Zeek Receiver sues Howard Kaplan for “legal negligence”
Yesterday saw the Zeek Rewards Receivership file a request for permission to “file separate actions against” two of Zeek’s attorneys.
Explaining the request, the Receiver wrote
After careful analysis of RVG’s written and electronic records, extensive document review and numerous interviews with relevant witnesses, the Receiver has concluded that two attorneys hired by RVG (and their related entities) caused significant damages to RVG by their negligent and other wrongful conduct.
The order was granted on the same day in a North Carolina District Court, after which the Receiver went on to file his actions.
Named as defendants in the actions are attorneys Kevin Grimes and Howard Kaplan and their respective law firms.
Howard Kaplan (right) is a tax attorney who operates out of the US state of Nebraska. Kaplan advertises his law firm on the website “Kaptax”, where he writes
Taxes are a necessary evil. Paying too much in taxes is avoidable with good counsel. My mission is to provide the best counsel possible to solve your tax problems.
In relation to Zeek Rewards,
Howard N. Kaplan served as legal counsel to RVG from around January 2012 until August 2012, when RVG was placed into receivership.
Zeek Rewards was an $850 million Ponzi scheme, shut down by the SEC in August 2012.
In filing his lawsuit against Kaplan, the Zeek Rewards Receiver claims
By virtue of his knowledge of RVG and ZeekRewards and his legal expertise, Kaplan knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and/or a Ponzi scheme.
Despite this knowledge, Kaplan actively encouraged investors to participate in the scheme by promoting ZeekRewards through providing tax advice to current and prospective investors in the program and knowingly allowed his name to be used to promote the scheme.
As with other MLM professionals hired by Zeek Rewards to offset Ponzi scheme concerns,
Kaplan played an indispensable role in the scheme.
Because of the lucrative, seemingly “too good to be true” claims being made by RVG and ZeekRewards, many potential investors were skeptical of whether the scheme was legal and legitimate.
So, RVG enlisted the aid of Kaplan and other legal counsel to assist in promoting and legitimizing the scheme.
Kaplan helped in several ways. Very early in his representation of RVG, Kaplan knew or should have known that ZeekRewards was an unlawful program.
He was aware that the program advertised historical average returns of 1.4% per day, which no legitimate investment could accomplish.
Nonetheless, Kaplan appeared on two Affiliate “Leadership Calls” with Dawn Wright-Olivares to promote ZeekRewards.
In addition, he provided a “frequently asked questions” document (“FAQ”) for use on ZeekRewards’ website and made himself available to affiliates for follow-up tax questions via email.
Proof that Kaplan was fully aware of potential compliance issues surrounding Zeek Rewards’ compensation plan is provided via email communications between Kaplan himself and Dawn Wright-Olivares, Zeek’s Chief Operating Officer.
In February 2012, Wright-Olivares wrote to Kaplan about “potential securities issues” with Zeek Rewards’ compensation plan.
Kaplan replied,
I concur that because of the way your plan is structured, there is constructive receipt [of affiliate income] because of the choice your
affiliates have.Perhaps it can be compared to dividend reinvestment, where one chooses to buy more stock rather than cash out the dividends.
Working with Wright-Olivares to perpetuate the “we are not an investment if we don’t mention the word investment” psuedo-compliance that was rife in Zeek Rewards,
Kaplan quickly came to understand that Wright-Olivares prohibited the characterization of Zeek as an “investment,” since that word raised securities and SEC implications.
As a result, Kaplan refrained from mentioning on the leadership calls or in his FAQ the tax implications that would arise if Affiliate payments were treated by the IRS as an “investment.”
Instead of properly informing Affiliates of the different tax implications they would face if their Zeek payments were properly characterized as coming from an “investment” rather than a “trade or business,” Kaplan failed to inform Affiliates, either on the calls or in his FAQs, of the material fact that payments to Affiliates should be characterized as investment income for tax reporting purposes.
And it this tax advice that Kaplan provided Zeek Rewards and his affiliates, that the Receivership nails him on:
In the FAQs that he drafted and allowed ZeekRewards to post to its website, Kaplan advised that Affiliates should use IRS Schedule C (“Profit or Loss from Business”) to record their income, making no mention of the fact that they should use IRS Schedule D (“Capital Gains and Losses”).
