PCI collected $9.7 million from Zeek, claim to be victims
The ongoing battle between the Zeek Rewards Receivership and Plastic Cash International (PCI) has seen the Receivership demand the company return an outstanding $8.9 million in fees collected from Rex Venture Group (Zeek’s parent company).
Plastic Cash International provided Rex Venture Group with access to payment processor services, permitting them to continue defrauding investors to the tune of $850 million dollars.
Yet despite this relationship, PCI’s involvement in Zeek was only discovered after PCI had the gall to demand lodge a claim with the Receiver in mid-2013.
In addition to the $9.7 in fees they’d already collected, Plastic Cash have since demanded a further $14.9 million in stolen investor funds.
Initial contact between the Receivership and PCI saw the company attempt to hide its involvement with Rex Venture Group.
PCI conducted all business with Zeek through a bank account in the name of “SecureNet”, an unrelated direct payment processor.
Investigation by the Secret Service resulting in $812,433.96 seized from a PCI bank account.
At the time PCI failed to disclose that they held any additional RVG funds. It wasn’t until forensic accounting revealed that a further $8.9 million had been stashed in an account with the Los Angeles Firemen’s Credit Union, that the full of extent of PCI’s involvement with Zeek was uncovered.
While the Receivership was tracking down these funds, PCI withdrew the money. To date the whereabouts of the funds are unknown.
In the face of PCI refusing to cooperate, the Receiver recently filed a motion asking the court to order PCI to hand over the funds and hold PCI in contempt of court.
A 25 page response to the Receiver’s filing was filed by PCI yesterday. In it, Plastic Cash claim that, despite profiting to the tune of almost $10 million, they are “a victim” of Zeek Rewards.
Before we get into their actual arguments, the memorandum filed by Plastic Cash provides some interesting backstory to their relationship with RVG:
PCI did not begin doing business with RVG until approximately three (3) months before the SEC shut RVG’s operations down.
PCI first learned of RVG in March of 2012 through Nathan Shew, who approached PCI on behalf of RVG regarding the opportunity to provide prepaid card products to RVG customers (“Customers”).
Upon information and belief, Shew was a broker retained by RVG; he was the primary voice for RVG in RVG’s communications and negotiations with PCI.
Nathan Shew is not a name I’m familiar with. PCI mentioning him here is the first time I’ve seen the name in conjunction with Zeek Rewards.
Shew represented to PCI that RVG would not grant PCI the right to market Zeekler-branded prepaid card products unless PCI was also willing to provide certain card processing services related to Zeekler and ZeekRewards monthly memberships.
How cute! Dangle the carrot of Ponzi riches, but only on the condition that PCI follow Zeek further down the Ponzi rabbit hole.
PCI responded by offering to process Zeekler and ZeekRewards monthly memberships purchased through credit or debit cards
on a trial basis.
And of course PCI took the bait.
However, within a few days, PCI discovered that RVG was on the MasterCard “MATCH List” and ceased card processing so as to investigate.
For those unfamiliar with Mastercard’s MATCH list:
The Member Alert to Control High-risk Merchants (MATCH) was developed to help increase customer profitability by enhancing an acquirer’s ability to identify a potentially high-risk merchant before entering into a merchant agreement and, if a decision is made to acquire, whether to implement specific action or conditions with respect to acquiring.
So alright, at this point you’d expect PCI to conduct full due-diligence and ascertain that Zeek Rewards was nothing more than a Ponzi scheme hiding in plain sight.
Yeah, about that…
PCI was then assured by Shew that Shew had no knowledge that RVG was on the “MATCH List.”
Before conducting any further processing for RVG, PCI—together with PCI’s processing partner, SecureNet Payment Systems (“SecureNet”), and the merchant bank handling the PCI-RVG relationship, Eagle Bancorp, Inc. (“EagleBank”)—performed extensive due diligence on RVG…
…and quickly came to the conclusion that Zeek Rewards was a giant Ponzi scheme. Yes…?
