DOJ claim Burks’ experts “to serve as judge, attorney, and jury”
Things are heating up regarding Paul Burks’ defense experts.
Following an objection filed by the DOJ against John White and Morris Aaron’s proposed expert opinion, Paul Burks filed a reply mostly dismissing the DOJ’s objections.
The DOJ has now filed a reply, claiming Burks seeks to have his experts ‘serve as judge, attorney, and jury.‘
John White
White’s testimony that ZeekRewards did not operate as a Ponzi scheme should be excluded
Burks wants John White to read out the dictionary definition of a Ponzi scheme and then compare that to Zeek Rewards.
The DOJ claim this is an attempt to ‘conflate the issues and ignore and/or misrepresent the relevant law.‘
To the extent that Burks intends to have White offer his Ponzi scheme opinion in response to a Government expert, as he suggests in his brief, this issue is moot as the Government will not call an expert in its case-in-chief to testify that Burks’ scheme is a Ponzi scheme or has the characteristics or hallmarks of a Ponzi scheme.
The DOJ aren’t arguing their case on the merits of Zeek Rewards being a Ponzi scheme. Paul Burks has been indicted for wire fraud, and so the DOJ claim any testimony pertaining to whether or not Zeek Rewards was a Ponzi scheme is irrelevant.
Burks essentially seeks to set up a straw house and then knock it down, by offering expert testimony as to what a Ponzi scheme is and then opinion that Burks’ scheme is not a Ponzi scheme.
But it cannot be disputed that the Government need not prove the existence of a Ponzi scheme to prove any of the charges in this case.
Thus, whether or not Burks’ scheme meets all of the elements of a Ponzi scheme is only a relevant inquiry if the Government seeks to prove “a scheme to defraud” by proving that Burks’ scheme meets all of the elements of a Ponzi scheme.
In his reply to the DOJ’s initial objection to White’s testimony, Burks asserted that
it is “well established” in the law that “the existence, or non-existence, of a Ponzi scheme” is the proper “subject of expert testimony in mail and wire fraud prosecutions”.
The DOJ argue this claim “does not withstand scrutiny”. Four cases Burks cited are dismissed by the DOJ, primarily because the violations in those cases are different to Burks’ case.
Another point of contention between the parties is the nature of White’s testimony. Burks claims White ‘is not offering a legal conclusion; rather he is offering an accounting analysis‘.
Citing White’s filed opinion, the regulator sees things differently;
White begins his opinion by quoting the definition of Ponzi scheme from Black’s Law Dictionary, and then says “[t]he Ponzi scheme characteristics identified above [in the definition] are discussed and compare to Zeekrewards.”
That is, White seeks to instruct the jury on a definition of Ponzi scheme – not based upon any expertise on his part, but using a legal definition – and then “compare” that definition to Burks’ business.
Burks cannot seriously be asserting this is “an accounting analysis.”
To the contrary, it is an obvious attempt to offer a legal opinion and usurp both the role of the Court and the jury.
Tellingly, Burks also fails to address any of the cases the Government cited in support of its arguments that White’s opinion is a legal opinion and one that usurps both the role of the Judge and the jury.
Instead, Burks engages in a game of smoke and mirrors.
In conclusion, the DOJ write
White’s “Opinion regarding Zeekrewards not being a Ponzi Scheme” should be
precluded because(1) he is not qualified to offer such opinion;
(2) his legal opinion is not the proper subject of expert testimony;
(3) his opinion attempts to usurp the role of the Judge;
(4) the opinion attempts to usurp the role of the jury; and
(5) the opinion is not relevant, and any marginal relevance is substantially outweighed by the danger of confusing the issues, misleading the jury, and undue delay and a waste of the Court’s time, particularly in light of the fact that Burks is not charged with operating a Ponzi scheme and the Government has not sought to establish “a scheme to defraud” by establishing the elements of a Ponzi scheme.
White’s testimony as to what might have been Burks’ reasoning or methodology for determining the Daily RPP Award should be excluded
At issue here is White raising potential defenses for the calculation of the daily ROI percentage paid to Zeek Rewards affiliates.
Burks ignores all of the conditional statements in White’s report that make clear the speculative nature of his opinion.
Burks’ expert leaps to the conclusion that “changes in the Daily RPP Award are based upon changes in daily Bank Balance and Total Money In,” effectively offering testimony as to how Defendant purportedly determined the RPP.
This assumption by Defendant’s expert should be precluded as it would improperly allow Burks to “speculate a non-existent defense into existence.”
This is all the more true in light of the fact the evidence before the jury is that the RPP was not based upon these items, but instead was, for example, “magic”.
Moreover, even if White’s opinion is found not to comprise improper speculation … it should be precluded … as the probative value is substantially outweighed by the danger of confusing the issues and misleading the jury by improperly implying that Burks used these methodologies and did not have fraudulent intent.
