Burks, Wright-Olivares and son to pay Receivership $600M
As the Zeek Rewards Receivership continues to pursue financial settlements with insiders who should have known better, news broke today that those at the top have already settled.
In his status report for the second quarter of 2014, Receiver Kenneth Bell has revealed that
By the filing date of this report, the Receiver had reached settlement agreements with Paul Burks, Dawn Wright-Olivares, and Daniel Olivares, pending Court approval.
Each of these defendants agreed to a consent judgment of $600 million to be satisfied with substantially all of their assets.
How the $600M figure will be paid back, in particular who is paying what amount, is unclear. Ditto how much of the judgement will be distributed to the scheme’s victims by the Receivership.
What is clear though is that it appears to be a lump sum, and after it’s paid – those primarily responsible for the creation and operation of the Zeek Rewards Ponzi scheme will have absolutely nothing left to show for it.
As someone who was actively covering Zeek Rewards during the height of the Ponzi insanity that gripped so many within the MLM industry, this latest judgement is a far cry from the hype and cheerleading that went on during Zeek’s heyday.
Not withstanding Burks, Wright-Olivares and her son being left penniless as a result of settling with the Receivership, the trio of Zeek’s top scamsters still have the civil and criminal cases against them to contend with.
That said, the $600M judgement clearly dwarfs the $4 million Burks agreed to settle the civil case against him by the SEC.
On the criminal front, last December Dawn Wright-Olivares and her son Daniel pled guilty to fraud. What additional penalties they face are as of yet undetermined.
Meanwhile criminal charges have yet to be filed against Zeek’s owner, Paul Burks. Speaking with the Secret Service a few days ago, the Dispatch confirmed ‘no criminal charges have been filed on Burks‘.
That criminal charges will eventually be filed against Burks is a certainly, it’s just a matter of when.
Other issues covered in the Receivership’s quarterly report include
- ongoing negotiations with NxPay to recover $13 million in stolen affiliate funds ($3.98 million has already been recovered)
- a letter sent to Preferred Merchants and its CEO Jaymes Meyer demanding $4.8 million in stolen affiliate funds be returned ($1 million has already been recovered)
- ongoing attempts to recover $9.8 million from Plastic Cash International
- continued investigation into how to best recover $13.9 million in stolen affiliate funds held by Pazya, $1.7 million from Solid Trust Pay and $5.1 million from CyberProfit (“as part of these efforts, the Receiver Team is working closely with various government agencies at various levels to investigate, pursue outstanding information, and recover funds from these foreign accounts“)
- the interviewing of Kevin Grimes, Gerald Nehra, Richard Waak, Howard Kaplan, other attorneys and “a former employee of RVG” (note that Kevin Grimes and Howard Kaplan have since been sued by the Receivership)
- dealing with “distractions” filed by idiots seeking to receive their cut of what is paid out to net-losers (Belsome)
- the conducting of ‘extensive research into various legal issues relating to the pursuit of claims against foreign net winners‘
One of the recurring themes surrounding Zeek Rewards is the issuing of fraudulent 1099 forms. To that end the Receivership writes,
The Receiver Team determined during the first quarter that it would be necessary to file amended 1099s for payments made during the calendar year 2011 and 2012 to certain Affiliate-Investors.
The efforts in the second quarter were focused on addressing the issues that arose during the preparation of the amended 1099s. The Receiver Team resolved the issues, and in working with FTI and National Law Forms, the amended 1099s were filed with the IRS and were mailed out to those certain Affiliate-Investors.
In connection with the issuance of the amended 1099s, the Receiver Team continues to work with FTI and National Law Forms to respond to Affiliate-Investor inquiries regarding the 2011 and 2012 amended 1099s.
The Receiver Team anticipates that responding to Affiliate-Investor inquiries will be an ongoing process.
How the Receivership intends to go after Zeek investors who reside or are in hiding outside of the US was also revealed:
Counsel for the Receiver prepared a request for proposal, which it distributed to a select number of law firms in countries where the largest ZeekRewards net winners reside.
The Receiver Team has been in discussions with multiple overseas law firms regarding the logistics, strategy, and costs involved with pursuit of net winners residing in these firms’ various countries.
Claims against foreign net winners will likely be grouped by the country in which these individuals reside, with some actions being initiated here in the Western District of North Carolina and other actions being filed in the foreign net winners’ home countries.
The Receiver is evaluating the most efficient means of pursuing these individuals that will generate the greatest possible return for the Receivership Estate.
What countries the Receivership intends to target haven’t been disclosed, but if you’re hiding out in South America I’d say your days are numbered. Ditto any English-speaking western country other than the US.
Lawsuits against Plastic Cash and and Preferred Merchants appear to be in motion too, with the Receivership noting
The Receiver Team continues to investigate the roles of Plastic Cash and Preferred Merchants Solutions LLC (“Preferred Merchants”) in the ZeekRewards scheme, including their aiding and abetting of the scheme.
Additionally, the Receiver Team has been investigating the actions of Plastic Cash and Preferred Merchants that appear to have been in direct violation of
the Freeze Order.On an aggregate basis, the actions of Plastic Cash and Preferred Merchants appear to have deprived the Receivership Estate and the Affiliate victims of more than $14 million.
Both Plastic Cash and Preferred Merchants maintain that they have not acted improperly in withholding the subject funds from the Receiver. Specifically, Plastic Cash disputes that it is improperly withholding Receivership Assets.
Plastic Cash has also submitted a claim through the Court-approved claims process, arguing that it holds certain secured claims against the Receivership Estate.
The Receiver disputes and plans to vigorously defend against Plastic Cash’s claims and will continue to pursue the outstanding Receivership Assets held by Plastic Cash and its agents and affiliates that were not submitted upon the Court’s appointment of the Receiver and those which were improperly transferred or withdrawn in violation of the Freeze Order.
Similarly, instead of complying with the Receiver’s demand for the funds that Preferred Merchants had fraudulently transferred from an account held for the benefit of the Receivership Defendant when it knew that the shutdown and asset freeze of the Receivership Defendant were imminent, Preferred Merchants submitted an invoice, claiming that it is owed funds from the Receivership Estate from which any outstanding funds, if owed, would be set off.
