Zeek Receiver Files Clawbacks Against Canadian Net Winners
The court-appointed receiver tasked with recovering funds for victims of the $600 million ZeekRewards Ponzi scheme has filed clawback lawsuits seeking the return of millions of dollars in "false profits" from Canadian investors fortunate enough to profit from the massive Ponzi scheme. Receiver Kenneth D. Bell filed the lawsuit in the Western District of Carolina, where the receivership is pending, against twenty-four individuals and one entity, accusing each of profiting by at least $50,000 from their investment with Zeek. Ten of the defendants profited by at least $100,000, with Defendant Xiaomei Wang allegedly netting more than $375,000 from the scheme. The Receiver is seeking a judgment in the amount of each defendant's net winnings, as well as the entry of an injunction prohibiting the dissipation of each defendant's assets pending satisfaction of that judgment.
Courts routinely favor the use of clawback litigation to recover false profits from investors under the Uniform Fraudulent Transfer Act (“UFTA”), which has been passed by nearly every state in substantially similar form. Under the UFTA, transfers made to a creditor are deemed fraudulent when, among other factors, no reasonably equivalent value was exchanged. An investor is understood to give reasonably equivalent value, assuming they received the transfer in good faith, for any amount up to that investor’s total contribution. Thus, an investor who received 100% of their total contribution usually cannot be compelled to return those funds absent actual knowledge of the fraud. However, an investor who received funds in excess of their original investment is not as lucky, for in a Ponzi scheme, those purported “profits” are, in reality, simply the redistribution of other investor funds. Allowing a fraudster’s arbitrary determinations as to who is enriched under the scheme would be highly inequitable.
The defendants sued by Bell and the corresponding amount of purported "false profits" are below:
- Catherine Parker, $179,656.05
- Xiaomei Wang, $376,808.09
- Beverly Dawn Trca-Kitchen, $314,228.43
- Bin Xu, $244,232.18
- Joel Broughton, $166,669.36
- Feng Guang Wu, $125,485.31
- Don Fitz-Ritson, $121,773.22
- Ruth Konig, $118,828.40
- Guan Jun Zhang, $115,061.48
- Leon Killam, $108,690.96
- Guo Hua Liang, $99,668.36
- Sandra Gavel, $89,906.62
- Yong Sheng Wang, $88,759.96
- Devey Dejong, $87,652.96
- Estate of Richard Bruce Foeller, $76,168
- Brian Fussey, $68,294.59
- Shao Zhang Huang, $67,833.78
- James Macelwain, $65,516.09
- Eugene Veinotte, $62,457.23
- Michael Gallup, $61,944.87
- Jia Yu Wang, $58,346.21
- Ying Liu, $57,421.31
- Jane Ferguson, $55,052.01
- Zahid Ali, $51,267.28
- Mei-Ping Liang, $50,863.61
In total, Bell is seeking approximately $3 million in false profits from the Canadian investors.
Given Bell's previous comments in interim reports, the lawsuit is likely the culmination of the defendants' refusal to entertain settlement overtures to avoid litigation. Thus, it is likely that many of the defendants may resist Bell's efforts on multiple grounds, including that jurisdiction over the defendants may not be acquired due to their lack of connection with North Carolina. However, Bell will likely overcome that argument by virtue of defendants' voluntary participation in the scheme, purposely directing actions and communications towards Zeek, as well as sending/receiving funds to/from Zeek.
A copy of the operative complaint is below (h/t to ASDUpdates)