…which included an explanation from Dawn Wright-Olivares as to why RVG was placed on the “MATCH List.”
In addition to the due diligence investigation, PCI insisted that it be made the “merchant of record” for all transactions PCI processed for RVG as a
condition to moving forward with the relationship.
PCI saw two primary benefits that would be derived from serving as “merchant of record” for Zeekler and ZeekRewards monthly memberships purchased through credit and debit cards.
First, PCI would be able to implement and oversee additional fraud protection and chargeback minimization mechanisms that PCI deemed appropriate for the transactions processed.
Second, PCI would acquire valuable trend data and other information about the Customers that could be subsequently used in PCI’s efforts
to market Zeekler-branded MasterCard prepaid card products
Uh, what? After performing due diligence on one of the biggest MLM Ponzi schemes in history, PCI were only concerned about minimizing chargebacks from investors and further promoting the scheme?
That’s some biblically epic due diligence fail right there…
In connection with PCI’s, SecureNet’s and EagleBank’s due diligence investigation of RVG’s operations,16 RVG and Shew directed PCI to Gregory Caldwell of White Hat Solutions, LLC to obtain a purportedly “independent,” third-party assessment of RVG’s operations.
Although PCI was aware that RVG paid Caldwell a fee for providing Caldwell’s opinion on RVG’s operations, PCI had no knowledge or notice that Caldwell was an insider of RVG (much less a co-conspirator), or was otherwise anything but an independent (albeit paid) consultant or compliance company.
That’s odd. PCI are claiming they had no knowledge or notice that Caldwell was Zeek’s lapdog?
In an interview with BusinessForHome, Zeek Rewards’ COO Dawn Wright-Olivares stated
We needed to increase our staff and resources proportionate to our growth and our expected growth, and adjust to all the changes in privacy laws and regulations….
The laws and the internet are always moving…. and when you have a growing field force and their ability to reach people in massive quantities through social media, search engines, You Tube and the like we knew we needed to be on top of it and way out in front – so we hired Kevin Grimes of Grimes & Reese who recommended Greg Caldwell (Investigator/Compliance Expert – White Hat Solutions).
BusinessForHome’s interview was published in March of 2012.
In their filing PCI claim to have gotten involved with RVG “approximately three months” before the SEC shut them down.
March of 2012 places Wright-Olivares’ interview some six months before the SEC shut them down. Even by generous estimates, Zeek staff were openly advertising a business relationship with Caldwell well before PCI jumped onboard.
Yet there they are, claiming that after they signed up with Zeek and began doing their due diligence, at least three months after Zeek staff publicly announced they had hired Caldwell, that they had no idea Caldwell was working for Zeek.
Caldwell and RVG made various misrepresentations to PCI regarding the solvency, legitimacy and lawfulness of RVG’s operations.18
Based in part on such misrepresentations by Caldwell and RVG, PCI, SecureNet and EagleBank decided to continue to do business with RVG
So instead of conducting their own due-diligence, after discovering MasterCard deemed RVG a “high-risk merchant”, PCI palmed it off to RVG staff (pretending not to know that Caldwell was hired by Zeek).
Then, after no-doubt being fed hamburger and/or toilet paper analogies by Caldwell and Wright-Olivares, and despite having full access to Zeek insiders and the company’s inner-workings on the financial side (if they so requested it), decided to conduct business with one of the largest MLM Ponzi schemes in history anyway.
Or as PCI put it,
RVG used PCI to process card transactions for approximately two (2) months immediately prior to the SEC’s exposure of the Ponzi Scheme, directly resulting in considerable loss to PCI and the ultimate failure of PCI’s business.
In addition to fines and legal fees, PCI and one of PCI’s principals, Brian Newberry, were themselves placed on the “MATCH List” based on the transactions processed for RVG.
