auction website; and (2) ZeekRewards, a multilevel marketing program RVG conceived and promoted as the marketing arm of Zeekler. RVG’s product was bids which were sold in the form of retail bids for the Zeekler penny auction or VIP sample bids for ZeekRewards affiliates.

    Affiliates who purchased sample bids gave them away to promote the Zeekler penny auction, which in turn entitled the affiliates to participate in RVG’s Retail Profit Pool.

    A. Paying what he promised. As set out on the ZeekRewards website, affiliates who met certain qualifying criteria (e.g., paying a subscription fee, giving away sample bids, and placing ads to promote the Zeekler penny auction) were promised up to 50 percent of RVG’s net daily profits. Evidence at trial will show the company performed as promised. From January 1, 2011, when the program began, until August 16, 2012, when the doors closed, RVG took in $938.8 million in cash from affiliates and auction customers.

    During the same period RVG paid $499.5 million . . .  to affiliates in cash as the RPP Award. In other words, RVG made good on the core of its promise by paying out 53.2 percent of its revenues to affiliates. The government has repeatedly asserted, and will continue to assert, that Mr. Burks kept no books or records. Acceptance of this argument will require the jury to find that RVG’s SQL database contained no records.

    In fact, the SQL database contained terabytes of data consisting of approximately 589 tables with hundreds of millions of rows. The SQL database was accessed daily by Mr. Burks, the company’s technology personnel, as well as over 2 million ZeekRewards affiliates who relied on it to keep contemporaneous track of their accounts. Through the SQL database affiliates accessed their respective back-offices to monitor their VIP Point balances, to place ads, to select the percentage of RPP Award they wanted as VIP bid repurchases versus cash award, to check their available cash balances, to request cash payments, and so on.

    Similarly, the SQL database was at all times available to Mr. Burks and provided him the information he needed to run RVG, including the information he needed to determine each day’s Retail Profit Pool percentage.

    B. Bid sales were final. VIP sample bids were not, as the government suggests, “represented as functioning like shares of Zeekler stock.” . . .  To the contrary, before participating in ZeekRewards, affiliates were required to sign a statement acknowledging the following: Submitting this payment confirms that you understand you are purchasing VIP Bids to use as samples to give to potential retail customers. You also understand that this purchase is non-refundable and is not a “deposit” or “investment” and cannot be “withdrawn” later. You affirm that you have read and understand the ZeekRewards Policies and Procedure and agree to all of their terms. NO REFUNDS CAN BE MADE AFTER PAYMENT IS PROCESSED.

    Completed and submitted bid purchase forms, of which there are thousands in number, will be presented to the jury.

    C. Mr. Burks made changes to the program in good faith based on the advice of experts. During the life of the ZeekRewards program, Mr. Burks retained a number of experts to advise him on complying with the myriad of laws governing the multi-level marketing industry. Many of these experts (including accountants, attorneys, and others) had combined decades of experience in the industry and were regarded as leaders in their respective fields. Many programmatic changes the government will claim were “cosmetic” . . .  were initiated not by Mr. Burks, but by those he had hired to advise him on how to run ZeekRewards.

    Equally important, many of the changes Mr. Burks made did nothing to disguise how the ZeekRewards program operated. Some of these changes Mr. Burks made included the following:

    • Adding the requirement of giving away sample bids
    • Instituting compliance courses for affiliates
    • Upgrading the internal accounting system
    • Eliminating lead generation programs
    • Hiring a call center in Atlanta to respond to affiliate inquiries and complaints.

    The defense expects to call many of these experts as trial witnesses.

    D. Dealing with the challenges of explosive growth.

    Nobody could have foreseen how much the ZeekRewards program would grow in such a short period of time, approximately 18 months. As witness Kevin Walker has stated, the company “took off like a rocket ship.” Indeed, the growth in numbers of affiliates was staggering. As of December 31, 2011—12 months into the life of ZeekRewards—the program had 57,597 distinct active usernames. This figure increased to 208,601 by March 31, 2012 and 1.25 million by August 15, 2012.

    In terms of revenue, average daily revenue went from $5,905 in the first quarter of 2011 to $8,429,626 in the third quarter of 2012. By August 16, 2012, Zeekler.com was the 890th most visited website in the world and ZeekRewards.com ranked 130th globally.

    Growth of this magnitude was overwhelming. Despite Mr. Burks’ efforts to bring in additional personnel to address the problems that came with growth at this level, many of the problems RVG encountered—with banks, payment processors, and customer service—were attributable to growth at an unforeseeable rate.

    E. The issuance of Forms 1099 was based on sound legal advice—and was anything but evidence of “lulling.” Mr. Burks was advised that it was appropriate—indeed, necessary—to issue 1099s to affiliates. This created all manner of complaints and criticisms. The reality for affiliates that they would have to pay taxes for money earned through ZeekRewards, even if they had chosen to repurchase bids in lieu of a cash payment, was a difficult one for some to accept. But it was the law according to Howard Kaplan, a tax attorney who had previously worked for the IRS and who was retained to advise RVG.