By all means characterize taxes as “evil” and work to reduce your client’s legal tax liabilities… but instructing Zeek Rewards affiliates to lie to the IRS?
Oh dear.
Calling a spade a spade, the Receivership holds Kaplan responsible for the perpetuation of Zeek’s Ponzi activities:
If Kaplan had candidly disclosed the material fact that Affiliate income would be properly characterized by the IRS as capital gains, the obvious negative tax implications would have caused many Zeek Affiliates to remove their cash earnings from the program rather than reinvesting them, short-circuiting the scheme much earlier.
Since he did not, Affiliates were placated in their misguided belief that ZeekRewards was a lawful program.
Exactly how much sooner Zeek Rewards might have collapsed had Kaplan not of been lying to affiliates about their tax obligations is unclear, however it’s clear the Receivership believes Kaplan’s lies to be a primary factor in putting off the collapse.
Moreover, by allowing ZeekRewards to use his name in providing Affiliates the false perception that ZeekRewards was a lawful enterprise and by serving as a resource in answering Affiliates’ tax questions via email, Kaplan assisted in prolonging the scheme, deepening RVG’s insolvency and causing significantly more loss to RVG than it otherwise would have incurred.
In the months before the SEC shut it down, Zeek Rewards was hemorrhaging money and was on the brink of organic collapse.
For his part in directly impacting and prolonging the scope of fraud carried out by Zeek Rewards via their Ponzi scheme, the Receivership is holding Kaplan responsible for
- legal malpractice
- legal negligence
- breach of fiduciary duty and
- aiding and abetting breach of fiduciary duty (by Zeek Rewards and its management)
The Receivership claims Kaplan’s actions resulted in damages of ‘an an amount in excess of $100 million’, and asks the court to
Enter Judgment against the Defendant for the losses suffered by RVG in an amount to be determined at trial.
Award the Receiver just and reasonable attorney fees, subject to Court approval, which are justified in light of the costs to the Receivership Estate in bringing this action.
Award prejudgment and post-judgment interest, costs and such other and further relief as the Receiver is entitled to recover.
The other attorney named in the Receivership’s initial request for permission is Kevin Grimes. Grimes is facing similar charges in a separate lawsuit also claiming $100 million in damages.
Footnote: Our thanks to Don@ASUpdates for providing a copy of the Receiver’s lawsuit.
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.
GO BELL GO!!! Its about time these corrupt lawyers paid the price for supporting all of these HYIP and Ponzi schemes.
That lawsuit is rather thin in some parts?
“Promoting ZeekRewards through providing tax advice” and “knowingly allowed his name to be used to promote the scheme”.
IIRC, he had 6 minutes of general tax advices, 2 minutes about how to post the amounts in the 1099. He was first briefly introduced in a “Leadership Call”, and then he had those tax advices in the next call. He also wrote a tax FAQ.
“Knowingly allowed his name to be used to promote the scheme” is extremely thin.
“Kaplan advised that Affiliates should use IRS Schedule C (“Profit or Loss from Business”) to record their income, making no mention of the fact that they should use IRS Schedule D (“Capital Gains and Losses”)”.
Bell is probably using the same layman logic as I did, the one about “more similar to investment than to income”. The correct logic should have been “those amounts were never received by the tax payer, and shouldn’t have been included in the 1099s”.
IRS would probably have seen the money PAID OUT as income, because of the daily ongoing activity of posting 1 ad per day. Promises wouldn’t have been counted as taxable income. Zeek wasn’t a bank, and the back office wasn’t a bank account.
Whatever way you cut it he was implying that Zeekers were getting paid for services performed (Sched C) when he knew or should have known that they were being paid a return on invested capital(Sched D)
The 1099s are not relevant to this line of reasoning.
Oh please,
Howard Kaplan will probably be able to put up a defense strategy here relatively easily, but the current Motion is only a REQUEST. Bell might have a more solid case than what he show in the request.
EXAMPLE DEFENSE:
“You must have misunderstood which type of work I did for Rex Venture Group? I was asked to look into a very specific tax problem, and to help explain solutions to it to the affiliates of ZeekRewards during a leadership call, and to provide some additional info about it when it was needed. I only received a limited set of information about the problem itself, the way THEY (RVG’s management) saw it”.
