In an attempt to dismiss their victims, a cliché trotted out whenever the government steps in and shuts down a scam is that said government will keep most of the money.

What scammers don’t realize is that there are checks and balances in place to ensure this doesn’t happen, as evidenced by a recent SEC filing.

Before we get into it I want to preface by stating that to date, the Receivership estimates around 80% to 85% loss recovery for Zeek Rewards victims with a valid claim.

Actual recovery is presently sitting somewhere between 70% and 80%.

In a world of never-ending scams causing incalculable losses that’s no mean feat.

That said, the SEC recent filing is somewhat disturbing.

The SEC’s thirty-page filing is an objection to fees claimed by the Receivership for the third quarter of 2017.

In the filing, the SEC states it also plans to file separate objections for fee applications filed for 4Q 2017 and 1Q and 2Q 2018 respectively.

The SEC has taken objection to billing practices and undisclosed rate increases by the Receivership and its partners.

As early as August 2016 the Receivership has repeatedly referenced that it is in the process of winding down.

One would think this would correspond with a decrease in requested fees, yet as the SEC points out;

fees requested by McGuireWoods have increased dramatically over the prior four quarters, while FTI also continues to bill substantial amounts on a quarterly basis.

An included table shows fees claimed between Q1 2016 and Q3 2017 increasing by just under 189%.

Based on what the Receivership has communicated to the SEC and “the spirit of (the court’s) billing instructions”, the regulator claims ‘the fees requested are unreasonable under the circumstances‘.

Cited billing discrepancies include;

  • a large number of “vague and repetitive” billing entries that “lack sufficient detail” ($91,894)
  • twenty-six “virtually identical” entries marked “calls and correspondence re settlements” ($12,172)
  • twenty-four attorney entries vaguely marked, e.g. “work on opening brief” and “work on appelant’s reply brief” ($50,335)
  • thirty-one “virtually identical” paralegal entries ($22,727)
  • fifty identical entries by one paralegal in particular ($42,138)
  • failure to specific exact amounts of time spent on tasks when multiple tasks are performed over an recorded timeblock
  • billing rounded to hourly or half-hour increments, as opposed to the ordered one tenth of an hour increments
  • “the use of high billing rate attorneys to perform non-legal tasks”
  • an unapproved 30% fee increase above what was agreed on, following on from “substantial undisclosed” rate increases from 2014

Rates billed per hour also vary, inexplicably ranging from $285 to $684 an hour.

To be clear, the issue here isn’t the work performed but rather the information provided – which the SEC falls short of what the court ordered.

The billing is thus objectionable, given the court can’t make an informed decision on work performed due to a lack of specific information provided.

Taken together, the Receiver’s billing practices – vague, repetitive entries, lumping and block billing – dovetail with each other to make it virtually impossible to conduct the cost benefit review contemplated by the Billing Instructions.

Nonetheless, the Receiver and McGuireWoods have repeatedly declined to address these issues.

Counsel for the Commission has repeatedly raised the issue of cost-effective staffing with the Receiver, including the “upside down” staffing model described above, and the extensive use of attorneys and paralegals to perform non-legal tasks, but neither the Receiver nor McGuireWoods has meaningfully addressed this practice.

When these issues were brought up by the SEC, the Receiver did agree to reduce Q3 2017 billing by $10,000 – attributed to fees billed by single timekeeper.

Anything beyond that the Receiver “has thus far been unwilling to discuss” – which certainly doesn’t look good.

Neither does fees by the Receiver requested after 1Q 2013 accounting for “nearly 40% of the total amount recovered after January 15, 2013”.

Based on their analysis (and bear in mind this is just for Q3 2017 so far), the SEC are requesting fee applications for the quarter be “substantially reduced”.

Given the volume and complexity of the time records involved, the Receiver’s apparent unwillingness to conform to the requirements of the Billing Instructions, and the substantial impact of the Receiver’s inefficient staffing model and unilateral, undisclosed rate increases, a percentage or lump sum reduction of the amount requested in the 3Q 2017 Fee Applications is appropriate.

In light of the SEC’s concerns, they’ve also asked the court to

consult with the Commission and the Receiver to develop a comprehensive plan for the remainder of the Receivership.

The SEC’s motion is currently before the court and awaiting a decision.

While I don’t want to take anything away from what the Zeek Rewards Receivership has accomplished since it’s establishment in 2012, there’s no excuse for potentially short-changing victims because of shoddy billing practices.

I’m certainly not, and I don’t think the SEC are either, suggesting anything nefarious has gone on. But based on submitted information and non-adherence to the agreed-upon billing practices, it seems the SEC have made some convincing points.

If the Receivership and its partners can’t provide an adequate accounting of time spent as previously agreed upon, that’s not something Zeek Rewards victims should have to cover.