The court-appointed receiver for the $600 million ZeekRewards
Ponzi scheme filed a quarterly report yesterday that provides a clear recap
of his efforts to date, including asset recovery, the ongoing investigation,
and clawback litigation. The Receiver, Kenneth Bell, was appointed on
August 17, 2012, and has since been tasked with the Herculean effort of
reconstructing a complex Ponzi scheme that counts over one million investors as
victims and over 80,000 that were fortunate enough to realize a profit. A
key part of the report, in what is undoubtedly a topic of interest for these
victims, outlines Bell's progress on establishing a claims process by which
victims may be able to recoup some or more of their losses. Of note, a
sample claim form is expected to be filed today.
Asset Recovery Efforts
Bell first outlined the progress of his asset recovery
efforts, indicating that Receivership bank accounts under his control held
approximately $310 million. This amount includes $221 million that had
previously been seized by the United States Secret Service and was transferred
to Bell's control on January 15, 2013. All cashier's checks in Bell's
possession have been cashed, and efforts are ongoing to recover funds held by
various third parties including E-Wallets and various foreign bank accounts.
At least one foreign entity is believed to hold over $12 million
belonging to the Receivership and has resisted the Receiver's efforts thus far
to return those funds. Bell indicated that he has enlisted the assistance
of the Secret Service, the SEC, and the U.S. Attorney's Office for those
recovery efforts.
Clawback Litigation
Clawback lawsuits remain ongoing, and Bell clarified that
he had filed proper paperwork in each of the 93 federal districts where he
believes Receivership assets may be located and subject to recovery.
Bell's investigation has revealed that at least $295 million may
have been fraudulently transferred to "net winners" and thus subject to
clawback claims. In the clearest indication of how he intends to pursue
clawback actions against the estimated 80,000 potential clawback targets, Bell
indicated that
the Receiver's clawback litigation is likely to be a
combination of individual actions, group actions, defendant class actions,
and possibly administrative damages hearings. Such proceedings will
establish the key findings applicable to most, if not all, recipients of
fraudulently transferred funds (findings such as the existence of a Ponzi
and/or pyramid scheme). They will also separately provide a forum for
the efficient determination of the proper amount of each net-winner's
repayment obligation.
The Report also states that foreign "net
winner" will also be pursued, both as parties to domestic
litigation based on their connections to Zeek in the United States and through
foreign litigation where necessary. Many of the foreign litigants'
countries of residence are signatories to the Hague Convention, which provides
an established method to provide service of process. Bell also indicated
that he is considering claims against not only Zeek's 'insiders' such as
employees and contractors, but also third-party advisors that "knew or
should have known of the inappropriate nature of [Zeek's] activities and yet
facilitated those activities for their own gain." While Bell did not
expand further on the potential third-party targets, the potential claims he
identified suggest that Bell may pursue law firms, accounting firms, and/or
payment processors.
Claims Process
During a public conference call held on December 17,
2012, Bell devoted substantial time to providing information about an upcoming
claims process by which victims could submit claims for their losses and
receive future distributions. While Bell had hoped to make these
submissions by the end of January 2013, he indicated in the Report that, due to
the extensive and time-consuming efforts to reconstruct receivership records
that will form the basis for the claims process, he now hopes to make these
filings at the conclusion of March, 2013. With more than one million
potential victims, Bell estimates that "the claims process may comprise
the largest single expense for the Receivership Estate."
Bell did say that he intended to file "screenshots"
of the draft online claim forms that will be an exhibit to the Final
Liquidation plan which Bell plans to file today, January 31, 2013.
Assuming the Final Liquidation plan is not filed under seal, these forms
may provide the first indication for investors as to both the information Bell
currently has relating to investor claims and the required information needed
to dispute or affirm these calculations. Ponzitracker will be providing
both coverage and guidance as to these claim forms.
As indicated above, the Receiver's Final Liquidation Plan
is due to be filed today.
A copy of the Quarterly Report is here.
Previous Ponzitracker coverage of Zeek is here.
For more news and analysis of Ponzi schemes, visit
Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.
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