    Mr. Kaplan’s advice was unambiguous. As he stated in an email, “I have also given this some thought and I concur that because of the way your plan is structured, there is constructive receipt because of the choice your affiliates have.” Mr. Kaplan repeated the same in conference calls with affiliates. Mr. Burks is not a tax attorney. He relied on the assurances of the people he paid and hired.

    NOTE: See the PP Blog’s Zeek Rewards Cloud Tag here.

    NOTE: Our thanks to the ASD Updates Blog.




  • Grand Jury Was Meeting When Some Zeekers Waged Misinformation Campaign; Prosecutors Question Veracity Of Burks’ ‘Handwritten Notebooks’

    Paul Burks
    Paul Burks

    New filings by federal prosecutors in the criminal case against Zeek’s Paul Burks reveal that a grand-jury investigation was under way within days of the SEC’s Aug. 17, 2012, shutdown of the “program” and confirmation by the U.S. Secret Service that it also was investigating Zeek.

    Burks was subpoenaed by the grand jury on Aug. 24, 2012, and testified before the panel less than a month later, on Sept. 20, 2012, according to prosecutors. He ultimately was indicted by the grand jury in October 2014, more than two years after the August 2012 subpoena and his subsequent appearance the following month.

    Whether others within Zeek also had been subpoenaed or had knowledge of Burks’ appearance is unclear. What is known is that a group of Zeek members — during the same 2012 time period — embarked on a fundraising campaign while accusing the SEC of misleading a federal judge and admitting it had a weak case.

    One of the members of the group was Todd Disner, a former winner in the AdSurfDaily Ponzi scheme later identified as a major winner in the Zeek scheme. Zeek receiver Kenneth D. Bell has raised the issue of serial promoters moving from one fraud scheme to another.

    Bell specifically has referenced ASD. Federal prosecutors have, too.

    Given that ASD operator Andy Bowdoin is in federal prison for running a Ponzi scheme and Zeek’s “program” was similar to ASD in key ways, events at ASD could be problematic for Burks. How did Disner, for example, end up at Zeek?

    Despite knowing about ASD in 2011, Burks nevertheless moved forward with Zeek, prosecutors contend.

    The government is arguing that the ASD fraud put Burks on notice of his own fraud and that evidence pertaining to ASD should be admissible.

    Precisely what the government intends to introduce about ASD is unknown. But as part of his defense, Burks is asking U.S. District Judge Max O. Cogburn Jr. to exclude evidence about ASD.

    “This case is about Paul Burks, Rex Venture Group, Zeekler.com, and ZeekRewards.com,” Burks advised Cogburn in a June 28 trial brief. “It is not a referendum on direct selling or multi-level marketing programs. The trial of this case is not the time, or the place, for a jury to render a verdict on these types of companies or programs, which are perfectly legal yet regularly criticized.

    “It is also not about corporate malfeasance or wrongdoing by others, which is precisely what the Government seeks to convey to the jury by referencing ASD. Accordingly, the Government should be barred from any reference ASD, or any other entity whose conduct is completely irrelevant to the facts of this case. Even if there is some limited relevance to ASD (it is mentioned in government witness interviews), the Court should bar any mention of ASD since the limited probative value of such evidence is substantially outweighed by a danger of unfair prejudice, confusion, being grossly misleading, and inviting a trial-within-a-trial.”

    Burks’ trial on charges of wire fraud, mail fraud, conspiracy to commit both and conspiracy to commit tax fraud is scheduled to get under way July 5.

    We’re working on a story that will cover other elements of his defense.

    In a development yesterday, the government contended Burks withheld “purported” handwritten notebooks from the grand jury during his September 2012 appearance and didn’t turn them over until April 2016.

    Burks now wants to use the “unauthenticated” notebooks as a trial exhibit and as the basis for the opinions of expert witnesses he intends to call, prosecutors argued.

    “Defendant’s failure to produce these documents in response to the Grand Jury testimony, his testimony that he had produced all responsive documents, and the production of these Handwritten Notebooks on the eve of trial, without explanation, all raise serious concerns about the legitimacy of the Handwritten Notebooks,” prosecutors argued to Cogburn.

    NOTE: Thanks to the ASD Updates Blog.




  • PAYZA TO ZEEK RECEIVER: Don’t Blame Us

    ponzinews1Payza, an HYIP-friendly payment processor that recently bragged on Twitter about its attendance at an event for the teetering TrafficMonsoon scheme, has advised a federal judge that it is not responsible for millions of dollars that allegedly went missing in the Zeek Rewards’ scheme taken down by the SEC in 2012.

    Zeek receiver Kenneth D. Bell alleged in February that Payza and an outfit known as Payment World “facilitated” the epic cross-border Zeek Ponzi- and pyramid scheme. The PP Blog reported on Feb. 21 that the money at issue — about $13.1 million — may have ended up in one or more collapsed Russian banks after being transferred out of VictoriaBank in Moldova.

    Payza acknowledged it was a business partner with Payment World, but maintained the account in Moldova was Payment World’s alone and that it has sued Payment World for more than $20 million because it, too, had been ripped off.