The Receiver disputes Preferred Merchants’ claim on the merits. Moreover, any such claim was not submitted through the Court-approved claims process.
The Receiver takes very seriously any violation of the Freeze Order, and invoking any rights to the outstanding funds years after the entry of the Freeze Order does not change the fact that these institutions are holding the funds in direct violation of the Order.
The Receiver will continue to pursue the recovery of these outstanding Receivership Assets and expects that he will be required to commence litigation against Plastic Cash and Preferred Merchants to resolve these matters.
Plastic Cash and Preferred Merchants can continue to fight the Receivership, but in the end like everybody else involved in Zeek they’ll be required to pay up. Better stock up on lube boys.
Oh and anyone waiting for the distribution of funds by the Receivership can thank Plastic Cash for holding up the return of money:
Unfortunately, Plastic Cash, which has filed a claim with the Receivership for $14.9 million, has objected to the Interim Distribution Motion.
This objection significantly decreases the likelihood that the dates set forth in the Interim Distribution Motion will be met.
The Receiver intends to reserve the $14.9 million for this contested claim, which has been denied, in order to expedite the process of making an interim distribution.
Nevertheless, the objection threatens to significantly delay the payment of an interim distribution to Affiliates.
The Receivership had previously proposed September 30th as the date the first round of checks to affiliates would be sent out. You can also read more about Plastic Cash’s claim for $14.9M here.
Despite the claim apparently being denied, I believe the Receivership has made the decision to withhold the funds in the event an appeal is filed.
That $600M judgement though, ouch. The saga continues…
Footnote: Our thanks to Don @ ASDUpdates for providing a copy of the Receivership’s second quarterly report for 2014.
Oh and if anyone from the Receivership is reading this, who’s stupid idea was it to recently block direct access to the PDF directory?
Scanning the website for updates is so much slower… share the love you donks!
And give it all up they must.
If Burks is trying to cop a deal, it better be a really darn good one. Like assigning any remaining debt owed to his grand and great grand children to pay off.
That may be about Belsome et al’s attorney, but it might also be about some other claims (e.g. one $30 million claim from a $10 investor).
Belsome’s attorney has been fighting for his OWN rigths to receive distributions directly from the Receivership for the last 8-12 months.
He want the Receiver to distribute the funds directly to him rather than to his clients, and then he can distribute the funds (minus his own fee) to his clients. That method will solely protect HIS interests rather than his clients’.
I used him and “Cal” Cunningham as arguments against class action lawsuits, i.e. people may end up with bad contracts where the attorneys have the rigths to a part of the money recovered, 25-30% plus expenses, but where the attorneys can’t offer anything meaningful in exchange for the money.
In business we call that behavior for “cheating inexperienced clients”. Inexperienced clients will typically BELIEVE that the professional ones will make a huge difference for the outcome of a case, and they will usually not have any clear ideas themselves (e.g. clear enough ideas to limit a contract, or to have some clauses for how to terminate it).
Experienced professionals will usually try to deliver the value they initially promised, e.g. they may suggest to modify the contracts to more reasonable terms for the clients if they fail to deliver anything themselves. I haven’t seen anything like that in this case.
Definitely Belsome, he goes into more detail about it later in the report. Also see footnotes when he mentions dealing with the appeal.
What’s with the $600M settlement. Those people don’t actually have that money and could never pay it unless they did.
It’s just to take everything they have, and a sword to hang over them in case they managed to stash something away the investigators haven’t found yet.
Dawn’s going to have to sell a lot of McDonald’s hamburgers to pay that off.
Well the selling of her house and restaurant would be a good first start.
I wonder how “excited” Bill Starkey of iWowWe is now about hiring Dawn as his CMO? I wonder if she and her husband are still there?
@Hoss
Boggled my mind too. Unless the three of them have family fortunes in assets I don’t think they’ll be able to pay off the judgement either.
As I stated a while ago in he of these Zeek suit posts, the defendants will just declare BK and have been stashing illicit profits into assets that BK exempts.
Interesting read at http://phillipsandthomas.com/2014/03/19/debts-traceable-from-ponzi-schemes-dischargeable-in-bankruptcy/
@ Jimmy,
there’s one very big difference between the Schubert case and Olivares.
In the quoted Schubert decision:
Olivares was was criminally charged (and pleaded guilty) NOT as a third party to the fraud, but:
In the 2005 Schubert case quoted, Marsha Schubert was charged with, and subsequently found guilty of, securities violations.
The judgement against the “Wilcoxes” was for unjust enrichment and disgorgement. They were not the ones charged with securities violations, and the Appeals Court ruled the judgement was therefore dischargeable by bankruptcy.
That is not the case with Olivares
She has admitted she was NOT a third party, (as were the Wilcoxes) but was one of several “Schuberts”
The Schubert case was in 2005 and prosecutors have altered their approach dramatically since then.
So basically people subject to clawback lawsuits can use BK to duck the judgement, but not the principals.
Kinda makes you wonder what happened to the rest of the Zeek insiders? Where is Darryl Douglas?
That’s not entirely true.
They still remain subject to bankruptcy laws, which means the Bankruptcy trustee assumes control of their assets, including any “ill gotten gains” for whatever period the bankruptcy is in effect.
As pointed out, dealing with this type of fraud has evolved a long way, especially over the past few years and the DoJ, in particular, is unlikely to sit back and allow multi million dollar “winners” simply to walk away and experienced Bankruptcy Trustees, such as Mr Bell are way more savvy than perhaps trustees were back in 2005
He’s around. He was sued and has since filed a motion to dismiss IIRC.
So long as the debt is not obtained by fraud or false pretenses it is dischargable.
http://www.nolo.com/legal-encyclopedia/nondischargeable-debts-chapter-7-bankruptcy.html
“sigh”
here we go again.
Why not at least attribute the quote to it’s original poster before you attempt to interject.