The argument “By virtue of his own knowledge of RVG and ZeekRewards and his legal expertise, Kaplan knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and/or a Ponzi scheme” is extremely vague and weak. It doesn’t point to any specific source of knowledge, only to Bell’s assumptions of a knowledge Kaplan should have had.
Kaplan’s communication with Dawn Wright-Olivares indicates that he only have received very limited info, e.g. about payouts to the back office and which type of payout that was about.
“Constructive receipt” indicates that Kaplan actually believe there’s real monetary payouts to the back office = it indicates that he haven’t examined any details.
People here made comments about the tax advices, e.g. we compared the 6-8 minute “general tax advice” to the 2 minute “specialised info about the 1099”. We were not very impressed, and it got worse when we tried to follow his instruction on example tax forms.
Bell probably has incorrect tax logic himself, something he should have known. The payouts from RVG were NOT classified as “Capital Gains and Losses” in the 1099s for 2012 either, they were classified as income from work. He even had to make some corrections to a mistake similar to Kaplan’s, where he had included frozen funds in the income.
It’s a lawsuit.
It’s not the case.
It’s as strong as it needed to be.
Now I’ve seen everything.
Mr Bell is being second guessed by an anonymous blogger.
What other dubious “Companies” are/have Kaplan and Grimes been associated with? Or is the list too long?
These guys need a fro like Sloan. Hope Bell is aware Grimes has a connection to Flexkom according to info below.
Quoting Deborah Brolley who states she is a “corporate headhunter” for Flexkom:
That tax logic isn’t correct, and Bell didn’t use it either. I tried to use it when I analysed the tax issue in June 2012, but I later corrected my logic.
Payouts from Ponzi schemes of that type are classified as income, form 1099-misc / Schedule C. The Schedule D logic is incorrect tax logic.
Really. You must be reading from other source material than Oz. Don’t get too wrapped up in your own head
You say this because you’ve been swallowing Kaplan’s Bullshiess all along. Time to wake up and smell the coffee.
Source:
Comments from people who received 1099-misc or W-2 tax forms from the Receiver for the tax year 2012.
I don’t solely look at the source right in front of my own eyes, interpreting that one as a Bible.
It has already been answered.
Bell / RVG sent out tax forms for the tax year 2012 to several thousand people. Some of them have posted here on this site, some have posted other places. They received 1099-misc for affiliate payouts in 2012.
Bell has changed his own logic from Spring 2013 till now. Now he suddenly believe in the idea that payouts from Ponzi schemes should be posted as “Capital Gains and Losses”. Parts of his upcoming lawsuit seems be based on his own misunderstandings.
Got the Bible stuck in your head now I see. Time for a Flush.
Bell never changed his logic. A misc 1099 indicates money was paid out. Its up to the taxpayer to declare the money on Sched C or D or wherever they decide it should be placed. You really don’t know what you’re talking about…again.
Whatever way you cut it Kaplan was implying that Zeekers were getting paid for services performed (Sched C) when he knew or should have known that they were being paid a return on invested capital(Sched D)
The 1099s are not relevant to this line of reasoning. They do not imply anything beyond the payment of money.
This thread has now entered into the Twilight Zone.
Correct. RVG did send out 1099-misc. People were paid for services (as independent contractors). Kaplan did recommend the use of Schedule C (income and expenses related to self employment).
I have pointed out that as a defense argument. Bell will have a hard time explaining his own logic if he insists on using Schedule D (capital gains and losses). Bell doesn’t really have a valid argument there.
Howard Kaplan’s method wasn’t 100% correct, but Bell’s logic is even more flawed than Kaplan’s was. Bell’s logic could have been correct if RVG had sold registered securities rather than unregistered ones.
I have noticed that, and I’m glad you have noticed it too. You’re welcome back to reality when you wake up.
Doc-143-main.pdf (page 11-12, Section 5) is about corrections to some 1099 tax forms. It’s the Quarterly Report from the Receiver, Q1 2013.
docs.google.com/viewer?a=v&pid=sites&srcid=YXNkdXBkYXRlcy5jb218ZmlsZXMtd2Vic2l0ZXxneDo1YWFkOTRlZGQ1ZTI1NTky
He doesn’t refer specifically to 1099-misc, only to 1099 in general. He does specifically mention income taxes (not capital gains).
