Below is a copy of a letter sent by counsel for the court-appointed receiver in the Zeek Ponzi scheme case to U.S. District Court for the Northern District of California. The PP Blog obtained a PDF of the letter from a publicly available source and took a screen shot of the PDF. The redactions were added by the PP Blog to obscure a specific phone number for an attorney and the name of a paralegal and a specific number for her. The Blog redlined the information in an abundance of caution because it could not immediately determine if was intended only for court personnel. The letter is otherwise unchanged.
The letter and accompanying filings set the stage for the receiver to pursue clawback lawsuits against Zeek winners. You’ll note from the letter that the receiver paid a $46 filing fee. The same fee is referenced in filings in other federal districts. As of today, the receiver appears to have filed in 68 districts. That number is an estimate by the PP Blog and is unofficial.
Receiverships act to gather money for distribution to victims of fraud schemes. They come with costs, such as professional fees, filing fees and delivery fees (such as mail fees and courier fees). Such fees are not unusual.
This filing in Guam by the court-appointed receiver in the Zeek Rewards Ponzi scheme case may be the first in a U.S. territory.
In yet another indicator of the incredible reach of the alleged Zeek Rewards Ponzi scheme, the court-appointed receiver has filed court paperwork in Guam.
Guam is a U.S. island territory “approximately 3,300 miles West of Hawaii, and 1,500 miles east of the Philippines and south of Japan,” according to the website of Naval Base Guam.
Whether U.S. military members in Guam bought into Zeek is unclear. Zeek was based in North Carolina, home state to four military installations.
In August, the SEC said Zeek “raised money from more than one million Internet customers nationwide and overseas.” In July, the PP Blog reported that an article on Google News by an apparent Portuguese-speaking affiliate of Zeek claimed that the MLM “program” had more than 100,000 members in Brazil alone. Haaretz.com reported in August that Zeek may have had 20,000 members in Israel.
In recent days, Zeek receiver Kenneth D. Bell has been posting notice of the August SEC complaint and his appointment as receiver in federal courts in multiple states. The filing in Guam appears to be the first in a U.S. territory, as opposed to a state. The filings set the stage to consolidate Zeek-related court actions in the Western District of North Carolina before Senior U.S. District Judge Graham C. Mullen.
Bell has said he’ll pursue clawback litigation against Zeek “winners.”
Some military members were victims of the infamous “3 Hebrew Boys” Ponzi scheme in South Carolina, another state that includes multiple military installations.
Some promoters of AdSurfDaily, a Zeek-like “program” that planted the seed it provided a return of 1 percent a day, deliberately targeted military members and their spouses.
From a May 2008 pitch for ASD targeted at military families. ASD collapsed in August 2008.
These filings related to the alleged Zeek Rewards Ponzi scheme operated by Rex Venture Group LLC are appearing in federal court dockets in multiple states today. There are 94 federal judicial districts in the United States, and such a filing is possible in any district in which the court-appointed receiver believes Zeek Ponzi proceeds reside.
UPDATED 11:02 P.M. ET (U.S.A.) PP Blog reader “Tony” posted comments this morning about cases involving Rex Venture Group LLC popping up in federal courts beyond the Western District of North Carolina, home base of the SEC’s Zeek Ponzi scheme case and the court-appointed receiver. Rex Venture is the parent company of North Carolina-based Zeek.
Tony initially observed that he’d seen case numbers for Rex-related filings such as this one on Justia.com, a site that tracks court filings. Tony noticed Justia references to filings in the Western District of Arkansas and in Arizona.
It turned out that these two filings were only the tip of the iceberg. As the day proceeded, more and more references to filings began to appear on PACER, the public-access system for the federal courts.
The ASDUpdates Blog has been tracking the filings today. As of the time of this post, there appears to be more than 40 such filings in various federal districts in various states. That number could increase because there are 94 federal districts and the filings will occur in districts in which the Zeek receiver has traced assets linked to the scheme.
Receiver Kenneth D. Bell has said he intends to pursue clawback litigation against Zeek net winners in order to make victims of the alleged Zeek fraud scheme as whole as possible. The early math of Zeek suggests there were about eight losers for every Zeek winner.
The filings now appearing on the dockets today in various federal districts are yet another indicator of the massive scale of the alleged Zeek fraud, believed to be the largest Ponzi scheme in U.S. history based on the number of victims. That number is estimated in the neighborhood of 1 million.
In August, the SEC described Zeek as a $600 million Ponzi- and pyramid fraud.