@kasey: if you believe Zeek was legit, the Olivares’ and Burks were NOT engaged in “fraud or false pretences” had $600 million judgements issued against them and/or pleaded guilty to criminal charges and the Zeek receiver is dumber than a rock and therefore the “winners” are going to be able to claim they were not part of a fraud, then, yes, they could possibly have the debt discharged.
Ok I quoted you…. quoting Casey. The point remains the same. So long as the debt is NOT obtained by fraud or false pretenses it is dischargable. This means that Burks, Dawn and Daniel Olivares WILL NOT ble to discharge their debt.
Pause to reflect on the fact that you have confused Telexfree and Zeek.
Zeek is not in bankruptcy and Bell is not a bankruptcy trustee. OK Reset.
If net winners were to file for bankruptcy they would not be in the same category as Burks, and the Olivares.’ They would be eligible to have their debt discharged since the basis of their debt would be a judgment based on unjust enrichment NOT a judgment based on fraud and false pretense.
The Zeek clawback litigation alleges that net winners are the recipients of fraudulent transfers not that they themselves perpetrated the fraud as is the case with Burk and the Olivares’
You may disagree…. but its the approach Bell is using.
Burks, and the Olivares’ are not net winners as defined by the Court and Receivership. They are in a whole different kettle of shit, and that determines whether their debts can be discharged in bankruptcy….(they can’t.) and Zeek is not a bankruptcy case, in case there is any doubt.
Sorry, I was laughing so hard at your response to KC I must have hit the wrong key.
Keep up, will you ??
Kasey was asking whether net winners will be able to declare bankruptcy to “duck judgements – but not the principals”
You then went on to point out: “So long as the debt is not obtained by fraud or false pretenses it is dischargable”
I replied TO KASEY about the chances of top tier net winners being able to claim they were not involved in a fraud / false pretenses when the “principals” have already admitted Zeek was a fraud and agreed to “cough up”.
For sure “some” upper tier net winners may be able to claim ignorance, but the vast majority will not – especially if they accepted money for recruiting others without being able to prove they took adequate steps to verify the legitimacy of the extraordinary returns being offered by Zeek.
IOW, if they accepted money for recommending / recruiting then they “knew or should have known” or can prove they took adequate steps to ascertain the legitimacy of what the Zeek “opportunity”
Ha~ more savvy indeed.
I think its you who needs to keep up. You think the Zeek net winners are in bankruptcy. That’s a pretty severe misunderstanding mate.
K. Chang:
So basically people subject to clawback lawsuits can use BK to duck the judgement, but not the principals.
In a thread discussing Zeek Rewards, Kasey used the word “people” and I replied
Sorry all, I started the mess. Good points LRM and Hoss.
One point is even if the money was obtained by false pretenses, the person declaring BK could still have it discharged depending on their level of knowledge/participation in the fraud. But as LRM pointed out, this was a criminal case not civil.
All fines and restitution obligations issued in criminal cases can not be discharged in any bankruptcy case (Chapter 7, 11 or 13).
The Burks-Olivares action is criminal, the clawback action is civil. The former definitely involves fraud and false pretense. The latter probably not. Bell hasn’t even alleged that net winners engaged in fraud or profited by false pretense. No doubt some did, but to prove that everyone or an entire class of net winners did seems infeasible.
As pointed out, the law has changed a lot since the Schubert case in 2005
Meh… but you quote Sarbox:
It was correct of you to bring it up, pointing to that specific case. Clawback claims CAN be discharged in a bankruptcy, but they can’t if you actively have organized the fraud yourself.
The $600 million claim against Burks, Wright-Olivares and Olivares is non-dischargeable in a bankruptcy, they will need to use other methods than bankruptcy to negotiate the claim. A bankruptcy isn’t an “escape route” from that type of claim.
Bankruptcy lawyers often use “claims” rather than “debts”, i.e. it isn’t solely about debts. “Debts” are normally about “verified claims”, verified as valid and potentially reduced. Remaining debts can later be negotiated and discharged on an individual basis.
Thank you for posting this interesting article. The Receiver’s Complaint does not allege that net winners perpetrated a fraud, only that they were unjustly enriched and therefore must, according to law, give the money back. Additionally 9000 individuals will never be mass convicted of securities fraud via a defendant class action. It would result in “uneven justice” and would never be permitted.
Closing this loophole may apply to Bank of America, Citibank and Lehman Brothers but it does not appear to apply to the Zeek net winners.
As pointed out in the WHOLE article, the Wilcox appeal being successful was only possible because the Oklahoma Dept of Securities declined to charge them (the Wilcoxs’) with securities violations.
Had they done so, and been successful, the outcome would have been entirely different, as pointed out by the Appeals Court judgments.
IOW, those to whom the bankruptcy route looks attractive, i.e. the big winners themselves face prosecution for violations of the relevant securities laws should they decide to not co-operate.
Federal and state securities departments aren’t stupid, they learned from Oklahomas’ “mistake” “ESPECIALLY” when it comes to $600plus million dollar fraud schemes.
From the majority decision:
IOW, behave yourself or else
That sounded like a type of blackmail?
@M_Norway:
In response to Jimmys’ assertion:
and Kaseys’:
the answer is: “No, it’s not that simple
To believe it IS that simple, one first has to believe
* the prosecutors didn’t learn from the Schubert / Wilcox decision
* the laws are so weak someone who profited by over a million dollars, as did some of the Zeek winners, could simply declare bankruptcy and walk away
* That bankruptcy is somehow pleasant enough to be a viable alternative to giving back the profits, or at least negotiating a settlement
* The DoJ isn’t aware or Mr Darr isn’t in contact with prosecutors and won’t inform them a debtor is attempting to retain their winnings
Full reading of the Schubert / Wilcox appeal decision reveals it was very specific to the Wilcoxs’ situation and, as the appeals judges pointed out, a very simple change by the Oklahoma authorities would have delivered a totally different outcome.
Calendar Year 2011 California Case Directly on Point
Bell seeks DISGORGMENT of “net winnings” from Zeek affiliates.