As a result, PCI’s processing partner, SecureNet, immediately ceased doing business with PCI altogether, thereby cutting PCI off from all sources of cash.
Without any cash, PCI could not service the financial obligations imposed by contracts with other parties or otherwise meet operating expenses as they became due.
Man, that’s one hell of a bullshit sandwich PCI are hoping Judge Mullen will swallow.
Having half-assed his company’s compliance due-diligence and getting in bed with an $850 million Ponzi scheme, what on Earth did Brian Newberry think was going to happen?
In their Memorandum of Law, PCI then go on to argue a whole bunch of stuff pertaining to their contract with RVG. I’m going to leave that up to Mullen to sort out – as with Zeek Rewards being an $850 million Ponzi scheme and all, I expect PCI’s contractual arguments are going to be tossed out the window.
Ditto their claims of having not been served notice of the freeze order, as they clearly intentionally went out of their way to fly under the radar.
Of note is that PCI’s lawyer while all of this was going down, one Mr. Scott Mehler, has since been disbarred.
Based on the advice of PCI’s (now disbarred) attorney, Scott Mehler (“Mehler”), that the funds in dispute belonged to PCI and not RVG, PCI used the funds PCI received from processing monthly memberships that remained after payment of the aforementioned chargebacks, fees, fines and penalties in an attempt to mitigate the damages resulting from RVG’s conduct.
PCI discovered later that Mehler had an ulterior motive in advising that PCI was entitled to use the funds received from Customers.
Mehler convinced PCI to transfer at least $3,400,000 to his trust account under the guise that Mehler would pay all RVG-related fines, fees and other expenses when actually Mehler intended to, and in fact did, steal at least $800,000.00 of those funds.
Lol, hold up! The arguments PCI used to justify why their entitled to retain almost ten million in stolen Ponzi funds, were concocted by a now disbarred lawyer who stole from them?!
And these are the same arguments PCI continue to build their justifications to retain Ponzi funds around even now?! Bloody hell…
I know it’s his job and everything as a Judge, but PCI have taken Ponzi bullshit to a whole new level. I hope somebody’s around to buy Judge Mullen a beer when this is all said and done.
Looking forward, Mullen will take PCI’s Memorandum into consideration and make a ruling on the matter. I suspect this will be handed down sometime next month or February at the latest.
Footnote: Thanks to Don@ASDUpdates for providing a copy of Plastic Cash International’s December 17th “Memorandum Of Law In Opposition To Receiver’s Motion For An Order Directing Plastic Cash International LLC And Brian Newberry To Turn Over Receivership Assets And/Or Find Them In Contempt Of The Court’s Order Freezing Receivership Assets”.
Update 30th May 2015 – As per a proposed Consent Order filed by the Receiver on the 29th of May 2015, PCI have agreed to pay back “at least $700,000” of the funds they stole from Zeek Rewards victims.
The agreement is the result of a settlement conference held on March 30th.
Reasons cited by the Receiver for accepting the $700,000 amount, which is significantly lower than the $8.9 million PCI stole, include
PCI told the Reciever that they have already spent all or a substantial portion of the payments they received from Zeek
PCI represented to the Receiver that they have limited financial resources and are not able to fully pay the damages claimed
the path to obtaining judgements may not be quick or easy, and early settlement of the claims without the expense of further litigation is worthwhile
Pending court approval, it appears the settlement will go ahead.
$700,000 is well shy of $8.9 million, but I suppose if the money is well and truly gone (obviously not into recoverable assets or clawback litigation would continue), then it’s better than nothing.
This settlement is based on PCI’s and Newberry’s testimony and representations and if the Receiver finds out that PCI and Newberry have not been truthful, then the releases provided to PCI and Newberry will be void and not enforceable.
And that’s on top of the $800,000 the Secret Service managed to seize.
Update 2nd June 2015 – On June 1st Judge Mullen approved the proposed settlement agreement, so that’s that then.
