The is a follow up to my post on September 8th, 2012: Breaking Zeek Rewards News: The SEC acknowledged that there are a couple of problems with the case against Rex Venture group? Respected Anti-Ponzi Advocate, Forbes Contributor and Attorney wrote the following article!
[quote]On August 17, 2012, the Securities and Exchange Commission (“SEC”) filed an emergency enforcement action to shut down ZeekRewards (“Zeek”), calling it a massive $600 million Ponzi scheme. According to the SEC, while Zeek promised participants a daily payout of “net profits,” these profits were nearly exclusively derived from the funds of new investors – the classic hallmark of a Ponzi scheme. At the SEC’s request, the court then approved the appointment of Ken Bell as the receiver, who would be tasked with gathering and safekeeping assets for eventual distribution to victims.
Emotions have run high since Zeek’s shutdown, as many lament their losses amid what was such a promising operation that seemingly defied the age-old “if it’s too good to be true..” mantra. However, a select (and growing) group has taken their dissatisfaction to another level, soliciting the assistance of other victims to fight the “illegal” and “unlawful” actions taken by the SEC. While their rousing rhetoric is critical of the SEC, recent representations made regarding the SEC’s handling of the case may have crossed the line from opinion to misrepresentation. Indeed, an SEC official briefed on the claims by Ponzitracker explicitly refuted such allegations.
Shortly after the SEC stepped in, several groups, including “Zeek Rewards Affiliates United Against The SEC” and “Zteambiz” were formed, and appear to operate in tandem. Zteambiz describes itself on its website, www.zteambiz.com, as “a professional organization designed to secure competent legal counsel to prevent further damage caused by the actions of the SEC actions against Rex Venture Group aka, Zeek Rewards.” Dave Kettner and Robert Craddock are several of the individuals behind these sites, as evidenced by multiple postings attributed to them. Using the site, both have solicited Zeek victims to “donate” towards a fund being set up to retain a top law firm to fight the SEC’s allegations and reopen Zeek. A September 5, 2012 update from Kettner implored victims to donate if possible to be added to the “protected group.” The response seems to have been positive, and on August 30, 2012, a notice was posted indicating that SNR Denton, a well-known international law firm, had been retained:
SNR Denton US LLP represents Fun Club USA and all inquiries about this representation should be directed to Fun Club USA at xxxxxxxxx. SNR Denton’s legal representation is limited to Fun Club USA; SNR Denton does not represent and does not have an attorney-client relationship with affiliates of Zeek, Zeek Rewards, Rex Venture Group LLC or with any individual or party that chooses to provide funds to Fun Club USA.”
The notice is seemingly at odds with representations contained in the “People Helping in the Legal costs” tab on Zteambiz, which indicated that those who had donated – numbering over 6,000 as of September 1, 2012 when it was last updated – were “now being represented by counsel, to protect their moneys (sic) earned by Zeek Rewards and monies currently held by Zeek Rewards.” The notice, which has since been removed, was clear that “SNR Denton’s legal representation is limited to Fun Club USA.” A quick search on Florida’s Division of Corporations website yielded a “Fun Club USA Inc.” registered on August 28, 2012. The President of Fun Club, as shown on its Articles of Incorporation? Robert Craddock.
Zteambiz has been vocal in its criticism of the SEC, alleging that “all the pages that were submitted…by the SEC that froze the assets of Rex Venture Group, LLC has all been one sided and what we believe to be a misrepresentation of the truth and facts of what Zeek Rewards was as a viable and legal business.” Additionally, Zteambiz claimed that “the SEC mislead (sic) the judge” in securing an emergency asset freeze.
This past Saturday, an email from “Dave” updated recipients based on information recently learned from Craddock. One of the first revelations was that SNR Denton had decided to no longer represent Zeek, reportedly due to the “tons of calls” received by the firm from victims that interfered with Denton’s “entire law firm operations.” A new law firm was said to be in the works, whose identity would remain a secret until court filings were unveiled “early next week.” What piqued the interest of many, however, were the representations made immediately after. The paragraph is reproduced below:
Here is the great news…The law firm has already talked to the SEC and the NC DOJ. On Thursday, Robert got a call from one of our attorneys regarding the conversation that he had with the SEC. Here
is what he said:
The SEC acknowledged that there are a couple of problems with the case against Zeek Rewards and Rex Venture group. Here are the problems:
1. We (the SEC) are not able to find a victim in this case. We are not able to find anybody at this time that has been harmed by Zeek Rewards.