The Ninth Circuit agreed with the bankruptcy court and held that 11 U.S.C. § 523(a)(19) prevents the discharge of debts for securities-related wrongdoings only in cases where the debtor is responsible for that wrongdoing.
Debtors who may have received funds derived from a securities violation remain entitled to a complete discharge of any resulting disgorgement order.
http://www.northerncaliforniabankruptcylawyerblog.com/2011/10/ninth-circuit-rules-section-52.html
Darr has nothing to do with Zeekler. Rex Ventures is not in bankruptcy and Bell is a Receiver.
If Darr has anything to say about a debtor hiding money it will regard one of the Telexfree companies (the debtors) not the Zeekler affiliates and not the Telexfree promoters who are potential creditors of the debtor’s estate not debtors. You are all over the map on this one.
I suggest you read the 9th Circuit decision I referred to and call it a day.
As internet protocol says: DFTT
Once again, for anyone confused,
the discussion to which I’m referring is that started by posters K. Chang and Jimmy who asked if it is possible for net winners to declare bankruptcy to avoid disgorgement judgements and/or penalties.
and then to M_Norways’ followup comment:
That’s right they declined, just like the SEC is declining to charge the Zeek affiliates and most of the Telexfree promoters now.
You seem to have the idea that Oklahoma made some mistake and all the agencies know better, but there was no mistake. Oklahoma made a prosecutorial choice that had consequences later on in a bankruptcy setting.
The agencies knew or suspected this even if the Wilcox bankruptcy trustee didn’t. The Appeal Court certainly did.
The lesson is this. Its not worth pursuing every Tom Dick and Harry net winner for securities law violations even if it means that some of them eventually file for bankruptcy and are eligible to have the debt discharged.
This is no new revelation and it applies today just as it did prior to Sarbox.
As you pointed out bankruptcy is no pic nic. It screws a persons credit, it costs money, the bankrupt is subject to examination, severe penalties for lying and they have to pay as much as they can afford to pay before the debt is even discharged. It sucks but it is an option that some people take and by law they are entitled to do so.
The possibility exists and will be pointed out to anyone attempting to use bankruptcy to avoid settlement
The receiver doesn’t need to “blackmail” nor would he
Oh Thom. Feeling put upon are you.
While not meeting the legal definition of blackmail, the SEC can use its leverage and preview the potential consequences of not cooperating. That mayinduce our potential defendant to accept a settlement or a plea bargain. This of course takes place in a Criminal or Civil Court setting … not in Bankruptcy Court.
Bankruptcy Court may enter the picture afterward (perhaps years after) if our debtor attempts to address his financial situation by asking the BK Judge to discharge his debts, including the ones that were acquired as a result of the Criminal or Civil actions initiated by the SEC years before.
If the SEC is the judgment creditor or holder of debt at the time our debtor declares bankruptcy, the SEC has the right to be heard on the various applications, but BK law is followed, and if at the end of the day the law says that the debt may be discharged, it is.
The SEC had its bite at the apple in the Civil and/or Criminal actions and if it declined or was unable to convict our debtor of security violations any debt (including the Receiver’s clawback debt) may be discharged.
That’s what Wilcox says and that’s what the 9th District says. Only the person or entity convicted of the wrongdoing is prohibited from discharging debt.
My “type of blackmail” comment was about net winners (big winners), not prosecuted for securities law violations (only clawbacks), filing for bankruptcy.
I said it sounded like a type of blackmailing if a Receiver / SEC threatens with civil or criminal charges “if people don’t co-operate”, e.g. if they file for bankruptcy.
It’s about “crossing a line between right and wrong”. Bankruptcy can be a correct solution in some cases. The Wilcox case clearly said “IF they had decided to file charges …” and “IF they successfully had prosecuted …”, i.e. the decision about whether or not to prosecute had already been made, and the State of Oklahoma had already declined.
It’s up to the court to decide whether or not a bankruptcy should be accepted, and which claims to discharge (reduce). A bankruptcy is in itself not a civil wrongdoing or a criminal offense = it should normally not lead to neither civil nor criminal charges (it shouldn’t trigger any charges in itself).
Neither SEC nor a Receiver are in the correct positions to threaten with it either. It will be like a type of “blackmailing”, a “misuse of powers”, a type of “breach of professional duties”.
It’s about the right to make decisions, and about the cause for legal action. The decision had already been made in the Wilcox case, and a bankruptcy isn’t a legitimate cause for anyone to change that decision.
Err, it was you that introduced the concept of “sounds like blackmail” not me.
The option is there in law for any one of those involved in the Zeek fraud to be nailed to the wall, so to speak, LEGALLY
Whether or not you choose to define it as a form of “blackmail” is on you.
Anyone who has observed the online fraud “scene” over the past few years cannot have failed to notice a progressive toughening of attitudes amongst all those involved in cleaning up the aftermath – including Mr Darr, who has demonstrated a willingness to go beyond what was considered the “norm” until a few years back.
As for your other comment, there is no “normally” when discussing $600 million frauds, nor is there a “normal” way of treating someone who has profited in the way some of the Zeek “winners” have – either in the amounts they have accumulated or the way they did it.
To continually refer to “normal” business practices is to ignore the fact the DoJ IS directly involved, as are the IRS, SEC, FBI and Homeland Security, a fact of which Mr Darr is certainly aware, as should be the net winners.
“Blackmail” was a type of slang, but I pointed out that a bankruptcy is not a legitimate cause for legal action.
The Receiver doesn’t have any jurisdiction, He’s working for a private lawfirm, so he can’t threaten anyone with legal actions from SEC.
SEC has the right to file civil charges, but it will be a professional misconduct if they use a bankruptcy as a cause for action (I explained why). It doesn’t have criminal jurisdiction, so criminal charges will be up to others to decide.
We’re mostly discussing the Zeek Rewards case here. Jimmy also brought in the Wilcox case as an example. Darr is the Trustee in the Telexfree case, and I don’t believe it’s a good idea to mix in TelexFree here.
Relevant examples will be any of the defendants in the “Bell v Disner et al” case, e.g. “can the Receiver or SEC threaten any of them with legal actions about securities law violations if they don’t co-operate, i.e. if any of them file for bankruptcy?”.