    In response to Bell, who is seeking a contempt sanction and to hold Payza jointly liable with Payment World and VictoriaBank for return of the cash, Payza says it never had “dominion and control” over the money and thus should not be held liable.

    Payza, which operates out of Canada as part of a company known as MH Pillars of the United Kingdom, further contends with worked cooperatively and proactively with Bell and U.S. authorities tracking the money. The defense filing by Payza was docketed yesterday in the Western District of North Carolina and also claims Payza performed due diligence on Rex Venture Group, the operator of Zeek. The filing contained a declaration by MH Pillars Executive Vice President Firoz Patel.

    In a May 15 Twitter post, Payza said Patel was a speaker at a May 15 event in New York for the Traffic Monsoon program.

    The Tweet made no due-dilignce claims about Traffic Monsoon, which reportedly is under investigation by PayPal and has been blocked from a sum totaling on the order of $60 million.

    NOTE: Our thanks to the ASD Updates Blog.

    Also see TaraTalks site.




  • Alleged Zeek ‘Winner’ Repeatedly Invokes Fifth Amendment In Clawback Case

    UPDATED 3:07 P.M. EDT U.S.A. Darren Miller, an alleged winner of more than $1.635 million in Zeek Rewards and one of the lead defendants in a civil class-action clawback lawsuit filed by Zeek receiver Kenneth D. Bell, repeatedly has invoked his Fifth Amendment right not to incriminate himself, according to new court filings by Miller.

    In response to Bell’s 2014 clawback action in which the receiver seeks return of the winnings plus interest, Miller, of Coeur d’Alene, Idaho, also marked “sic” next to mentions of himself as a defendant. Bell is suing Miller and more than 9,000 alleged Zeek “winners.” The case is styled Bell v. Disner.

    Miller appears to have invoked the Fifth Amendment 41 times in response to 41 inquiries from Bell — 14 questions and 27 requests for documents.

    His response provides an overview of the sorts of questions Bell asked alleged “winners” through interrogatories. It also provides an overview of the type of documents sought from defendants by the receiver. Zeek was part of Rex Venture Group or RVG, alleged by the SEC and federal prosecutors to have been a North Carolina-based Ponzi- and pyramid scheme that gathered hundreds of millions of dollars before the SEC shut it down in August 2012.

    The Zeek clawback litigation itself shows the perils of pushing MLM schemes authorities deem to be fraudulent. Not only is money received from a “program” at great risk of clawback, expensive and emotionally draining legal proceedings on multiple fronts may ensue.  Some defendants even may fear criminal prosecution.

    At the same time, the Zeek clawback actions may provide something of a preview of what’s in store for tens of thousands of TelexFree “winners” pursued by the trustee in that Massachusetts case for return of their gains. TelexFree also was an MLM scheme.

    Pictured below is the first of 14 interrogatories advanced by Bell, according to Miller’s response:

    Question 1 of the Zeek interrogatories.
    Question 1 of the Zeek interrogatories.

    As you can see above, Bell not only asked about Miller’s involvement, he also asked about the involvement of others, potentially including upline sponsors. Here’s how Miller answered Question 1 and 13 others. (Only minor variations such as the Interrogatory number were present.)

    Darren Miller's answer to the first Zeek interrogatory.
    Darren Miller’s answer to the first Zeek interrogatory.

    For years now, the SEC has expressed concern about scams spreading on social media. Bell also had a question about that — in this case, in Interrogatory 14 (as show below):

    The Zeek receiver asked about social-media accounts. There has been a longtime concern about scams spreading on Faceek, Twitter, YouTube and other sites.
    The Zeek receiver asked about social-media accounts. There has been a longtime concern about scams spreading on Facebook, Twitter, YouTube and other sites.

    In the interrogatories, Bell wanted to know when an individual’s participation began and when it ended. The receiver also was interested in dates and sums and outcomes — such as when money was paid to Zeek and when money was received from the “program” and how it was spent or kept.

    Individuals also were asked to name people who had information “related to your defenses or claims,” according to Miller’s response. Meanwhile, they were asked if they contended Zeek was not a Ponzi or pyramid scheme and to provide the names of individuals who could back up the claim.

    Bell previously expressed concern that some MLMers were moving from one fraud scheme to another in serial fashion.

    On the document front, Bell had 27 specific requests for production, according to Miller’s response. Here is how Miller answered a request to produce documents used “in connection with recruiting persons to participate” in Zeek.

    Miller's response to a request for document production by the receiver.
    Miller’s response to a request for document production by the receiver.

    Miller’s response to the 26 other requests for documents was substantially similar.

    Also see PP Blog editorial from July 1, 2014: On The War In Zeekland And HYIP Rabbit Holes.

    NOTE: Our thanks to the ASD Updates Blog.