2. We (the SEC) are having a hard time finding a security. In the complaint, it said that Zeek was selling securities and was an investment scheme.
Based on their (the SEC) new knowledge of the Zeek Rewards business model, they are having a hard time moving forward in making their case. And they are now looking for a path or way to back out of this.
These apparent admissions by the SEC quickly spread over the internet, with dozens of websites frequented by the multi-level marketing community accepting the statements as fact and quickly proclaiming that the SEC was close to capitulating.
The claims seem skeptical for several reasons. First, it is highly unlikely that these kind of admissions would be made to a potentially adversarial party and/or attorney. Second, both Rex Venture Group and Paul Burks have each already entered into a consent judgment agreeing to waive any right of appeal, and, in Burk’s case, paying a $4 million civil penalty. Further, a link to an information page established by the SEC now features prominently on the SEC’s homepage, www.sec.gov.
These suspicions were confirmed today after Ponzitracker spoke with a top SEC official familiar with the case. After reviewing the allegations, the official, who declined to be named, labeled the statements as “inaccurate” and “false”. Additionally, it would be highly impractical for the SEC to make such moves and statements without allowing the receiver to complete his initial investigation and make appropriate recommendations.
Craddock is no stranger to controversy in his affiliation with Zeek and Rex Venture Group. Several months before Zeek was shut down by the SEC, a blogger who goes by the name of KSChang posted an article presenting a detailed look into the legitimacy of Zeek. The article contained a wealth of information about Zeek, its past, and, perhaps most prescient, whether “ZeekRewards [is] a Ponzi Scheme?”. However, shortly after the article was published, the site’s administrator received a letter from a person purporting to act on behalf of Rex Venture Group alleging that:
It has come to our attention that your website Hubpages.com is broadcasting and delivering content that is both copyrighted and, Trademark Protected. In addition, the content constitutes a tortuous interference with us and our 1.2 million independent advertising reps around the world.
The following page was brought to our attention yesterday (July 21, 2012) and we would request this page to be removed before greater damage is done to our business model and reputation.
The author of the letter? Robert Craddock, on behalf of Rex Venture Group LLC. The letter succeeded temporarily, as the article was removed by the site administrator while the claim was investigated. Apparently not satisfied with the allegations, the article was allowed back online after six days. KSChang provided a summary of his efforts while the site was down:
When I requested details from this person, he said he couldn’t POSSIBLY create a list of what’s untruthful or libelous and why about the hub by Monday. (I contacted him on THURSDAY). When I pressed for more details, he replied with veiled legal threats about “pursue all legal venues”.
Less than three weeks later, the SEC confirmed the article’s skepticism and shut down Zeek.
The 9/8/2012 email is here.
The Fun Club USA Articles of Incorporation are here.
The “takedown” letter sent by Craddock is here.
Recent Zeek Coverage:
Jordan Maglich Bio
Jordan Maglich’s practice includes complex commercial litigation and regulatory matters, with a focus on securities and financial services litigation. He represents securities broker/dealers, investment advisors, and their associated persons in federal and state court and in arbitration. Additionally, Jordan is currently part of the team representing the court-appointed receiver nominated by the Securities and Exchange Commission in Arthur Nadel’s $400 million Ponzi scheme.
He graduated cum laude from the University of Florida in 2006 as a graduate of the Honors Program and holds degrees in Business Administration and Political Science. He obtained his law degree cum laude from the University of Miami School of Law, where he was also a member of the nationally-ranked Charles C. Papy, Jr. Moot Court Board. Jordan also holds an MBA from the University of Miami Graduate School of Business with a concentration in Finance.
Jordan also is the author of Ponzitracker, an internet blog that tracks the proliferation of ponzi schemes across The United States. The blog is updated daily, and was recently recognized by Lexis Nexis as one of the Top 25 Business Law blogs on the internet. It can be accessed at www.ponzitracker.com. He is also a Forbes contributor, where he writes about white collar crimes.