The answer to that question should normally be “no”.
* The Receiver isn’t in position for that type of threats.
* The SEC is, but they will need a correct cause for legal action.
* None of them are in position to bring criminal charges.
Once again you’re over analysing the situation and applying your own (layman)interpretation
The possibility exists, prudence dictates anyone facing the situation under discussion recognizes the possibility and consults expert opinion before jumping in and declaring bankruptcy based on layman interpretations of the relevant laws.
Again I say, this is NOT in any way “normal” business
The SEC, FBI, IRS and Homeland Security ARE involved and prosecutors have already gone down the prosecuting of non-main-perpetrators route, demonstrating things “HAVE” changed
Ask Matt Gagnon, ask Nancy Jo Frazer, ask any of the current crop of non-main-perpetrators involved and charged.
It’s also why the receiver and/or prosecution use specialist forensic accountants and forensic auditors, not the local corner store tax preparer accountant.
You may be, but, as I have pointed out several times, I am responding to both Jimmy and K.Changs’ question / statements as to whether or not defendants will be able to declare bankruptcy and simply walk away.
The Zeek and Telexfree cases ARE both relevant.
The receiver and bankruptcy trustee have both signalled their intention to proceed along a similar non “standard” route in discharging their duties.
The same government agencies ARE involved and they ARE all members of the same task force.
The same task force that has handled the past couple of next-big-thing “HYIP” type fraud cases i.e Legisi and AdSurf Daily.
You keep talking “normal” and “usually” and “accepted business practice” while neither the Zeek / RVG or Telexfree situations are in any way “normal” unless it’s normal business practice for the initial raids to be carried out at the behest of the SEC by armed FBI / Homeland Security / DoJ agents assisted by local police,or for the receiver and bankruptcy trustee to be appointed by the SEC and DoJ, the US Trustee to immediately appoint a third party bankruptcy trustee and for both the trustee and liquidator to publicly state they are in constant contact with the DoJ and SEC.
“Normal” a $600 million or $1Billion fraud are not.
Example of what ???
How many times since the Wilcox decision has any security division failed to charge someone and allowed a debt of the size of the Wilcoxs’ to be dischargeable in bankruptcy ??
Again, this time from a different source:
There is no “blackmail” involved,
it’s called plea bargaining and it happens every day.
The receiver in the Zeek case has decided it is going to be economically viable for his office to pursue US based net winners with winnings of $1000 and up. Which, a figure, by the way, is unusual in itself.
He (the Zeek receiver) knows and the net winners should know, the option remains for civil prosecution under securities laws, should a Wilcox type situation eventuate
It remains to be seen how the DoJ and Telexfree bankruptcy trustee approach the situation, but, judging by the speed with which Mr Darr admitted it is a fraudulent operation he inherited and accepted that, on inspection, the bulk of the allegations made against the insiders are true, I cannot see him being any less hardline than Kenneth Bell
Its the implied or implicit threat of dire consequences that is “blackmail-like” and its this tactic that Thom (LRM) thinks will force a few “top tier” net winners to choose to make a monetary settlement with the Receiver rather than face prosecution for security law violation.
Its a nice “Law and Order” scenario for Thom but there is no indication that the SEC is using or having any success with such tactics. Rather, we have net winners rejecting settlement offers en masse and a Receiver filing a class action civil suit for the disgorgement of funds.
Thom drones on about how the SEC/FBI are tough and mean and “not stupid” but fails to take into account that the Zeek net winners aren’t stupid either. En masse they have utterly disregarded any real possibility of criminal prosecution, and rejected financial settlement in favor of forcing the Receivership to sue them to recover the money.
If the SEC is threatening, it hasn’t worked on the Zeek net winners.
Bell will get his judgments and the net winners will (if it is to their advantage) declare bankruptcy and be eligible to have the Receiver’s civil judgments discharged in Bankruptcy.
That does not matter. Normal procedures and applicable law apply the same to a $10,000 fraud as to a $600 million fraud. Due process is the same either way. The larger the fraud the more emphasis, attention and notoriety it will receive but otherwise it receives the same treatment under law.
Don’t let your revenge fantasy run away with you. There is no special rule for bigger. IF you want that go study Black Holes.
Bankruptcy as a method to handle clawback claims, if you’re among the net winners / big winners, but you haven’t been charged with violations of any laws.
That’s where the “type of blackmail” comment came from, when you pointed out “those to whom the bankruptcy route looks attractive, i.e. the big winners themselves face prosecution for violations of the relevant securities laws should they decide to not co-operate”.
My second comment specified what the first comment had been about.
The Telexfree case isn’t very relevant. The company itself filed for bankruptcy there, probably as a defense against the ongoing investigation.
That case is still too young. You will not be able to extract any valid answers from that case. The 4 promoters have been charged with violations of securities laws, not because they filed for bankruptcy as a response to clawback claims but because of other reasons.
No one has to make an “implied” or (watch this) EXplicit threat.
The threat is there, enshrined in law.
It’s part of the negotiation process.
The timing was approximately this:
* May 2007: U.S. Secret Service/Michigan OFIR open undercover probe of Legisi.
* May 2008: SEC sues Legisi and operator Gregory McKnight. Court imposes asset freezes and appoints receiver.
* October 2009: Receiver sues Legisi promoter Matthew Gagnon in a clawback action.
* May 2010: SEC sues serial HYIP promoter Gagnon, listing Legisi among the “programs” he promoted and calling him a “danger to the investing public.”
* December 2010: Receiver gets judgment against Gagnon. Receiver later uses garnishments to collect small sums and hires law firm to go after large sums.
McKnight and Gagnon were charged criminally along the way. Convictions followed. McKnight received more than 15 years. Gagnon received five — for not disclosing he was being paid to tout Legisi.
Other Highlights:
* The Secret Service has a recording of McKnight telling undercover agents they would not be making an “investment”; instead, they’d be providing him a “loan.”
* In a sentencing memo, prosecutors memorably called this “semantic obfuscation.”
