Howard Kaplan “gave bad legal advice” to $850M Ponzi
After suing tax attorney Howard Kaplan for legal negligence back in June, the Receivership received a Motion in Opposition a few weeks back.
In it, Kaplan trotted out the familiar “I knew nothing and therefore can’t reasonably be expected to bear any responsibility” argument we’ve come to expect from lawyers in the industry.
Prior to the Zeek Reward’s Receivership’s targeting of legal insiders in the $850M Ponzi case, MLM attorneys have seemingly operated under the assumption that they are untouchable.
Kaplan argues that despite his wrongful conduct he is effectively immune from liability because the court appointed Receiver for the company cannot bring claims against him.
Ignore the fact that even the most basic of due diligence would reveal the company in question to be fraudulent, provide whatever legal services are requested, collect your fees and then get out.
Scheme goes down for being one of the largest MLM Ponzi schemes in history?
Not having a bar of it though is the Zeek Rewards Receivership. And in his response to Kaplan’s opposition, the Receivership bluntly calls out Kaplan on his professionalism.
Or perhaps more accurately, the lack thereof.
Howard Kaplan is an attorney who was hired by RVG to provide accurate legal advice to RVG concerning tax matters.
Instead of fulfilling this important fiduciary duty, he gave RVG bad legal advice and actively participated in promoting a Ponzi and pyramid scheme that caused RVG enormous harm.
…and that’s just the opening paragraph.
One thing I’ve come to admire about Kennth Bell is his “no bullshit” approach to handling the Zeek Rewards case and its various characters.
In contrast to the TelexFree saga playing out, the direction of which is akin to navigating a minefield of uncertainty and lack of communication to the general public, Bell’s court-filed papers cut through rhetoric with succinct clarity.
One of the arguments Kaplan raised in his defense was that of “in pari delicto“.
In pari delicto, Latin for “in equal fault (better is the condition of the possessor)” is a legal term used to indicate that two persons or entities are equally at fault, whether the malfeasance in question is a crime or tort.
The phrase is most commonly used by courts when relief is being denied to both parties in a civil action because of wrongdoing by both parties.
The phrase means, in essence, that since both parties are equally at fault, the court will not involve itself in resolving one side’s claim over the other, and whoever possesses whatever is in dispute may continue to do so in the absence of a superior claim.
With Zeek Rewards being an $850M Ponzi scheme, Kaplan (right) essentially argues that any fault of his own is matched by Zeek Rewards itself, and therefore he cannot be sued for their alleged crimes.
Here’s the Receivership’s counter:
Kaplan’s claimed defense of “in pari delicto” does not bar a federal equity Receiver from asserting claims on behalf of the company he is appointed to oversee.
Indeed, there is a public policy exception to “in pari delicto” defenses in North Carolina law that does not allow those – like Kaplan – who failed their fiduciary duty and assisted company insiders in harming the company to evade justice.
Kaplan offered tax advice to Zeek Rewards in his capacity as an attorney. Naturally said advice was used by the company to “evade justice” for as long as possible, by maintaining the appearance of a legitimate business operation.
Further, the Receiver has adequately stated a claim for each of the causes of action asserted against Kaplan.
Accepting as true the facts alleged in the Complaint that Kaplan failed to give accurate legal advice, Kaplan was at least negligent in providing legal services to RVG and thus committed professional malpractice / breach of fiduciary duty under North Carolina law.
And it gets better,
Also, under the law of Nevada, RVG’s state of incorporation, (which applies to RVG’s internal corporate duties under North Carolina’s choice of law rules) Kaplan aided and abetted RVG’s insiders’ breach of their fiduciary duties by giving RVG and its victims bad legal advice as a cover for the Ponzi scheme and otherwise assisting in promoting the unlawful scheme.
Kaplan’s involvement in Zeek Rewards is bluntly called out for what it was.
Should he be permitted to profit from the “bad legal advice” he gave to Zeek to assist them in promoting their unlawful Ponzi scheme?
Finally, the Complaint states a claim for constructive trust against Kaplan because it would be inequitable for Kaplan to retain the funds that he received for his participation in promoting the Ponzi scheme and prolonging its existence.
Because Kaplan has received property which he“ought not, in equity and good conscience, hold and enjoy” a constructive trust should be
imposed on the funds Kaplan received.
Therefore, Kaplan’s motion to dismiss should be denied in all respects.
The Receivership’s response to Kaplan opposition was filed a few days ago on September 11th. A judge has yet to rule on the motion either way.
Footnote: Our thanks to Don @ ASDUpdates for providing a copy of the “Zeek Receivership’s response to Kaplan’s Motion to Dismiss”.
Update 3rd April 2018 – On March 15th Howard Kaplan entered into a $392,500 settlement agreement with the Receiver.
The proposed settlement was approved on March 16th.