In the words of the oft quoted Roman scholar, Maximus Orgasmus: qui cum canibus concumbunt cum pulicibus surgent.
“He that lieth down with dogs shall rise up with fleas”.
^^^ very interesting story! A LOT happened in just three months!
plastic cash international was not a shady processor, as i found this:
three months with zeek shut PCI down? aw, so sad.
there is a case for benefit of doubt here, in favor of PCI? lets see what judge mullen says.
Has anyone found an unused plot laying around ???
Anjalitroll seems to have lost hers
in april 2014, the fourth circuit court, which is the appeals court for the north carolina district court [zeek case], found in favor of a bank, appealing against clawback in a fraudulent transfer, under the ‘good faith’ premise.
though this case re: taneja, was bankruptcy case, the good faith argument extends to clawback in any fraudulent transfer.
Playing the ignorant dumbass might work for you here. It’s not going to work in court. The Disner ruling yesterday is a perfect example of that.
PCI ignored the warning signs, failed to perform even the most basic of due-diligence and instead jumped on the Ponzi gravy train. That’s come back to rightfully bite them in the ass.
Would it be this Nathan Shew?
Sounds like it…
the disner matter and the PCI matter are totally different.
disner is about participation in a ponzi , and unjust enrichment.
PCI was a third party service provider, who was charging payment according to industry norms. PCI was not making ponzi earnings through participation in a ponzi.
ps; dumbasses do not discover faults in court orders. real dumbasses wear blinders and run with a very narrow perspective.
PCI facilitated the Zeek Rewards Ponzi scheme.
And if you’re going to make the distinction between investors and merchants, you’re the one citing clawback litigation decisions.
But I digress, I agree with you that the stuff you quoted before has absolutely nothing to do with the PCI case.
I’m not sure this applies. Taneja’s case is he really was repaying the mortgages, but with money that he didn’t have.
He really *does* owe the bank money and he’s taking some other money to pay the bank. Thus, it’s not really “fraudulent” transfer.
The bank took it on good faith that the payment is exactly what it was intended: pay down the mortgage.
In PCI’s case, they failed to perform due diligence on RVG (which is already PNG because they’re on the MATCH list), Any fees and penalties they incurred from that is their own fault. They can sue Caldwell and whoever they want… they can even sue the receivership, but withholding receiver funds… Hmmm…
Basically, PCI’s arguments is “finders keepers”, not “good faith”. If RVG owe them money and marked payment as to be applied to such debt, that’s good faith. PCI was accepting chargebacks AFTER SEC freeze and applying it against RVG’s money can be construed as violating the freeze court order.
I guess PCI could argue they conformed with “industry standards” in doing their due diligence before accepting RVG as a client.
Unfortunately, the “industry” to which said “standards” are common is the “shady payment processors who facilitate ponzi fraud” business.
It never ceases to amaze me how seemingly intelligent punters have absolutely no clue what is required to establish a legitimate payment processor and seem to think having a website and branded debit cards is all it takes.
1] of course taneja and zeek aren’t twins. but the premise of a third party taking money ‘due’ to it, that later turns out to be a fraudulent transfer, and claiming good faith is the same
2] yeah taneja was running a ‘ponzi like’ scheme.
3] even zeek ‘did’ owe PCI its charges. that the charges were paid during the course of business, does not make it a ‘finders keepers’ money. it’s normal business charges paid by industry norms, during the course of business.
4] then why is the fourth circuit court calling it a ‘fraudulent transfer’?
and chang , PCI is clearly citing the ‘good faith’ argument, and they say they even paused the processing of zeek payments for a while, to check them out? that shows serious intent on their part.
As usual, a half truth from Anjalitroll
So uh, can we stop comparing bankruptcy cases to Ponzi cases? Ditto any “ponzi like” cases too.