* McKnight says on the recording that he knew he’d go to jail if the SEC could prove he was pushing investments. At a minimum, this showed planning. This sort of planning is present in virtually all HYIP schemes. Purveyors shouldn’t be surprised if prosecutors point to the “semantic obfuscation” as proof of the planning. It shows that the purveyors understand the vulnerabilities and are using wordplay in bids to duck them.
Oz has written about HYIP word games many times.
* Legisi infamously tried to insulate itself from prosecution by barring the “CIA” and the “SEC” and “Her Majesty’s Police” from joining.
* Compare this to some of the efforts of the ASDers, who claimed undercover agents had a duty to report themselves to ASD management.
Major Low-Light Of Legisi And Other HYIP Cases
Pamela Fayed was murdered in July 2008. It was an execution arranged by her husband, the operator of the E-Bullion payment processor. E-Bullion was used by Legisi and ASD, among others.
Quick side note: It is possible for a receiver to negotiate settlements that are nondischargeable in bankruptcy.
It’s also possible for the SEC, as facts evolve, to revisit cases. Gagnon’s experience shows that promoters’ exposure may not end if they were not named defendants in the initial fraud complaint.
There was a reason the SEC used the word “serial” when describing Gagnon.
PPBlog
If a net winner filed bankruptcy PRE-JUDGMENT the Receiver’s clawback suit and any civil action brought by the SEC would be automatically stayed as to that individual.
This level of “non-cooperation” by a net winner would be akin to “cutting off one’s nose to spite one’s face” since it would subject the net winner-debtor to a plethora of disclosures, examinations, potential liabilities and expenses.
The Receiver or SEC would rapidly file for a release from the automatic bankruptcy stay anyway and under the circumstances the request would almost certainly be granted sooner rather than later.
..
Alternatively the net winner could file for bankruptcy POST JUDGMENT in which case debt based on a disgorgement order would be eligible for discharge.
AS K. Chang said “people subject to clawback lawsuits can use BK to duck the judgment.” The answer to this is YES if they file for bankruptcy POST-JUDGMENT…. and of course the “principals” as K Chang also noted would not be able to duck non-dischargeable fines that were based on securities laws violations.
Its a dead letter if not communicated.
I agree. No doubt such provisions can be written into settlements.
unless, of course someone read PPBlogs’ post above and decided the possibility IS real and HAS transformed from possibility into reality, in which case the trustee or receiver doesn’t need to blackmail or threaten.
In fact, I wouldn’t mind wagering that someone faced with the problem would be more likely to research beyond the Schubert / Wilcox decision and / or the Hoss / M_Norway advice and choose not to antagonize the SEC / receiver / bankruptcy trustee or the DoJ and, instead behave themself.
There are only two groups now in agreement that a ponzi / pyramid winner being sued by a receiver or bankruptcy trustee isn’t a big deal and can be avoided by “simply” declaring bankruptcy – and they are the Hoss / M_Norway group and the fraud promoters themselves.
Keep it civil fellas. Bickering’s no good to anyone.
I would find having a judgment lodged against me to be a very big deal. I would have settled for a 50% discount six months ago.
There you have my bona fides.
What else are you confused about?
I don’t think anyone have claimed that net winners can’t be sued?
Ponzi winners clearly have been sued and can be sued, e.g. for securities law violations. TelexFree is a relevant example for that.
Arguments about “net winners can’t be sued” first appeared in your own post, i.e. you have derailed from the discussion and have introduced your own imaginary arguments.
Yeah, nobody claimed that if a net winner filed bankruptcy they could not be sued. Where did that come from?
I agree!
People can generally be sued for the right reasons. I don’t believe there has been any disputes about that?
The dispute has been about the type of legal threats I identified as “a type of blackmail”.
First of all, it sounded like a type of blackmail. It didn’t sound like a part of the normal duties of a Receiver, or a part of the normal duties of SEC. It simply sounded illegitimate as it was described.
I doubt its illegal or unethical for the SEC or a reciever to inform a net winner that he or she MAY have broken the law.
The discussion was about “If you don’t co-operate, then …”. Is your idea of “informing people” about the same? 🙂
I used the expression “the Receiver isn’t in the right position for that type of threats” in post #42 = he has different types of instructions (in Doc-4).
* He’s auhorized to investigate RVG, e.g. collect information from banks, trade partners etc., “normal investigation”.
* He must inform SEC about investigations “when appropriate” (whatever that mean).
* He must inform the court about legal actions (he must file a Motion / wait for an Order).
He has some general instructions about defending RVG in litigations, i.e. he doesn’t need to file any Motions for that, only for the legal actions he plans to initiate himself on behalf of the Receivership.
Based on that short description, informing people about that they potentially MAY have broken the law doesn’t seem to be a part of his instructions. If he has any information about people potentially breaking the law, SEC or other authority seems to be the correct ones to inform.
Let’s try to bring the conversation back to something factual rather than imagined.
The Reciever is empowered to negotiate settlements on behalf of the estate. Expressions of opinion are part of that process.
If you have identified the “If you don’t co-operate, then …” to be an imaginary solution then we’re almost there. But your version was imagined too, you had only modified the imaginary “If you don’t co-operate, then …” to an imaginary “the Receiver can inform people that they MAY have broken the law”. 🙂
Normally you should have brought up something factual yourself? Replacing an imaginary solution with a new one isn’t the type of solution people will be able to recognize.
Yes he is, but I’m not sure about your second statement. It sounded very similar to the type of pseudo compliance used by some lawfirms. They will typically focus on some details, e.g. “It will become legitimate if we don’t mention the word ‘investment’ but rather call it ‘purchases of sample bids'”.
Expressions of opinions should normally be related to the offer itself, e.g. “You must offer more than that”. He can of course express neutral opinions too, e.g. “Nice weather today”.
Your logic was so vague that it wasn’t possible to identify. Expressions of opinions may be a legitimate part of settlement negotiations, but that doesn’t mean ALL “expressions of opinions” will be legitimate.