  • URGENT >> BULLETIN >> MOVING: TelexFree Trustee Sues MLM Attorney Gerald Nehra

    newtelexfreelogoURGENT >> BULLETIN >> MOVING: (6th Update 8 p.m. EDT U.S.A.) TelexFree Trustee Stephen B. Darr has sued MLM attorney Gerald Nehra and the Nehra and Waak law firm, alleging they were “actively involved” in promoting TelexFree’s Ponzi scheme and “duping” participants.

    Nehra and the firm have asked for more time to respond to the April 1 complaint, saying through court filings that they “anticipated participation in criminal proceedings related to the case.”

    Chief Bankruptcy Judge Melvin S. Hoffman extended the response deadline until June 1. The original deadline was May 2.

    Whether Nehra or the firm considered themselves potential TelexFree criminal defendants was unclear in the response. TelexFree principals James Merrill and Carlos Wanzeler are the sole criminal defendants to date.

    Separately, prosecutors in the Zeek Rewards’ criminal case against Paul Burks said in court filings in the Western District of North Carolina Monday that Nehra and law partner Richard Waak may be called as witnesses in the case against Burks.

    Nehra and Waak have settled with Zeek receiver Kenneth D. Bell, who alleged they “encouraged investors to participate in the [Zeek] scheme by knowingly allowing their names to be used in providing a false façade of legality and legitimacy and gave improper legal advice that allowed the scheme to continue far longer than it would have without the Defendants’ support.”

    Darr wants Nehra and the firm to return all legal fees paid to them by TelexFree between May 2012 and April 2014 — about $24,000. Hoffman has ruled TelexFree a Ponzi- and pyramid scheme, and Darr contends neither Nehra nor the firm provided any “compensable advice” during the two years they represented TelexFree.

    The trustee further contends that Nehra appeared in a YouTube video promoting TelexFree.

    MLM attorney Gerald Nehra at a TelexFree rah-rah event in California in 2014. Source: YouTube.
    MLM attorney Gerald Nehra at a TelexFree rah-rah event in California in 2014. Source: YouTube.

    Representing Zeek and TelexFree created incredible problems for the two lawyers. At least three of their MLM clients have been charged criminally and a mountain of litigation has been filed against Nehra and the firm, including actions by Darr, Bell and class-action attorneys.

    In the settlement with Bell, Nehra and Waak agreed to a confession of judgment for $100 million. They contended “that they acted in good faith as legal counsel,” but now “acknowledge and agree that, based on their current knowledge, during the period they served as counsel RVG in fact operated an unlawful Ponzi an pyramid scheme involving an unregistered investment contract that caused hundreds of millions of dollars in losses to innocent victims of the scheme,” according to filings from Bell.

    Government attorneys handing the Burks’ criminal case quoted the settlement language in their May 2 filing. RVG, or Rex Venture Group, was the operator of Zeek.

    Zeek and TelexFree combined allegedly gathered on the order of $3.9 billion while creating hundreds and hundreds of thousands of victims globally.

    A TelexFree video featuring Nehra appeared on YouTube in August 2013, according to Darr’s complaint. That’s two months after authorities in Brazil called TelexFree a pyramid scheme.

    Also in August 2013, MLM attorney Jeffrey Babener advised TelexFree that it was operating a pyramid scheme, Darr alleged in September 2014.

    TelexFree nevertheless continued to gather money until it collapsed in bankruptcy in April 2014, Darr alleged. The last payment to Nehra and the Nehra and Waak firm was made on April 3, 2014, just 10 days before the implosion, according to Darr.

    Read Darr’s complaint against Nehra and the firm.

    NOTE: Our thanks to the ASD Updates Blog.

     




       

  • RECEIVER: (1) Zeek Defendant Class Action May Conclude This Year; (2) Some Claimants Still Haven’t Signed Required Release; (3) $10 Million Settlement With NewBridge Bank

    This promo for Zeek promised "passive" income. The SEC has warned about such schemes for years.
    This promo for Zeek promised “passive” income. The SEC has warned about such schemes for years.

    Three significant pieces of news from Kenneth D. Bell, the receiver in the Zeek Rewards’ Ponzi- and pyramid-scheme case:

    In a March 28 announcement on the receivership website, Bell wrote that a defendant class-action lawsuit against more than 9,000 alleged Zeek winners in the United States may conclude this year.

    “We hope to bring to a conclusion in 2016 our class action against more than 9,000 net winners, which will be a significant milestone,” Bell wrote.

    Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina certified the defendant class of alleged U.S. winners last year. The class includes “all persons and entities who participated in ZeekRewards and received at least $1000 more in money from ZeekRewards than they put into the program.”

    The winnings came from Ponzi proceeds and must be returned, Bell contended.

    A successful conclusion to the class action could mean more money for Zeek victims, Bell has said.

    TelexFree Bankruptcy Trustee Stephen B. Darr has filed similar litigation in that scheme. Darr’s action may affect nearly 100,000 alleged TelexFree winners.

    Bell has raised concerns about some MLMers moving from fraud scheme to fraud scheme. The SEC has raised concerns about the “whack-a-mole” nature of some fraudulent schemes.

