NxPay refuse to return $9 million in stolen Ponzi funds
In its later days, NxPay was the ewallet of choice for Zeek Rewards.
The e-wallet service operates as a “platform” for transferring funds between two parties: one party makes funds available to another party, but until the receiving party takes action to withdraw the funds, “the funds are within the control of the party transferring the funds and the transfer of ownership is
NxPay identified and froze RVG funds that were in the process of being “made available” to affiliates at the time of the Court’s asset freeze but which were never withdrawn and therefore were still RVG funds.
RVG standing for “Rex Venture Group”, Zeek Rewards’ parent company.
The frozen funds was based on calculating what affiliates who had funds in NxPay accounts were entitled to.
Essentially, all accounts “linked” to ZeekRewards were frozen and the funds in those accounts were transferred to a master “Settlement Account.
NxPay then used a “netting” accounting method to separate RVG money from money paid in by affiliates that remained in their accounts.
After NxPay returned money belonging to account holders, the balance (totaling $10.738 million) was all RVG money.
This “netting accounting method” saw affiliates who profited from the scheme forfeit funds held in their NxPay accounts. Those who lost money were given funds up to the amount they invested in Zeek, with any remaining being deemed property of RVG (ergo the Zeek Receivership).
Curiously, while NxPay has returned the $21.2 million held in Zeek’s ewallet account, they’re to this day still refusing to hand over $9 million in stolen Ponzi funds.
In the face of continuing non co-operation from the payment processor, the Zeek Receivership has now asked the court to pass an order requiring NxPay to release the funds. The payment processor also might find itself in contempt of court.
In January of 2014, NxPay employee Gabriela Phillips was directed to communicate with the Receiver.
Through Ms. Phillips, NxPay provided the Receiver with a document recording all movement of money into and out of the Settlement Account.
According to this document, $16.1 million was placed into the account (all the money from all accounts “linked” to ZeekRewards) while $6.7 million was returned to affiliates, leaving $9.395 million.
Evidently the calculations on this document were flawed, with the forensic accounting revealing
NxPay committed certain accounting mistakes and improperly transferred an excess of $1.351 million from the Settlement Account back to affiliates.
This mistake accounts for the difference between Ms. Phillips’ figure ($9.395 million) and the correct “frozen funds” figure ($10.738 million) in the Receiver’s Reconciliation.
And here’s where things get murky.
FTI (the Receivership’s forensic accounting group) determined that the funds were transferred to affiliates from the Settlement Account at the direction of LST, a payment processing company involved with NxPay in the processing of RVG transactions.
According to the document produced by NxPay, the reason for these transfers was “pending load from bank.”
Apparently, LST was processing an additional $1.351 million for affiliates. Rather than wait for these funds to clear through LST’s process, NxPay proactively credited affiliate accounts for this amount.
Shuffling stolen Ponzi funds around to meet contractual obligations of a third-party? That’s not going to end well…
This $1.351 million should have never left the Settlement Account or, at the very least, should have been credited back to the Settlement Account once the funds from LST cleared.
The funds placed in the Settlement Account had nothing to do with the $1.351 million “pending load from bank” transaction.
The Settlement Account was created to separate funds in accounts “linked” to Zeek at the time of the asset freeze.
The money being processed through LST was additional money that account holders were attempting to add to their e-wallet account.
Not only were NxPay wheeling and dealing with funds that should have locked down, they also hoped nobody would notice the funds had been transferred out. Even after the funds the settlement account funds were covering for had cleared and been made available through LST.
So uh, where did those cleared funds ($1.351 million) disappear off to?
Ms. Phillips agreed with the Receiver that this money should have been added back to the Settlement Account for RVG’s benefit.
Therefore, the proper amount remaining in the Settlement Account proposed by Ms. Phillips ($9.395 million) should have been increased by $1.351 which was a wrongful post-freeze disbursement of RVG funds.
Alright, so it should have been increased… but wasn’t.
So NxPay made up the difference and transferred the $10 million or so to the Receivership?
As it became clear that NxPay would have to pay a significant amount of money to the Receiver, NxPay began to claim categories of expenses and other post-freeze transfers by which the outstanding amount should be reduced.
NxPay has been inconsistent in identifying the categories and amounts of these alleged expenses and transfers, at various times contending it was owed money for affiliate account “cancellation fees,” refunds to credit card companies for affiliate “chargebacks,” and LST fees.
All aboard the bullshit train!
In addition, communications with Ms. Phillips ceased, and NxPay suddenly changed course.
NxPay suggested that Ms. Phillips (NxPay’s hand-picked employee) did not properly understand the accounting and information, did not speak for NxPay, and that the Receiver and FTI had somehow unduly influenced Ms. Phillips into agreeing with the Receiver’s position.
Since that time, NxPay has turned over an additional $3,977,188.96.5.
However, NxPay still possesses $9,069,446.52 in RVG funds that should be returned to the Receiver.
So some money has been handed over, but they’re still $9 million short and playing hardball.
Ah NxPay, do you really think you’re going to get to keep the $9 million? Cmon now, that’s Ponzi money…
For their efforts to stuff the Receivership around and waste time, NxPay are now facing being found in violation of a court order requiring them return all RVG funds in their possession.
The Receivership has also asked the court to find the payment processor ‘in contempt for violation of the Agreed Order‘ (the return of funds).
Court filings are dated December 3rd, with the case docket with any responses filed by NxPay due by 22nd December.
I imagine shortly after NxPay will get steamrolled in court and ordered to pay back the stolen Ponzi funds they think they are entitled to keep.
Footnote: Thanks to Don @ ASDUpdates for providing a copy of the Receivership’s “Memorandum Of Law In Support Of The Receiver’s Motion For An Order Directing NXSystems, Inc. To Turn Over Receivership Assets And/Or Find It In Contempt Of The Court’s Agreed Order“.