Well, receivership is in many ways very close to a bankruptcy case… esp. a liquidation bankruptcy. Madoff’s ponzi was a bankruptcy case, IIRC.
good faith defense is allowed in any fraudulent transfer, it is not limited to bankruptcy.
the fraudulent transfer can be of any kind, not necessarily ponzi.
we can see PCI is making a ‘we dint know, we’re good boys’, good faith defense in a non bankruptcy, ponzi like[unproved] case ie zeek.
right said chang, receivership is said to be a mirror image of bankruptcy. there may be some fine technical differences, but we cannot go down that rabbit hole.
The difference is PCI racked up ADDITIONAL charges by accepting chargebacks when the money **should** have been frozen.
They have RVG’s money and they’re keeping it by paying out the chargebacks and thus, pocking all the fees. Finders keepers. They aren’t handing it over to the receiver then ask the receiver for some money back.
Imagine this scenario:
PCI A: I read about this freeze order for RVG related assets. What do we do?
PCI B: Does any of it name us?
PCI A: Uh, no?
PCI B: Then ignore it. In the meanwhile, find some way to keep all that money. Our reputation’s done after this, Mastercard already put us on their shit list. We may as try to keep as much of it as possible.
PCI A: But that’s going against a court order!
PCI B: Not if we keep “fees and penalties” as part of chargebacks.
PCI A: You are a genius, man! We can pay out the chargebacks, claimed we never got the freeze order, then charge those huge penalties and fees, and it’d be all legit!
PCI B: Yeah, get to it, man. Nab the money before Revnet realize it’s still there.
(Obviously this is all out of my imagination, in case that’s not obvious)
Here’s Scott Mehler, PCI’s legal counsel.
He’s disbarred for 1 year (July or August 2014), due to 7 counts of misconduct in one case, where he sold a business for a client for $1.4 million and kept all the money for himself (pdf at the bottom of the page).
Would this be the ‘taming of the shew’?
in a reply to receiver bells motion in june, 2014 this is what PCI said about the ‘freeze’:
PCI came forward itself, with a claim against the RGV estate, which is under the control of the receiver.
either they have some merit in their case or they’re buttcrazy.
Which means they paid out all the money under their control (to chargebacks and themselves), and managed to rack up additional fees, since they underestimated amount of chargebacks. They got it down to 800K, IIRC. But the “fees and penalties” they racked up are higher.
They thought they’ll get by as a “vendor” and just get paid, not expecting to encounter a reverse audit, i.e. “who the heck are you?!”
Clearly, the strategy of processing all those chargebacks backfired.
The fact they still claim to have never been named in the freeze order means they could not have been much “diligent” in keeping track of their clients… or it’s a “willfully blind” ploy, i.e. Horatio Nelson maneuver (I see no signal to retreat).
I’ll also speculate that both Eagle BanCorp and SecureNet will likely throw PCI under the bus… they only did biz with Zeek / RVG because PCI accepted Zeek / RVG.
The question is will PCI fall on its sword and go quietly, or will they raise a real stink about it. They’ll still die, but who else will go down with them?
Article updated with proposed $700,000 settlement.
if the above could be a reasonable/acceptable argument to get out of clawback, then every clawback defendant could get away by paying less than 10% of the ‘fraudulent transfer’.
the settlements bell has made with other clawback defendants is in the range of 50-60% IIRC.
this tells me that PCI had some merit in it’s case against the receiver, which has resulted in this low settlement amount.
Or that they weren’t lying about having spent the funds.
Ponzi pimp funds are traceable (and therefore mostly recoverable). Business entities are different (the funds might have been spent during the course of business, running at a loss).
ponzi participants can also spend their money in various ways that are non recoverable. just because they are individuals, they cannot be held liable More than a company which dissipates funds in the course of business.
the excuse don’t stick! PCI got away very easy, because they had a good case against fraudulent transfer, in my view.
From the UK thread, post #17:
Article updated with approval of the proposed settlement agreement.
learn from these guys.
they got away with the ponzi funds.
p.d. loosing your license over 800,00 grand. OUCH