    Meanwhile, Bell wrote yesterday that tens of thousands of people who are eligible for a distribution from the receivership estate have not received a check because they haven’t filled out the required forms. Such individuals should “log into the claims portal and electronically sign the Court required Release and OFAC Certification.”

    “At some point, I will be required to distribute the funds that have been reserved for these claimants to other Affiliates who have completed the process and, therefore, hold Allowed Claims,” Bell wrote.  “I don’t want any claimant with a recognized claim to lose out on receiving a distribution simply because they did not complete all of the steps required by the Court’s Orders.”

    Bell also highlighted a $10 million settlement with NewBridge Bank, a Zeek vendor. Zeek operated through Rex Venture Group.

    “The settlement arose out of claims the receivership had against NewBridge Bank for its continuing to provide banking services to Rex Venture Group after mid-April 2012, by which time the receivership alleged that the bank and its executives knew or should have known that Paul Burks and RVG were using their accounts to conduct an illegal Ponzi and pyramid scheme,” Bell wrote.

    Details of the receivership’s potential claims and the settlement with NewBridge are available through links in the receiver’s March 28 announcement.




  • URGENT >> BULLETIN >> MOVING: Zeek Vendor Pleads Guilty To Obstructing Probe

    From the criminal charges filed against Zeek payment vendor Jaymes Meyer in the Western District of North Carolina.
    From the criminal charges filed against Zeek payment vendor Jaymes Meyer in the Western District of North Carolina.

    URGENT >> BULLETIN >> MOVING: (12th Update 2:57 p.m. EDT U.S.A.) In what may be a warning shot fired across the bow of payment vendors who hope to profit from Ponzi schemes, Zeek Rewards’ vendor Jaymes Meyer of Preferred Merchants Solutions LLC has pleaded guilty to a criminal charge of obstructing investigators in the Zeek Ponzi- and pyramid-scheme case.

    Meyer, 47, of Napa, Calif., was charged criminally March 10 by federal prosecutors in the Western District of North Carolina. They alleged he hatched an “elaborate obstruction of justice scheme to conceal millions of dollars from the Government using a series of domestic and foreign nominees and related bank and brokerage accounts.”

    He was specifically accused of impeding the SEC’s Zeek probe beginning in 2012 and later lying to a federal judge and Zeek receiver Kenneth D. Bell.

    Senior U.S. District Judge Graham C. Mullen is presiding over the SEC’s Zeek case.

    As the PP Blog reported in October 2014, Bell accused Meyer of directing a $4.8 million transfer from a Rex Venture Group trust account to Preferred Merchants’ account “just 19 minutes after the SEC told them about the asset freeze and imminent shutdown of RVG” on Aug. 16, 2012.

    Rex, or RVG, was the operator of Zeek. It was under the control of accused Zeek Ponzi schemer Paul R. Burks. Burks is scheduled to go on trial in July.

    By March 2015, Bell and investigators had tracked Zeek money that flowed through Preferred to the Cook Islands and real estate in the Turks and Caicos. Prosecutors’ allegations against Meyer include a notice of forfeiture of $4.8 million.

    U.S. Magistrate Judge David S. Cayer accepted the guilty plea from Meyer on March 22. Certain documents in the case remain sealed. One document shows Meyer withdrew $195,000 in Zeek money in cash.

    At least two other payment vendors may be in Bell’s sights. On Feb. 21, 2016, the PP Blog reported that millions of dollars that originated through Zeek-related transactions involving Payza and Payment World may have ended up in a collapsed Russian bank.

    NOTE: Our thanks to the ASD Updates Blog.




     

  • DEVELOPING STORY: Proposed Settlement Agreement With Zeek Receiver May Wipe Out MLM Attorneys And Law Firm

    From a court filing dated Dec. 11, 2015. Red highlight by PP Blog.
    From a court filing dated Dec. 11, 2015. Red highlight by PP Blog.

    DEVELOPING STORY: (5th Update 8:18 p.m. ET U.S.A.) MLM attorneys Gerald Nehra and Richard Waak will sign a confession of judgment for a whopping $100 million and acknowledge that Zeek parent Rex Venture Group “in fact operated an unlawful Ponzi and pyramid scheme” under the terms of a settlement agreement with Zeek Rewards’ receiver Kenneth D. Bell, according to new court filings.

    The news comes as Nehra and Waak also are being pursued by class-action attorneys for alleged misdeeds involving the TelexFree MLM scheme broken up by the Massachusetts Securities Division, the SEC and the U.S. Department of Homeland Security in 2014.

    A judge must approve the settlement proposal with Bell in which the MLM lawyers contend “that they acted in good faith as legal counsel,” but now “acknowledge and agree that, based on their current knowledge, during the period they served as counsel RVG in fact operated an unlawful Ponzi an pyramid scheme involving an unregistered investment contract that caused hundreds of millions of dollars in losses to innocent victims of the scheme,” according to filings from Bell.

    In 2008, Nehra argued that AdSurfDaily — a $119 million Ponzi scheme — was not a Ponzi scheme. His own client, Andy Bowdoin, later disagreed. Nehra then became involved in both Zeek, a scheme that allegedly gathered more than $850 million, and TelexFree, which allegedly created more than $3 billion in bogus economic activity.