In a nutshell, the DOJ argue White shouldn’t be able to use speculative defense theories to effectively testify on Burks’ behalf.
White’s testimony regarding the notebooks should be precluded
Despite having years to acknowledge and/or produce them as evidence, Burks only recently claimed to possess notebooks pertaining to the operation of Zeek Rewards.
Burks claims the notebooks are ‘powerful evidence … that undercuts a central prosecution theory‘.
Naturally the DOJ want anything to do with the notebooks excluded from Burks’ trial.
Tellingly, Burks does not even attempt to explain his failure to have provided this purportedly “powerful evidence” in response to the Grand Jury subpoena or to explain his Grand Jury testimony.
Nor does he offer any explanation for how or why these handwritten documents seemingly materialized on the eve of his trial.
Instead, Defendant asserts that his paid expert should now be permitted to serve as a conduit to put this withheld evidence, which has not been authenticated and contains hearsay, in front of the jury.
Unless or until Burks testifies, authenticating the handwritten notebook and providing foundational testimony as to how it was purportedly used to calculate the RPP, his paid expert should not be permitted to testify for him, implying that Burks’ purported handwritten notebook illustrates what Defendant was thinking at the time.
Sounds reasonable to me. I mean if the notebooks existed all along, why didn’t Burks bring them up before the Grand Jury? If the notebooks are that important, why were they only disclosed a few weeks ago?
Smells fishy as hell to me, leave alone Burks trying to indirectly introduce the notebooks into the trial through an expert witness.
Morris Aaron
The DOJ claim “two categories of opinions” Aaron tends to provide testimony on
- what information was available and what thresholds “could” have been used to calculate RPP; and
- what the internal policies and regulations of certain banks and merchants were and the reasons those banks and merchants terminated Defendant’s accounts
The DOJ claim Aaron’s testimony is ‘irrelevant, unhelpful, will confuse the issues and mislead the jury‘.
Aaron’s own opinion that lies bare the speculative nature of his testimony.
For example, he states:
• “The Company had access to the following information in determining the daily RPP Award….” (at 14.)
• “the Company could utilize two primary thresholds to ensure the daily RPP Percentage allowed the Company to operate in a stable, sustainable and solvent manner.” (at 15.)
• “these two thresholds would be relevant and sufficient to derive the RPP Award…” (at 16.)
• “that could be utilized…” (at 16.)
Burks offers no explanation as to how this is not speculative and there appears to be none.
Thus, unless or until Burks testifies or otherwise establishes that the Company not only had access to the information but used it, and not only could have utilized one of the thresholds, but did, Aaron’s opinion is not relevant.
On the testimony regarding banks and merchants;
Aaron’s report essentially proposes that he be allowed to pay Aaron to testify for the banks and merchants.
Tellingly, Defendant’s Opposition Brief does not address or even mention the law the Government cites, but instead seems to have abandoned this opinion altogether, now arguing that he intends to “opine about the reasonableness of Mr. Burks’ actions in” regard to “the manner in which his company processed money and dealt with banks.”
Without further explanation, it is unclear whether this new opinion may be within the proper scope of expert opinion, generally, and Aaron’s expertise in particular.
Wondering why Burks isn’t calling up any bank or merchant staff as witnesses?
Yeah, so am I.
Well, not really. Why Zeek Rewards’ bank accounts were shut down one after another should be obvious.
Aaron should not be permitted to be “little more than a backdoor conduit for an otherwise inadmissible statement.”
That is, Aaron should not be permitted to testify about the particular policies of a particular bank or merchant or what the particular banks and merchants here thought and did.
Sounds fair to me.
The DOJ’s reply was filed yesterday on June 10th. Ideally a decision will be made today (Monday the 11th), otherwise by the end of the week.
Burks’ trial resumes on Monday. Stay tuned…
Footnote: Our thanks to Don@ASDUpdates for providing a copy of the DOJ’s July 10th Reply Brief.
Nice recap Oz. It seems to me that if the judge excludes the expert witness testimony as the US Attorney has requested that Burks has no defense at all.
So be it.
On the flipside, if the Ponzi testimony is permitted the DOJ has stated they’ll have experts ready to rebut that too.
i will be surprised if judge cogburn does not permit expert testimony about ‘ponzi scheme’, as the criminal indictment of burks used the term ‘ponzi’ several times.