Now your taking a bath in bullshit. Stick to reality TV.
It’s difficult to interpret Bell’s logic there. It seems to be about that
–>Howard Kaplan should have used his insight, knowledge and expertise to find out that ZeekRewards really was a Ponzi scheme
–> so the unregistered securities should have been registered
–> so the payments from affiliates could have been counted as investments (rather than as income)
–> so he could have recommended the use of Schedule D (Capital Gains and Losses) rather than the use of Schedule C
–> and then the investors would have realized the disadvantages of being taxed for reinvestments
–> and then people would have stopped reinvesting
–> and then the scheme would have collapsed much earlier, saving $100 million in losses.
That’s why I pointed out that Bell will have a hard time explaining his own logic. According to Bell’s own statement, Howard Kaplan was first hired in January 2012. Some of his logic would have required time travels back to early 2011, e.g. so he could have registered the securities.
Prattle on
@Hoss
Try to analyse it yourself? But try to correct some of the flawed ideas you had first? You have already looked at the tax form logic.
Statements like “By virtue of his knowledge” and similar statements don’t tell anything of importance, they must be backed up by more information about WHAT he knew and HOW he knew it, something to make it become more relevant.
People looking for reflections of their own beliefs will probably accept statements like that, but those statements can easily be attacked in court.
All Bell has to prove is that Kaplan should have known it was a ponzi or an illegal security. If so, then his advice and use of his professional reputation constitutes legal negligence/malpractice.
Kaplan has to prove that he did not know, and that his diligence reasonably resulted in him concluding it was a standard affiliate business. It is possible Bell was lied to and that’s probably what he will claim.
Bell doesn’t have to provide details in the original complaint and the details (what Kaplan knew and when did he know it) will come out in the litigation. Now, if Kaplan was lied to, did some diligence, but perhaps not enough, that will be a gray area.
btw, the act of sending 1099’s and this lawsuit do not invalidate each other.
This is incorrect. A 1099-misc is claimed on schedule C, E or F, but never D. A 1099-div would be applied to schedule D. So the tax payer is in a bit of limbo.
IRS red flags look for 1099-misc income, so even if the tax payer knew Zeek to be an investment and declared taxes correctly, the tax payer may be in more jeopardy from a tax audit and liability perspective than if they just accepted the 1099-misc as business income.
Thanks. I’ll tell Hoss. 🙂
Note that I said….. “wherever they decide it should be placed.”
Its the taxpayer’s obligation to report income correctly regardless of what Zeek sent or Kaplan said.
Kaplan advised reporting income on Sched C. That’s the issue here not whether the taxpayer used the correct tax form or not.
If the Receiver alleges that a competent tax attorney should have recognized that the participants were receiving returns on capital (not dividends, not interest, and not consulting income) then I agree with Bell, Kaplan should have understood that gains and losses on capital are reported on Schedule D Advising the use of Schedule C is incompetent, negligent or complicit or all three.
I choose door 3 for $100 Million dollars….complicity.
That 1099s are SUPPOSED to be ISSUED and then used to enter information on schedules C, E, or F has little to do with what the Zeek 1099s were issued for….They were issued to perpetuate the fraud, pure and simple.
Kaplan’s advice to report on Sched C and the issuance of 1099s, which in reality showed phantom activity or capital activity concealed as contractor payments is the problem because The payments were in fact the return of capital itself and/or capital gain, which is why Bell contends they belonged on Schedule D.
Do you believe Kaplan was going to advise Zeek to issue 1099-Bs which do belong on Schedule D? Not in a million years. That would have undermined the fraudulent representations (by Kaplan and others) that the affiliates were being paid for promoting the auctions.
Heck, supposedly they were even getting profit shares, and if so why didn’t Kaplan tell the affiliates to enter the information on Schedule B which is where dividends and interest go. It was all a hoax and a fraud which is why tax wise, it really doesn’t make sense.
Kaplan, as a tax attorney should have known that. Instead he perpetuated it.
Aaaaand all of this is why I totally run for the hills anytime tax comes up on here :).