    All three “programs” used similar business models. The cascading fraud totals have been a source of considerable concern.

    The settlement proposal with Bell hints the MLM attorneys, who acknowledge no liability to the receiver, already may be wiped out in that it calls for a payment of $100,000, a small sum compared with the confession of judgment for $100 million.

    In fact, according to the agreement, the MLM lawyers have submitted a sworn financial statement and the $100,000 figure represents “to the extent that it can be accomplished, the full payment of all the Nehra and Waak’s funds and assets available to satisfy the agreed judgment.”

    “The Receiver believes the financial settlement, Confession of Judgment in the amount of $100 million and the acknowledgement of the existence of the Ponzi and pyramid scheme reached as part of the negotiation process is the best outcome for the Receivership and that even with the expenditure of additional funds to obtain a judgment there is not a likelihood of a materially increased recovery for the eventual distribution to the Zeek victims.” Bell wrote.

    Bell sued Nehra and Waak in September, alleging that they “encouraged investors to participate in the scheme by knowingly allowing their names to be used in providing a false façade of legality and legitimacy and gave improper legal advice that allowed the scheme to continue far longer than it would have without the Defendants’ support. Nehra and Waak’s improper and negligent actions, which breached their fiduciary duties to RVG and assisted RVG’s Insiders to breach their fiduciary duties, caused significant damage to RVG.”

    The PP Blog reported last month that a settlement was possible.

    Bell advised Senior U.S. District Judge Graham C. Mullen today that the proposed settlement sum of $100,000 was “based on the defendants’ financial condition.”

    NOTE: Our thanks to the ASD Updates Blog.




  • URGENT >> BULLETIN >> MOVING: Zeek Receiver Sues MLM Attorney Gerald Nehra

    breakingnews725URGENT >> BULLETIN >> MOVING:  (7th Update 8:33 p.m. EDT U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid-scheme case has sued MLM attorney Gerald Nehra and his law firm and law partner.

    Named defendants are Nehra as an individual and as a member of the Nehra and Waak law firm of Michigan, and Richard W. Waak. Like Nehra, Waak is named as an individual and as a member of the firm. The two lawyers’ individual professional LLCs also are named.

    The 21-page complaint by Zeek receiver Kenneth D. Bell is dated Sept. 21 and alleges damages of at least $100 million. A section of the complaint quotes a July 22, 2012, email from Waak that reads, “I have primary responsibility for the Zeek Rewards account with our law firm.”

    The SEC moved against Zeek a month later, in August 2012, alleging a massive Ponzi- and pyramid scheme. At least three Zeek executives, including alleged operator Paul R. Burks of North Carolina, later were charged criminally. Two of the executives — Dawn Wright-Olivares and her stepson Daniel Olivares — have pleaded guilty.

    From the receiver’s complaint (italics added):

    By virtue of their knowledge of [Zeek operator Rex Venture Group]  and ZeekRewards and their legal expertise, Nehra and Waak knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and a Ponzi scheme. Despite this knowledge, Nehra and Waak encouraged investors to participate in the scheme by knowingly allowing their names to be used in providing a false façade of legality and legitimacy and gave improper legal advice that allowed the scheme to continue far longer than it would have without the Defendants’ support. Nehra and Waak’s improper and negligent actions, which breached their fiduciary duties to RVG and assisted RVG’s Insiders to breach their fiduciary duties, caused significant damage to RVG.

    Nehra and Waak also face the prospect of private litigation flowing from the alleged TelexFree Ponzi- and pyramid scheme.

    In a complaint filed May 3, 2014, plaintiffs accused Nehra of counseling TelexFree “on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”

    He further was accused of encouraging unknowing TelexFree members to “participate in the evasion of federal and state securities laws.”

    The Zeek receiver made similar claims against the lawyers.

    “With their inside knowledge of multi-level marketing schemes and access to RVG’s Insiders, Nehra and Waak 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,” Bell alleged.

    “The Defendants 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. Further, based on their inside knowledge and access, Nehra and Waak knew or should have known that the alleged ‘profit percentage’ was nothing more than a number made up by 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.”

    Nehra also was a figure in the 2008 AdSurfDaily Ponzi scheme story, opining that ASD was not a Ponzi scheme despite remarkably consistent returns. ASD operator Andy Bowdoin later pleaded guilty to wire fraud and acknowledged his company was a Ponzi scheme and never operated lawfully from its inception in 2006.

    Like Bowdoin, Zeek’s Burks is accused of making up numbers to dupe participants. In TelexFree-related matters, class-action lawyers argued that “Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”

    Zeek receiver Bell accused Nehra and Waak of  turning a “blind eye” to incredible claims by Zeek and of suggesting cosmetic changes to language instead of “recommending substantive changes that would make the program lawful.”

    At least one alleged TelexFree promoter accused by the SEC last year of securities fraud has alleged she was duped by both the company and Nehra. That claim was made by veteran HYIP Ponzi pitchwoman Faith Sloan.