Today’s filings are not lawsuits against individual Zeek promoters; those will come later, if the receiver and the promoters cannot negotiate a deal that will result in the return of sought-after funds. Today’s filings — in effect — are formal notifications to court officials in the various districts that the receiver may be operating in their districts under the authority of the federal court for the Western District of North Carolina.
Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina is presiding over the SEC’s Zeek case and the receivership.
Despite the SEC’s Zeek action, the HYIP universe continues to serve up wantonly destructive fraud schemes, thus potentially creating victims by the tens of thousands at a time. In many cases, the schemes are advanced by willfully blind hucksters, including hucksters who populate Ponzi scheme boards such as TalkGold and MoneyMakerGroup and race from scheme to scheme to scheme.
Alleged Ponzi scheme Zeek Rewards wrapped itself in the American flag and symbols such as the American penny coin to attract business. The purported “opportunity” has created problems for hundreds of thousands of members in the United States and other countries.
The PP Blog has received a report that some members of Zeek have received subpoenas issued by the court-appointed receiver in the Zeek Rewards Ponzi scheme case. The SEC alleged in August that Zeek was a $600 million Ponzi and pyramid scheme operated by Paul R. Burks and Rex Venture Group LLC.
Receiver Kenneth B. Bell said earlier this week that a first round of about 1,200 subpoenas would be issued to “affiliates who profited most from ZeekRewards.”
Early details are sketchy about precisely what information the subpoenas demand. Bell wrote on the receivership website that recipients “are required to fully respond to the subpoena.
“If you do not have possession, custody or control of any of the documents requested simply say so in responding to the subpoena. However, you are required to make a full reasonable effort to locate all documents requested, including electronic documents and email,” Bell wrote.
The issuance of the subpoenas demonstrates that online HYIPs dressed up as multilevel-marketing “programs” can — at a minimum — create civil exposure for participants. Profits received from such schemes are viewed as ill-gotten gains subject to clawback.
In an Oct. 8 court filing, Bell advised Senior U.S. District Judge Graham C. Mullen that he planned to pursue Zeek winners and others through common-law and and clawback claims “under applicable fraudulent transfer statutes.”
In addition to Zeek winners, potential clawback targets include Zeek officers, employees and professionals who benefited from the scheme, according to Bell’s Oct. 8 filing. As many as 100,000 people potentially received ill-gotten gains from Zeek, while about 800,000 Zeek members experienced losses.
Zeek wrapped itself in the American flag while pitching its offer globally, claiming among other things that winners of its Zeekler auctions for sums of U.S. cash would be paid through offshore payment processors. North Carolina-based Zeek has never explained the striking incongruity of auctioning U.S. cash and offering to deliver it via payment processors linked to fraud scheme after fraud scheme promoted on Ponzi scheme forums such as TalkGold and MoneyMakerGroup.
Auctions for cash mysteriously went missing from Zeek in June. On Aug. 4, 13 days before the SEC filed an emergency action to halt the alleged Zeek Ponzi scheme, the company publicly complained about “North Carolina Credit Unions” that were warning customers about Zeek.
Zeek’s auction arm was known as Zeekler and was married to Zeek Rewards, the MLM side of the business. The SEC said in August that Zeek commingled funds and that Burks “unilaterally and arbitrarily” determined Zeek’s daily dividend rate so that it averaged “approximately 1.5% per day, giving investors the false impression that the business is profitable.”
In 2008 and 2009, the U.S. Secret Service made similar allegations against AdSurfDaily and operator Andy Bowdoin. Bowdoin, 77, was charged criminally in December 2010. He pleaded guilty to a Ponzi-related charge of wire fraud in May 2012. Bowdoin was sentenced in August 2012 to 78 months in federal prison.
ASD operated as an “autosurf” HYIP that planted the seed that members would receive a return of 1 percent a day.
Precisely how many Zeek members live outside the United States and benefited from the scheme is unclear. In July, the PP Blog reported that a Zeek-related article carried on Google News claimed that Zeek had 100,000 members in Brazil alone.
An issue that potentially could emerge in the coming weeks is whether the receiver will be successful in seeking clawbacks from non-U.S. members of Zeek who received more from the scheme than they put in. How many Zeek members fit the profile is not yet known.
HYIPs that operate across borders on the Internet introduce the specter of international red tape and also potentially bring language barriers into play. In the days after the SEC brought the Zeek case, some purported international members of Zeek effectively thumbed their noses at the United States and Zeek victims, crowing on Ponzi-scheme forums that they’d keep their Zeek money no matter what.
