Zeek Receiver Prepares Clawback Lawsuits Against Net Winners, Insiders
The court-appointed receiver tasked with recovering assets for victims of the $600 million ZeekRewards Ponzi scheme is seeking to move forward with lawsuits against scheme insiders and those "net winners" that profited from their investment. The Receiver, Kenneth D. Bell, filed a motion (the "Motion") in a North Carolina federal court requesting court approval for procedures to sue six Zeek insiders and a group of "net winners" that profited by $1,000 or more from the scheme. According to the timetable set forth, Bell expects to file the lawsuits immediately after a court order approving the motion.
The Motion proposes to file two separate lawsuits: one action against six Rex Venture Group ("RVG") insiders, and one action against the net winners receiving more than $1,000 in profits. The six insiders, identified by the Receiver as Paul Burks, Dawn Wright-Olivares, Daniel Olivares, Roger Plyler, Alexandre de Brantes, and Darryle Douglas, are accused by the Receiver of having
"developed and operated the fraud[,] breached their fiduciary duties and corporate obligations to RVG, converted and wasted corporate assets, were unjustly enriched and were the beneficiaries of fraudulent transfers from RVG."
The second action seeks to file claims against net winners who profited by more than $1,000. However, due to the sheer amount of possible net winners, which the Receiver previously estimated as approximately 80,000 individuals, the Receiver seeks to file one action, rather than filing a flurry of individual lawsuits, asserting claims against both the eleven largest individual net winners (and their relevant spouses and/or entities, if applicable) and a class that would be comprised of the remaining net winners. The Receiver identified the individual largest net winners as
- Todd Disner, in his individual capacity and as trustee for Kestrel Spendthrift Trust;
- Trudy Gilmond and Trudy Gilmond, LLC;
- Jerry Napier;
- Darren Miller;
- Rhonda Gates;
- David Sorrells;
- Innovation Marketing, LLC;
- Aaron and Shara Andrews;
- Global Interner Formula, Inc.;
- T. Lemont and Karen Silver;
- Michael Van Leeuwe;
- Durant Brockett; and
- David and Mary Kettner
The Receiver's choice to bring one action against net winners has several advantages, including significant cost savings and the promotion of efficiency and judicial economy. For example, the filing of a single case will provide enormous cost efficiencies as opposed to the filing of 1,000 individual lawsuits, which would mean an initial outlay of at least $400,000 based on a federal court filing fee of $400 and burden the Receiver with managing thousands of cases. This same tactic was used in instituting the claims process, where the Receiver successfully obtained court approval to conduct an internet-based claims process rather than incur hundreds of thousands of dollars in postage alone to mail out proof of claim forms. Additionally, by establishing a single action by which the Receiver may pursue claims against multiple defendants, the Receiver is theoretically able to pursue those net winners with less significant profits at a much less collective cost. This may also serve to spur settlements among those net winners, as the cost of litigation could significantly outweigh expected legal fees.
A single case will also promote efficiency, and will allow the Receiver to obtain universal rulings applicable to the entire class of defendants rather than obtain hundreds or thousands of similar orders. Indeed, the Receiver indicated that
"The Court will benefit from avoiding numerous administrative motions and the inefficiency and confusion that will result from a hodgepodge of different extensions and response dates. And, all the Defendants will benefit from the extensions of time and a simplified process."
As some will notice, several of the individually named "net winners" were involved with initial efforts to challenge the Receiver and SEC's authority in shutting down Zeek, claiming that "the SEC mislead (sic) the judge" in securing an emergency asset freeze, and even claiming that the SEC had admitted problems with the case (which were subsequently refuted here). Despite reportedly raising tens or even hundreds of thousands of dollars in victim donations, Zteambiz sent out a "final posting" in November 2013 clarifying that "As you know the goal was to assist the people of Zeek Rewards, and provide relevant information relating to the Zeek Receivership."
The Receiver seeks to schedule an initial conference among the parties during the week of January 13 - 16, 2014, where plans for discovery and deadlines for motion practice can be established.
A copy of the Motion is below:
A copy of the Proposed Order is below:
A special thanks to ASDUpdates for providing the Motion and Order.