    NOTE: Our thanks to the ASD Updates Blog.

     

  • What MLMers/Network Marketers Can Learn From BCSC’s ‘Bossteam’ Case And Similar Cases — Including The SEC’s DFRF Enterprises Action

    ponziblotterLet’s say you’re an MLMer or network marketer. Your email inbox begins to fill up with offers for a scheme that purports to be an “advertising program” favored by famous brands. Spammers are trying to blast their way into your social-media accounts.

    The messages: You’re going to be rich in no time. Beyond that, you’re going to receive valuable shares in a startup.

    This was Bossteam E-Commerce Inc. — and it was a noxious Ponzi fraud whose “Inc.” designation was meaningless and served as a reminder that a corporate registration is not proof no scam is occurring.

    AdSurfDaily ($119 million) was an “Inc.” running a fraud. Bernard Madoff was at the helm of an LLC involved in the largest Ponzi scheme in U.S. history. (NOTE: MLMers/network marketers should think about these things that next time they point to an “Inc.” or “LLC” designation” as proof of legitimacy. TelexFree, accused of operating a combined Ponzi- and pyramid scheme that gathered on the order of $1.8 billion, was both an “Inc.” and an “LLC.” Rex Venture Group “LLC” operated the Zeek Rewards scheme believed to have gathered on the order of $897 million. At one point in time, promoters of ASD, TelexFree and Zeek pointed to corporate registrations as proof no scam was occurring. The same thing happened with DFRF Enterprises, currently in the news.

    As the PP Blog reported in May 2012, the Bossteam “program” surfaced in British Columbia and allegedly sold memberships for up to $5,000 each. Prospects allegedly were told they’d get paid for clicking on ads and could exchange purported “private” shares through a purported “internal trading platform.”

    But “Bossteam committed fraud when they created the false impression that Bossteam members and well-known local and international businesses were paying Bossteam to advertise on its websites,” a panel of the British Columbia Securities Commission found in a decision dated yesterday. “This was untrue, as the majority of ads appearing on Bossteam’s websites were associated with Bossteam’s own accounts, and not to accounts for parties that had paid Bossteam to post their links.(NOTE: Bossteam is hardly alone in this category. Remember EAdGear?)

    ASD, Zeek and TelexFree also had purported “advertising” elements.

    It gets worse — and MLMers/network marketers need the learn from this history.

    From the BCSC panel’s decision yesterday (italics/bolding added/spacing approximated):

    The panel found that each of the respondents breached the Act by:

    • distributing securities of Bossteam without first having filed a prospectus, contrary to section 61(1);
    • engaging in conduct that perpetrated a fraud on those who purchased securities of Bossteam, contrary to section 57(b);
    • withholding information concerning the sale of securities of Bossteam in response to a demand for production issued under section 144 of the Act, contrary to section 57.5; and
    • attempting to conceal or withhold information concerning the sale of securities of Bossteam by instructing others to deny Bossteam had offered such securities to the public and to refer to the concept of online trading as being planned for the future, contrary to section 57.5.

    Put another way, Bossteam first ripped off its members and then tried to draft them into an international conspiracy to cover up the fraud scheme.

    The decision involved the conduct of Bossteam, Guan Qiang Zhang (also known as Victor Zhang) and Yan Zhu (also known as Rachel Zhu).

    Among the panel’s conclusions was that “Zhang contravened section 57.5 of the Act by attempting to conceal information concerning the sale of Bossteam securities when he instructed others to stop referring to Shares as shares and instead call them consumer credits.”

    It is common for HYIP scammers to try to tweak language to skirt securities laws. Both before and after the tweaks, the scammers may seek to dupe the fleeced masses into doing the same thing — a circumstance that leads to a flood of misinformation on the web.

    One of the classic fraudulent tweaks occurs when a scheme purports to be morphing from a private offering into one that soon will trade on one or more public stock exchanges. Here is part of what the BCSC said in its May 2015 Investor Alert on the DFRF scheme.

    The BCSC has become aware that [Daniel Fernandes Rojo] Filho is offering investments to British Columbians with returns of up to 15% per month. Filho is also promising that DFRF will soon be listed on a public stock exchange, after which the value of members’ investments will triple within 30 days. Members will continue to receive up to 15% per month on their investment. These returns are economically impossible. Also, when selling securities, it is illegal to represent that those securities will be listed on an exchange without certain conditions being met.

    Daniel Fernandes Rojo Filho also has been cited in filings as Daniel Fernandez Rojo Filho.

    The SEC announced its action against Filho, DFRF and others last week. Here is part of what the agency said (italics added):

    The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses.  DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded.  As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

    And from the SEC’s complaint (italics added):

    Since late March 2015, the defendants have claimed that DFRF is registered with the Commission, its stock is about to become publicly traded, and current investors may convert their membership interests into stock options at $15.06 per share. At first, Filho represented that public trading would start in mid-April 2015. Since then, he has announced several delays and offered various excuses. On June 17, 2015, he claimed that, although public trading has not begun, the value of DFRF stock now exceeds $64 per share.

