The court-appointed receiver overseeing tbe recovery of funds for the $600 million ZeekRewards Ponzi scheme has filed his quarterly update (the "Update") with the court, providing interesting insight into asset recovery, litigation against so-called "net winners," and the recently-approved claims process. The Update is the first public communication from Receiver Kenneth Bell since the approval of the claims process back in early May, and contains a comprehensive summary of the receivership team's recent efforts to recover assets for scheme victims, which are estimated to number nearly 1 million. With approximately one month remaining for victims to file claims, the Receiver has already received potential claims exceeding $355 million.
To date, the Receiver has marshaled approximately $325.1 million to date for the benefit of investors. This includes more than $222 million seized from financial institutions, as well as $85 million in cashiers' checks and other investor payments. This figure also includes approximately $10 million seized by the U.S. Secret Service and currently in possession of the U.S Treasury, primarily from various e-wallet and payment processors used in the scheme. The Receiver has also enlisted the services of a third-party data analysis vendor to determine whether there exist additional sources of funds that have not been pursued. This includes the identification of several previously-undiscovered foreign bank accounts - including one account holding nearly $10 million.
The Receiver has also worked to identify other non-cash assets previously owned by Rex Venture Group, including various parcels of real estate previously used by RVG to operate the scheme. Additionally, the Receiver disclosed that he had obtained the contents of three climate-controlled storage units to eventually be auctioned off. The Update indicated that auctions of this real and personal property were likely to take place by the end of 2013.
The Update contained a wealth of information concerning the Receiver's efforts to "claw back" funds from investors that had been fortunate enough to profit from their Zeek investment. According to the Receiver, these "net winners" are believed to have received nearly $300 million in false profits, and represent a significant source of potentially recoverable funds for victims.
While the Receiver previously issued an ultimatum in April imploring net winners to come forward or face litigation, the Update indicates that this demand was limited to those net winners who had received $1,000 or more in excess of their principal investment. According to the Receiver, this demand resulted in settlements with more than 135 net winners, and consisted of settlements payments of approximately $1,800,000 based on $3.2 million in net winnings. While these aggregate settlements equate to an approximate recovery of 56%, the Receiver indicated that the individual settlements ranged from 45% to 100% based on a variety of factors including the investor's financial status and their efforts to recruit others. Approval of these settlements remains under consideration by the Court.
The wide range of the proposed settlements is noteworthy in several aspects. First, it appears that the "floor" - or the minimum settlement percentage that the Receiver would consider accepting - is just under 50% of an investor's false profits. It also shows that some (albeit apparently very few) investors have chosen to come forward and repay all of their net profits without incurring litigation costs. Finally, it may also have unwittingly provided those net winners who have thus far declined to settle with a blueprint for approaching any potential settlement negotiations. However, while it is certainly not uncommon to accept a lower settlement amount in Receivership proceedings based on circumstances such as financial considerations, often this will be accompanied by a financial affidavit attesting to these facts under penalty of perjury.
The Court approved the Receiver's proposed claims process on May 8, 2013, giving investors until September 5, 2013 to submit claims for review and approval by the Receiver. According to the Update, significant effort was required just to provide the required notice to potentially interested parties. Due to the sheer amount of potential claimants (the Receiver estimated there were approximately 2.2 million unique User IDs), the Receiver attempted to send 1.7 million emails notifying individuals of their rights under the claims process. Of these 1.7 million emails, approximately 1.3 million were successfully delivered. Of the approximately 420,000 emails that were not delivered, the Receiver ended up sending more than 330,000 postcards to physical mailing addresses, as well as over 7,000 postcards to financial institutions that could feasibly hold claims.
The Receiver opened an online claims portal on May 15, 2013, which was to serve as the central mechanism by which investors could submit claims. According to the Update, the Receiver has received nearly 54,000 claims to date. Including claims marked as "in progress" on the Claims Portal, the aggregate amount of potential claims submitted thus far is approximately $355 million. This amount slightly exceeds the total amount of funds recovered to date by the Receiver, which is currently approximately $325.1 million.
Upon finalization of a cost-efficient way to analyze each of the claims, which is estimated to be completed next month, the Receiver anticipates that he will soon begin conducting a claims reconciliation process. Following completion of the claims reconciliation process, the Receiver will then issue a claim determination letter to claimants. Soon after the Claims Portal closes, the Receiver also anticipates filing a motion seeking determination of, among other things, an objection procedure, a claim determination method, and how to treat de minimus claim amounts.
The next communication from the Receiver is likely to come at or around the close of the claim submission period on September 5, 2013.
A copy of the Update 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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