The court-appointed receiver overseeing the $600 million ZeekRewards Ponzi scheme has issued a quarterly update detailing efforts to recover assets on behalf of the estimated one million victims. Kenneth Bell, the court-appointed receiver, disclosed that he currently has approximately $320 million under his control as of September 30, 2013. The quarterly report also provided several notable updates, including the current status of “clawback” litigation, efforts to recover cashiers’ checks with stop-payments initiated by victims, and plans for an interim distribution to claimants.
Immediately after the Receiver’s appointment in August 2012, many victims that had recently sent their investment funds to ZeekRewards via cashier’s checks, teller checks, and bank money orders sought to prevent those instruments from being cashed by having their financial institutions issue “stop payment” orders. According to the Receiver, these investors were successful in having approximately $17 million of potential deposits reversed. However, under well-established law, even those investors who had the ill fortune of being the very last to invest before the scheme’s collapse cannot enjoy any special preference or ability to retrieve their funds.
The Receiver indicated that he had identified more than 700 financial institutions that had improperly stopped payment on more than 7,500 cashier’s checks and money orders under Section 3-411 of the Uniform Commercial Code – and in violation of the asset freeze entered by the Court immediately after the scheme was uncovered. While the majority of financial institutions have cooperated with the Receiver’s demand for payment, several financial institutions have informed the Receiver that they do not intend to cooperate. The Receiver indicated in the quarterly update that he intends to pursue his claims against those uncooperative financial institutions through litigation if necessary.
The Receiver also detailed his ongoing efforts to identify assets transferred to investors in excess of those investors’ original investments. As of September 30, 2013, the Receiver estimates that approximately $283 million in fraudulent transfers were made to the so-called “net winners.” As the Receiver has detailed in previous updates, challenges remain to recovering these transfers – including the fact that nearly 100,000 investors are estimated to have been fortunate enough to profit off their investment. The Receiver disclosed that he continues to weigh the most efficient way to pursue these net winners, and indicated that these efforts are likely to be
“a combination of individual actions, group actions, defendant class actions, and other alternative dispute resolutions as approved by the Court. “
The Receiver also disclosed that a large amount of net winners reside outside the United States. Many of these net winners reside in countries that are signatories to the Hague Convention, which is an international treaty that establishes international procedures for service of process.The Receiver indicated that he intends to pursue these foreign net winners so long as such efforts are cost-effective and do not delay clawback litigation against domestic net winners.
Perhaps most notable, the Receiver disclosed that “the first clawback claims are now imminent,” and that a lawsuit against “multiple named defendants along with a class of net winners will be filed during the fourth quarter of 2013.” This can likely be taken as an indication that settlement efforts have broken down between certain net winners.
The Receiver also stated that he had reached settlement agreements with nearly 160 net winners. These settlements resulted in total payments of $2.235 million on total false profits of $3.94 million – meaning that settling net winners returned an average of nearly 57% of their false profits. It was disclosed that net winners paid anywhere from 45% to 100% of their net winnings, with the Receiver taking several factors, including financial means, into consideration in negotiating settlements. The Receiver has historically sought to approve batches of settlements, and indicated he intends to move shortly for approval of the more recent settlements.
Finally, the Receiver provided an update on the claims process recently established for victims. According to the Receiver, the claims process resulted in over 174,000 entities filing nearly $600 million in claims. Approximately 99% of these claims were from “affiliate” investors, who accounted for 94% of the total dollar amount of claims. The Receiver is working with his forensic accountants to fashion a cost-effective way to review the claims, and plans to soon file a motion with the court seeking to make an interim distribution. This motion will include the establishment of procedures for objections, priority of payments among claimants, and the method for determining the amount of distributions to be made. The Receiver anticipates filing this motion in November 2013, with a partial interim distribution happening sometime in 2014.
A copy of the report is below: