“ZEEK REWARDS” PONZI SCHEME WILL BREAK NEW GROUND IN CLAWBACK LITIGATION

The collapse of the online Ponzi scheme called “Zeek Rewards” this past August threatens to break new ground in the area of Ponzi clawback litigation. With an estimated 800,000 victims identified, another 100,000 former affiliates are being targeted by the receiver as “profiteers”, and forced to defend themselves against demands to pay back the returns they received on their investments.

Banks Law Office issues this Investment Alert to urge these former affiliates to be fully informed of their rights in this situation.

On August 17, 2012, the Securities and Exchange Commission filed a complaint against Zeek Rewards which shut down the site. The complaint described Zeek Rewards as both a Ponzi and a pyramid scheme on the verge of collapse, having taken in some $600 million since its launch in January 2011. The central figure is Paul Burks, a 65-year-old multi-level marketing veteran based in North Carolina. Burks is the sole owner of the associated penny auction site Zeekler, also closed, and of their parent company, Rex Venture LLC.

The receivers of this bankrupt Ponzi operation are now attempting to recover — to “claw back” — hundreds of millions of dollars from the affiliates who were fortunate enough to have gotten their money back before Zeek Rewards was shut down. Many of these clawback targets could be innocent investors.

As of the end of October, the receiver Kenneth Bell, of McGuire Woods LLP in Charlotte, North Carolina, believe they identified 100,000 “affiliates” who were repaid more than they contributed, based on Paul Burks’ records. The receiver has sent out 1,200 subpoenas for information to those who reportedly profited the most. These subpoenas were accompanied by a “letter offering to negotiate voluntary surrender of profits”. This clawback action is taken against those who may have been totally unaware that they had been involved in a Ponzi scheme. The likely next step is that some of those former affiliates will be sued.

Senior attorney at Banks Law Office, Bob Banks, says, “These communications from the receiver are phrased to appear authoritative and neutral, as if it these clawback amounts had already been legally decided somehow. That’s not true. This is not the SEC or the government demanding money back. It’s simply a receiver making his best attempt to collect as much as he can. Anyone who receives a proposal to voluntarily surrender profits ought to seek legal advice before making any agreement to pay.”

Banks Law Office currently represents multiple clawback defendants in the ongoing Washington Meridian Funds bankruptcy proceedings. “Trustees and receivers are increasingly pushing the envelope as to which innocent investors they can sue. We help innocent investors push back,” said Banks.

It was closed by the SEC in August. In only eighteen months online entrepreneur (and former singing magician) Paul Burks received $600M from over a million people involved in his penny auction pyramid. In the next few weeks receiver Kenneth Bell will be pursuing Ponzi clawback claims against the roughly 1000 former affiliates who benefitted the most, hoping to extract their gains. Now a few of those former affiliates have filed a motion in U.S. District Court in Western North Carolina asking for an appointed examiner to defend their rights. They contend that receiver Bell is destroying what they still regard as a legitimate business.

(Winston-Salem Journal at www.journalnow.com)

Our senior attorney at Banks Law, Robert S. Banks Jr., posted a comment on the article online:

“While I have compassion for ponzi victims and have often represented them against wrongdoers, I find it unfortunate that filing clawback lawsuits against good faith investors has become so routine for receivers. Indeed, this article states that the receiver has no choice but to file the cases. We represent a group of clawback defendants in the Meridian Mortgage cases filed in Seattle, and there the receiver tried to strong arm all “net winners” to pay back all of their interest paid to them, even if the last payments were as far back as 2004 and even if their “net winnings” were as little as $900. Many of these innocent investors don’t have the money anymore, many are elderly, and most are living in fear of what might happen if they lose. Our clients in the Meridan cases live all across the nation, and all are being sued in Seattle. Many of the innocent defendants have valid legal defenses based on statute of limitations and lack of proof of a ponzi when they got their payments, but unless they are represented as a group, they can’t afford to fight these lawsuits, most of which are seeking under $100,000. Receivers need to think about the consequences of their actions before bringing clawback actions against good faith investors, and courts need to apply the law and sanction receivers who file the cases without good legal basis and without regard to the costs to the estate for filing.”

For nearly thirty years, the Banks Law Office PC has developed a focused practice in financial litigation, winning awards and settlements in the tens of millions of dollars against major Wall Street firms, small brokerages, investment advisors, financial planners, and others.

Our clients have included judges, NBA basketball players, construction workers, credit unions, retirement plans, securities regulatory agencies, and large investor groups. We have a single mission for every client: getting their money back. Contact Banks Law Office now for a free, confidential evaluation at (503) 358-8292.