    DFRF and Bossteam were not precisely alike, but both schemes allegedly were offering frauds that operated as Ponzi schemes and duped investors with talk of  trading shares. Bossteam allegedly lined up about $14 million, with DFRF coming in at about $15 million.

    Bossteam has been cease-traded. Zhang and Zhu have been banned from the British Columbia securities trade. Fines and disgorgement against the pair total $28 million.

    Many current online HYIP schemes share a common story of above-market returns, with shared wealth being enjoyed by the masses. These may be advanced as private or public offerings, with references to in-house platforms or public stock exchanges. The term “IPO” also is used in some schemes.

    In recent years, the schemes have led to losses that cascade across the globe. The schemes may be positioned as “offshore” and therefore safe or even guaranteed. There may be accompanying claims prestigious banks or insurance companies provide financing or a guarantee against losses.

    Among the SEC defendants in the DFRF case is Heriberto C. Perez Valdes, 46, of Miami. The SEC alleged that he is a manager of a Massachusetts DFRF entity “with responsibility for “all administrative and executive work.'”

    The agency further alleged that Valdes also is “an administrator of Platinum Swiss Trust, a purported Swiss private bank that is not actually authorized to conduct banking activities in Switzerland. (Emphasis added.) “He has made materially false and misleading statements about DFRF in public meetings and videos posted on the internet.”

    How deep did the deception go? Perhaps deep into Boston Harbor.

    “On October 16, 2014, DFRF sponsored a public event on a cruise ship in Boston harbor,” the SEC alleged. “Several videos of the event were posted on the internet. In one video, Filho states that DFRF makes a gross profit of 100% on its gold production in Africa, it needs the investors’ money to ‘leverage’ its credit line in Switzerland and triple its available funds, it pays 15% per month to investors (but cannot promise to do so without violating the law), and the investors’ money is fully insured. In a second video, Valdes states that the investors’ money is held in Switzerland and is fully guaranteed.”

    Like other schemes (including TelexFree), an insurance company was said to provide DFRF members a safeguard against losses.

    Here is part of what the SEC alleged against DFRF defendant Jeffrey A. Feldman, 56, of Boca Raton, Fla. (Italics added.)

    He is the sole officer and director of Universal Marketing Group, Inc., a Florida corporation. He claims to be the U.S. representative of Accedium Insurance Company (“Accedium”), which is based in Barbados and London. In July 2007, he filed for personal bankruptcy. In 1998, he was found guilty of fraud and forgery for having received $2.5 million in premiums from a rental car chain for insurance policies that he did not actually obtain. In 1996, the state of Florida revoked his license to sell insurance after he pleaded no contest to charges that he submitted false insurance claims for losses he supposedly suffered from Hurricane Andrew. He has made materially false and misleading statements about DFRF in public meetings and videos posted on the internet.

  • Court Approves Zeek Receiver’s Settlement With MLM Attorney Kevin Grimes, Law Firm

    A "Certificate of Completion" for a compliance course Zeek receiver Kenneth D. Bell alleged to be bogus. Source: Federal court filing.
    A “Certificate of Completion” for a compliance course Zeek receiver Kenneth D. Bell alleged to be bogus. Source: Federal court filing in 2012.

    UPDATED 10:44 A.M. EDT U.S.A. In an amended complaint filed in August 2014, Zeek Rewards’ receiver Kenneth D. Bell sued MLM attorney Kevin Grimes, the Grimes & Reese law firm and a Grimes-related entity known as MLM Compliance VT LLC.

    Among other things, Bell alleged that Grimes and MLM Compliance received $843,000 from the Zeek pyramid- and Ponzi scheme through the sale of a “bogus compliance course.”

    Bell further alleged that “[t]he final payment from [Zeek operator Rex Venture Group] to Grimes and MLM Compliance was, upon information and belief, a check rushed to and [e]ndorsed 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.

    By April 2015, Bell and the defendants had entered settlement talks through mediation, according to court filings. In late May, there was news of a definitive settlement agreement. The sum was not immediately known.

    On June 2, the sum became known: $1.175 million. How the figure was arrived at was not immediately clear. The number, however, appears to absorb the entire $843,000 Grimes and MLM Compliance allegedly received through sales of the compliance course alleged to be bogus. It also appears to erase virtually all of the $342,510 Grimes and MLM Compliance allegedly received via a “rushed” check in Zeek’s closing days and hours.

    As part of the settlement agreement docketed June 3, Grimes and the other defendants “do not admit to any wrongdoing or liability to the Receiver and the Receiver does not admit that the Defendants should be exonerated from liability for the wrongdoing alleged by the Receiver in the Grimes lawsuit.”

    Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina has approved the settlement.

    The parties specified in the settlement that they wished to enter the agreement “for the purposes of resolving these disputed matters and to avoid the cost and expense of litigation.” All parties will bear their own attorneys’ fees and costs.

    Mullen ruled that the settlement was “in the best interest of the Zeek victims.”

    NOTE: Our thanks to the ASD Updates Blog.