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ZeekRewards Breaks New Ground in Clawback Litigation

Samuels Yoelin Kantor LLP



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.

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