The quickest solution here is simply to identify that “most people have probably lost interest in the discussion long time ago”, i.e. there’s really no need for more details. If anyone are interested then they can probably add something themselves.
Regarding BK, let’s take this scenario:
Suppose a relatively small net winner files for Ch. 13, fully includes the Rex/Receivership amount and notifies the Receiver… the Receiver doesn’t file any objection during that 2-month or so windows, and then the court discharges the debt.
Where does the net winner stand now? (This all happened last year)
It’s probably easier if you post the answer yourself.
Net winners in the U.S. have received SOME information about the potential upcoming claim from the Receiver.
* They received 1099 tax forms in early 2013 (February)
* 16,000 received emails about settlements in April 2013
I can see ONE problem here = most net winners were not clearly informed about the amount, they were only informed about the possibility to settle the claims at a discounted rate, and about the deadline for settlements.
If a creditor have failed to inform the debtor, the debtor can only vaguely list him as a “potential creditor”.
The flip side of the story is that clawback claims usually can take 1-2 years before they’re ready. Most net winners will not receive any claims before the claims have been verified by a court order (in the Zeek case, the very first claim for relief is about the findings of a Ponzi scheme / findings of fraudulent transfers. That point is needed to verify the legal action of a clawback).
My guess is that your net winner received a claim anyway?
@Al
Considering “small” net-winners don’t know what they’re up for yet individually, how can the BK court have discharged their debt to the Receivership (last year)?
If it was during negotiations between the Receivership pre-net-winner lawsuit filing, then if the amount is enough I wouldn’t be surprised if the Receivership just lets it play out in court.
There’s some 9000 people on that US list alone, the individual is going to have to respond to the lawsuit one way or another when the time comes.
Some additional reading:
Nothing in 502 covering Ponzi scheme clawbacks.
Again, based on how much the amount was, I imagine it wouldn’t be too hard to for the Receivership to pursue the amount via clawback litigation. It’s not a debt persay it’s a repayment of stolen Ponzi funds.
If the money is gone then asset seizure is an option too (depending on the amount). That’s what the whole negotiation period was for though, to work through issues like this.
If this “hypothetical” affiliate has ignored the negotiation process and just run off to the bankruptcy court, then it sounds like they’ve tried to pull what TelexFree did (abuse BK court to get out of Ponzi liability). That didn’t work out too well once the regulators caught on.
That guess was based on the timing of the bankruptcy. It happened before the Receiver had a verified claim. The Receiver will first become a creditor after a court has established the findings of fraudulent transfers.
The next step from there will be that the net winners will be informed about that judgment, and they will receive a claim stating the amount. They have the right to add corrections to the individual amounts. They also have the right to negotiate the amount they will have to pay.
Your net winner had probably incorrectly listed the amount as debt, and he had probably incorrectly listed the Receiver as a creditor.
* It wasn’t “debt” at the time of bankruptcy, it was a “known potential claim” he could expect to receive in the future.
* The Receiver wasn’t a “creditor” at the time of bankruptcy, he was a “known potential claimant” your net winner could expect to receive a claim from in the future.
I’m not sure how bankruptcy protection work in cases like that. Your net winner seems to have got a non-existent debt discharged. He should probably have waited with his Chapter 13 till after he had received a claim.
From Nolo Press:
“You may think you don’t really owe a contingent, unliquidated, or disputed debt, or you may not want to “admit” that you owe the debt. But — by listing a debt on your bankruptcy schedules you aren’t admitting anything. Instead, you are making sure that if you owe the debt after all, it will be discharged in your bankruptcy (if it is dischargeable).”
………
IN other words any debt this net winner incurs as the result of the Zeek clawbacks will be considered discharged if the Receiver was properly noticed.
Caveat: The net winner still remain a party to the clawback action and will almost certainly have a judgment rendered against him anyway but he will not be obligated to pay it.
“If the Receiver was properly informed” seems to be the wrong type of logic?
The bankruptcy court will need to be properly informed about the potential claim that may or may not arise in the future. It’s more important to inform the court properly than the potential “creditor in the future”.
The potential creditor in the future does currently not hold any valid claims against the debtor. He can’t file any proof of claim or object to any discharges. It’s the debtor himself who will need to file some type of proof, and reasonably try to estimate the amount of the future claim.
“The Receiver didn’t file any objections” may be related to that he didn’t have any reasons to object, e.g. if the stated debt was imaginary (e.g. if he didn’t find any matching claims in his own records, he could only find some potential claims in the future).
I assumed a rudimentary level of competency on the part of the net winner in question.
I assumed he had enough brains to fill out Bankruptcy Form F (which is a list of assets and liabilities that every filer must provide to the Court and which is used in noticing the creditors/potential creditors (such as the ZeeK Receiver) that they have a right to be heard before a bankruptcy plan is confirmed.
If this net winner filed BK and did not fill out the basic paperwork then you should dedicate yourself to teaching net winners basic life skills like how to use toilet paper and what a pencil and paper are used for.
I’m not familiar with bankruptcy forms, so “Form F” won’t tell me much. A quick search indicates that Form F is about unsecured creditors with no specific priority.
“I assumed he had enough brains” indicates that you see that as the correct solution, i.e. the Receiver is a creditor or potential creditor, his claim is valid but may be unliquidated (not measurable as an exact amount, or the amount is disputed), and that he has the right to be noticed as a creditor about the bankruptcy filing.
In that scenario, the debt must already have incurred. The debt is a result of the net winnings the debtor received from RVG.
In another scenario, the debt may potentially arise in the future as a result of a legal dispute about ownership to the net winnings paid from RVG to the net winners.
That second scenario is just as believable as the first one. Net winners have clearly been engaged in a legal dispute.
Net winners haven’t received any claims.
* 1,200 net winners received information about a preliminary calculated amount along with the subpoenas, 2.5 months after the shutdown.
* 16,000 net winners received settlement offers, i.e. an offer about voluntarily settlement to avoid a legal dispute.
I am not going to attempt to set you straight. You are too far out of bounds. The original qauestioner can accept whatever answer he chooses.
That’s why I pointed out rather immediately that it would make it much easier if AI had posted the answer himself.
