BULLETIN: (5TH UPDATE 6:13 P.M. EDT) The court-appointed receiver in the Zeek Rewards Ponzi scheme case says he discovered that Zeek has “at least one foreign account” that has not been seized.
It was “not clear” whether the funds would be recoverable despite the fact the bank that holds the account has been served with a freeze order, receiver Kenneth D. Bell said in court filings yesterday.
Bell did not name the bank or its home country in the filings. Nor did he say how he discovered the account.
But Bell advised Senior U.S. District Graham C. Mullen of the Western District of North Carolina that he was working with the SEC, the U.S. Secret Service and federal prosecutors to determine “the most efficient and cost effective manner to recover the funds from the entity that controls or the bank that holds this account so that the funds can be used in the distribution plan for this case.”
The amount allegedly held in the account was not disclosed. Zeek was operated by North Carolina-based Rex Venture Group LLC and Paul R. Burks, the SEC said in August. The agency described Zeek as a $600 million Ponzi- and pyramid fraud operating domestically and internationally.
Whether Zeek had silent partners or a special class of members is just one of the many mysteries still surrounding the purported “opportunity.”
Receiver May Have Cooperation Of Certain Insiders
Bell’s filings yesterday — on the Columbus Day holiday in the United States — made it plain that certain individuals associated with Zeek were cooperating in the receivership probe, sometimes through lawyers. The names of those individuals were not disclosed. Nor was the degree of their cooperation.
Filings, however, at least hinted that some people close to Zeek had stories to tell.
“Initial interviews of the Receivership Defendant’s employees and officers who were willing to be interviewed, as well as communications with various third parties, have revealed the identities of numerous other individuals and entities that might have relevant information regarding the Scheme, including potential business associates and investors of the Receivership Defendant and its principals,” Bell advised Mullen.
Moreover, the report revealed that the U.S. Secret Service largely was responsible for recovering the lion’s share of more than $293 million in Zeek-related financial accounts.
Forensic Accounting Firm Hired
Mullen ordered Bell in August to submit a preliminary liquidation plan by Oct. 8 that would update the court on the receivership’s efforts to date and lay out the early groundwork on how Zeek members could file claims.
Bell described his investigation as “still in its preliminary stages” and “ongoing.”
During the receivership’s first 52 days, Bell advised Mullen, it was learned that Zeek had about 2.2 million “affiliates,” but that some of those affiliates appeared to have “more than one user id.”
Approximately 1 million affiliates “paid money into the Zeek Rewards Program,” Bell advised Mullen.
Bell has hired FTI Consulting Inc., a forensic accounting firm, to assist in the receivership probe, according to yesterday’s receivership filing.
Meanwhile, the McGuireWoods law firm is counsel for the receiver. Kroll Ontrack is assisting with data recovery and storage, and Gilardi & Co. is hosting the receivership website and providing a means for Bell to communicate with potentially millions of individuals affected by the alleged epic fraud, Bell said in the filing.
Zeek’s Aug. 17 shutdown by consent after the SEC brought the Ponzi allegations did not stop bills from coming in, Bell said.
The estate, for example, already has disbursed more than $55,000 for payroll and benefits due employees, “taxes due the United States, North Carolina, and Arkansas” and for property rent and certain ongoing business expenses.
During the preliminary examination, Bell identified more than $922,000 in accounts payable, including “certain invoices for professional services,” according to the filing.
Bell advised Mullen that he still was “in the process of determining the validity and amounts of these accounts payable” and ascertaining the priority in which expenses will be paid.
Zeek Documentation ‘Inadequate Or Incomplete’
In a passage that may read like a familiar refrain to HYIP Ponzi analysts, Bell advised Mullen that certain Zeek-related financial documentation “has been found to be inadequate or incomplete.”
Examining paperwork and data will be time-consuming because of “the significant lack of documentation and the organization of this data,” Bell advised the judge.
Regardless, Bell said, the receivership team would follow the trail “to identify additional assets, trace the proceeds of any fraudulent conduct, evaluate claims of creditor and investors, and identify potential claims against former employees, third parties (including Affiliate-Investors), and others that may have received assets of the Receivership Estate.”
As the receiver’s probe moves forward and more evidence is gathered and analyzed, clawback claims will be contemplated under “applicable fraudulent transfer statutes against those who ran the operations and ‘net winner’ participants . . .” Bell said.
Bell envisions an approach that would “first offer those who are required to return money to the Receivership Estate the opportunity to do so cooperatively in an effort to avoid costly litigation for all concerned,” according to yesterday’s filing.
Below a subhead of “Miscellaneous Assets Recovered,” Bell advised Mullen that $5 million in cashier’s checks from BB&T Bank were located in [Rex Venture Group’s] main office.”
Zeek mysteriously announced on May 28 — Memorial Day — that it was closing its BB&T account, along with an account at NewBridge Bank. Why Zeek allegedly was in possession of $5 million in cashier’s checks that originated at BB&T was unclear in the receiver’s filing.
Despite Zeek’s claim online that it was closing the accounts and its prompt to affiliates to cash or deposit Zeek commission checks drawn on the banks before June 1 or they would bounce, court records show that NewBridge still had $11.64 million in Zeek-related funds on deposit.
Some observers have speculated that events that led to the August collapse of Zeek began in May, with the report from Zeek that it was closing the accounts voluntarily. If the account closures were less than voluntary, however, it may suggest that the banks had become suspicious of Zeek and that the Rex Venture-owned “opportunuity” was engaged in a scramble to find vendors to accept and maintain deposits.
Court records claim that Zeek used at least 15 domestic and offshore vendors, including Canada’s AlertPay and SolidTrustPay.
‘Professionals’ To Receive Scrutiny
Bell advised Mullen in yesterday’s filing that he also planned to “investigate potential claims against professionals and others” involved with Zeek to determine “who may be liable for the role they played in facilitating the operation.”
Claims against the unidentified “professionals” and others will be pursued, if warranted, Bell advised the judge.
Bell further advised Mullen that the receivership would “streamline” operations as much as possible so that Zeek victims and other creditors could receive a disbursement as soon as possible. He did not rule out the possibility of a “preliminary distribution” from seized proceeds.
No specific timetable was laid out in the filings, but the task of formulating a claims process that potentially needs to accommodate 1 million or more people has begun, Bell said.
Read the receiver’s filing for more details. (Document provided courtesy of the ASDUpdates Blog.)