IMO, it is clear from the indictment that the mail and wire fraud arose from a fraud scheme and a ponzi scheme.
justice.gov/sites/default/files/usao-wdnc/legacy/2015/02/20/burksindictment.pdf
now, prosecution is trying to avoid proving ponzi scheme, and i wonder why.
in older zeek threads here, we had a spirited discussion about whether zeek was a ‘ponzi’ under the howey test, which is the standard used to prove ‘ponzi’ in the US. it is easy to see that zeek was a fraud but ‘ponzi’ was a bit iffy to my mind.
for purely selfish reasons, i hope the court allows debate over zeek being a ponzi scheme. it will be interesting to see if ‘ponzi’ is explained as ‘robbing peter to pay paul’ or under the howey test.
the zeek RPP had recruitment, and also returns in the RPP was not only dependent on a participants own investment, but also on the investment of the downline. for example if a downline compounded his RPP points, a particular percentage was added to the upline’s RPP points and he got his daily profit share based on this [i read this a few days back, cant recollect where i found this explanation].
also, i find the prosecutions argument that debating ‘ponzi’ will confuse the jury, as this is not the first time that a jury has been called upon to decide whether a scheme is a ponzi or not.
if judge cogburn disallows debate over ‘ponzi scheme’ and burks is found guilty of committing ‘fraud’, the question about whether zeek was indeed a ponzi will remain unanswered in the criminal trial.
then we will have to await the outcome of the civil trial in the zeek receiver VS net winners, for a legal finding that zeek was a ponzi.
Because Burks wasn’t indicted for running a Ponzi scheme and introducing that will confuse the issues before the jury.
The SEC case would have established that directly because Zeek Rewards itself (Rex Venture Group) was being sued. Burks settled that case.
This however is an indictment for wire fraud.
In any event, the DOJ has stipulated it will provide expert opinion on how Zeek Rewards was a Ponzi scheme if required. I mean it’s not like it’s hard to lay out Zeek Rewards was a Ponzi scheme, I did it back in 2011.
As I understand it, the Howey test is used to determine whether a public or private offering is deemed to be a security (thus whether the SEC has standing/jurisdiction) but its not used to test whether “a scheme to defraud” is a ponzi, in fact I have never heard of a Ponzi test or even a legal definition of a ponzi.
In this case the grand jury heard the US Attorney characterize the scheme as a ponzi but she does not need to prove that by meeting the requirements of a five point test. What the judge tells the jury to consider in reaching its verdict will be interesting. I hope it gets published.
So Burks utterly fails to comply with discovery and then just prior to trial “finds” a handwritten diary that “explains everything.”
Its high comedy.
Correct, Howey test does not test for “ponzi-ness”. It generally is to define “security”, and it’s pretty much assumed that if you dare to register with the SEC, you’re probably legal.
If you didn’t bother to register, and try to avoid SEC attention by insisting on weasel wording, then you’re probably a Ponzi scheme, but the real use of Howey test was whether the scheme violated “Security Law”, not whether it’s a Ponzi.
so, if judge cogburn does not allow testimony about ponzi schemes and their test, defense will be limited to arguing about how burks did not commit ‘fraud’, as bids were not an ‘investment’ but a real product that was sold generating real profit, and that burks had [and used] data to calculate the daily profit share.
the ‘not an investment but a real product’ argument is weak as the bids had no consumption. about calculation of the daily profit share, lets see what burk’s defense produces in court.
to show that burk’s used available data to calculate the daily profit share, defense will probably want to rely on the ‘handwritten notebooks’, which have appeared mysteriously at the eleventh hour.
though this ‘evidence’ was not produced before the grand jury and could invite ‘contempt’ proceedings, the prosecution is willing to ‘allow’ the notebooks IF burk’s takes the stand and testifies.
if arguing ponzi is out, and burks has to put up a ‘not a fraud’ defense, he will have to testify at his trial.
ps; what is wrong with the carolina press? no coverage of such a big trial!!
but, in the US all ‘ponzi’ schemes are ‘securities’ falling under the enforcement of the SEC.
when a ‘ponzi’ scheme is set up with a ‘pyramid structure’ it falls under the enforcement of the FTC [the SEC may also go after pyramid schemes which have high investment or widget products and where the pyramid recruitment effort is done mainly by management].
the way i see it, in the criminal case of burks, the DOJ has preferred to stick to proving ‘fraud’ and not ‘ponzi/securities’, as zeek has an overlap of ‘pyramid scheme’, which can muddy the waters.
IIRC bowdoin of ad surf daily [very similar to zeek] was indicted for ‘securities’ fraud among other charges, but his criminal case ended in a plea bargain just before trial. in zeek the DOJ has not pressed charges for ‘securities’ fraud but ‘mail/wire’ fraud, as this may be more clear cut to prove.
Yes I think that is about how it must work out if the experts can not, in effect, testify on his behalf.
The US Attorney seems willing to permit the diaries into evidence so long as Burks will testify directly and she can cross examine.
This appears to be the case. You probably saw the Motion for Summary Judgement filed by Bell in the clawback case.
The defense expert could not even offer a defense and Olivares has already admitted it was a ponzi scheme and defaults have been entered against the major players. There’s nothing left to argue by nobody.
so, asdupdates contacted the ‘the dispatch’ of north carolina which has provided some coverage of the zeek trial so far:
aw.