Bankruptcy as a defense strategy against clawback claims might be a trap. There’s some “timing issues”, e.g. whether the claim is something that will arise in the future or if it is an identifiable current claim.
The Wilcox case and the Sherman case both had identifiable current claims from identifiable creditors.
* Wilcox case: The State of Oklahoma, Dept. of Securities.
* Sherman case: SEC and the Receiver
The timing of their bankruptcies were different.
* Wilcox case: After they had lost in court, and had received claims.
* Sherman case: 4 days before a disgorgement motion hearing.
AI’s example had several “issues”. His net winner had indirectly disputed the ownership to the net winnings by not responding to the settlement offer, i.e. he had an unresolved dispute where a court already was involved (the Federal Court must permit legal actions against the net winners).
Wilcox and Sherman had (more or less) actively tried to resolve the dispute in court before filing for bankruptcy.
In the Zeek Rewards case, Ancillary Proceedings are ordered stayed. It’s mostly about lawsuits against the Receiver, the Receivership Estate, the insiders and agents / professionals, but it’s also about “the Receiverships assets, wherever those assets are located”.
My impression is that the net winner in question here has chosen something that looks like an “escape route” from a clawback claim, but he has used rather onesided ideas. I will not recommend anyone to use onesided ideas like that. If his defense strategy fail to work, then he has already played the bankruptcy card and he can’t use it again.
Who knows what the net winner’s motivation was. It not relevant. If you will digest the information contained in the NOLO PRESS quote its not hard to understand how this works. It says:
A bankrupt’s contingent, unliquidated, or disputed debt CAN be discharged providing the creditor/potential creditor is noticed and has been afforded the right to respond and object.
The Reciever was noticed and did not object or dispute dischargebility; as such the debtor will not owe a clawback judgment even if one is rendered against him, for the contingency was known and considered by the Bankruptcy Court before it confirmed the plan.
Bankruptcy Court is designed to get people out from under debts they can not reasonably pay….not to ensure that Kenneth Bell collects on his judgment. The Receiver did not show up and the Court granted the relief the debtor asked for. End of Story.
I’m not the type of guy to read sources like a Bible. 🙂
That’s a convenient toss off but all it really means to me is that you don’t understand what it says.
It was simply the truth. You will find very few comments from me pointing to an “expert source”, using that as the main argument.
First of all, there hasn’t been any dispute about that “A bankrupt’s contingent, unliquidated, or disputed debt CAN be discharged providing the creditor/potential creditor is noticed and has been afforded the right to respond and object.” So the source wasn’t very relevant, it was only relevant if you wanted to confirm that idea.
I have raised some indirect questions about whether or not the debt, the creditor and the procedures had been correctly identified. I’m not talking about how he had interpreted the rules, but about how he had verified his own ideas about “correct debt and correct creditor”.
Well you keep puttering and see if you can identify something about how someone verified his own ideas. When you find the answer let me know.
The last paragraph of post #74 was meant as a conclusion.
I decided to conclude it there. The information available was too limited, so it didn’t make any sense trying to analyse it further.
We have probably used completely different ideas. I believe you have looked for confirmations on the internet to see if his ideas were valid. I have looked at the opposite side of it to see if his ideas potentially could have flaws. So I have brought in some “alternative interpretations” as test methods, i.e. I have actively challenged the ideas.
Its not difficult to understand. The net winners are NOT being accused of securities laws violations, therefore any disgorgements the North Carolina Court orders them to make will be obligations or debts that ARE dischargeable per bankruptcy law. *Wilcox
This net winner declared bankruptcy and included the Recievership as a contingent creditor. The Receiver was noticed. Bell lodged no objection and the Court confirmed the debtor’s plan which includes the discharge of the contingent obligations.
The objections you have made to this interpretation have not been persuasive. If you can cite any authority that can shed more light on this I will of course be interested to hear it. I don’t believe you can.
By design, the Bankruptcy Code is designed to permit the debtor to have a “fresh start.” If there was no mechanism to discharge contingent or disputed debts the bankrupt would emerge from bankruptcy facing the same creditor problems as when he entered.
That would be a pretty useless because every creditor could claim some contingency or dispute and avoid discharge. It can not work like that. It does not work like that.
The system already has a way to deal with “timing issues.” The Nolo press Passage explained how this was accomplished.
There’s no dispute about that either. The Wilcox case was analysed very early in this thread.
That’s why I have pointed out “completely different ideas”. I have already accepted the legal logic used in the Wilcox and the Sherman cases as valid, so I don’t need to focus on that part. I can use those cases to look at some differences, and I have already done that.
Here’s an example:
The net winner in question here looked at the fact that the Receiver didn’t respond to the “Creditor notice” as something positive.
I looked at the same fact, and asked a critical question “Are there other plausible reasons for why a potential creditor will choose not to respond to a Creditor notice?”. There’s actually several reasons, but the important ones will typically revolve around that the debtor might have misinterpreted something.
If you don’t get ANY response, you will not be able to detect if you have made any mistakes either (e.g. incorrect creditor, debt or procedure).
That type of questioning is squirrel cage neurotic. What if? What if? What if? What if aliens abduct the Receiver. You do not need to conjure up special or abnormal situations here. Life is strange enough without it.
The Court permits certain assumptions unless there is proof to the contrary. One such is that an envelope properly addressed and stamped will be delivered to the intended recipient and that the recipient will read the letter. That is the convention.
The original poster asked what can be “expected” Normal everyday expectations are not that an address will be entered incorrectly or that the letter carrier will dump his load in the Hudson River. It happens, but it is not what is “expected.” In any event there are safeguards in place for when such things happen.
For example the Reciever could go in and claim that he was not notified. OK fine, now the exact dollar amount of the debt will be known…..but so what? Its still dischargeable. Why would the receiver bother to even deal with I? Its a waste of his time. Therefore, the net winner can EXPECT that his contingent debt has been and will remain discharged and he need not worry about it any longer. He has been afforded a “fresh start” as the Bankruptcy Code intends.
Ok, thanks everyone for your help 🙂