Understand what’s being said and you won’t have anything to tell me.
That’s true, and it was obvious.
@Jimmy
Kaplan’s emails to Wright-Olivares confirms that. I suspect there’s probably more emails where that came from.
Not withstanding potential testimony from Wright-Olivares at trial. She’s sitting on some pretty hefty criminal charges let’s not forget.
I don’t blame you.
Completely irrelevant. Registered, unregistered has nothing to do with capital investment and loss or gain. There are billions of dollars of unregistered securities issued every year because there are many exceptions to registration. There is no exception to fraud. Get your &&*%^% together.
I believe Bell has got too limited information. Too many of his statements are about “he knew or should have known” arguments, but with very little substance to back up his own claims.
IIRC, Howard Kaplan was brought in in late January / early February 2012, “recommended by Sandy Botkin” (Dawn’s favorite tax advisor).
He was introduced in one leadership call (to prepare people for the next one), and gave his tax advices in the next (6-8 minute general tax advices, 2 minutes specialised about the 1099s, around 19 minutes into the call). He also wrote a FAQ and answered some questions.
As far as I can see, he was primarily brought in to calm people down and to explain the posts in the 1099-misc. People got panic when they saw that reinvestments had been stated as income. He disappeared from the picture shortly after the tax advice work was done.
COMPLICATED TAX LOGIC (but people accepted it)
We had trouble understanding the logic for “Schedule C, Line 3” (or something similar). I pointed out that he used logic not very common for ordinary tax payers. “Schedule C, Line 3” was more typical for companies when they have got significant amount of products returned and will need to deduct the reduced income from sales revenue.
I generally had a hard time accepting his tax logic, e.g. the use of “accrued income” and “constructive receipt” (most tax payers should normally use the cash method, not the accrual). I have done my own book keeping as a self employed (selling goods) for 3 years, so I will have a hard time accepting some irrational tax methods.
The people who followed his method generally accepted it. The increased income was balanced against increased business deductions. People have asked questions about corrections both in 2013 and 2014, but they accepted the method in 2012.
The issue should normally be about whether that tax advice was illegal, fraudulent, negligent or otherwise belongs in a lawsuit?
Bell’s theory revolves around that losses would have been reduced by around $100 million if Kaplan had recommended “Schedule D, capital gains and losses” rather than “Schedule C, income and expenses from self employment”.
The first one would have reduced confidence from investors, and would have caused the scheme to collapse much faster.
Wasn’t it $100M in damages?
Damages != losses (?)
Obviously there must be much more than the email. The email didn’t really prove anything (it can point in more than one direction). The case as it has been presented was rather vague.
Yes. That’s right. The Schedule C v Schedule D allegations are presented to illustrate
•legal malpractice
•legal negligence
•breach of fiduciary duty and
•aiding and abetting breach of fiduciary duty (by Zeek Rewards and its management)
not to be subtracted one from the other.
Kaplan among others contributed to the total losses (which are yet to be determined and the number of contributing players is unknown.) $100 Million is just a sufficiently large number to demonstrate the gravity of the situation and to get the ball rolling.
It’s not calculated. Its just a big number to throw on the wall.
The case has not been presented. Relax. The Complaint is a summary with a few highlights. You act like its ready to be decided by the jury and you are the only member.
Chill out
It was misleading, false, contrary to law and common sense and was provided by a tax attorney who should have know the tax statutes and how they applied to the Zeek operation.
What else do you need to know? Any other issues got you confused?
That’s a personal problem. They made a crappy investment with a crappy company. Those are the consequences.
Next time I hope they know better.
It may be about the same, just different words. He didn’t specify what the damages were about.
IRS have strict rules about taxable year. A Ponzi scheme will first become a Ponzi scheme in the tax year it’s being shut down or collapses. An active Ponzi scheme should normally be presumed to be a legitimate business when it comes to taxes.
“but with very little substance “THAT M_NORWAY KNOWS ABOUT” to back up his own claims”
So what? There’s a presumption of legitimacy. That does not mean the IRS could not look at every person who filed with a Zeekler EIN/TIN and question their income and deductions.
They can go back as far as they want. A Ponzi is a Ponzi, not when it collapses but when it operates as a Ponzi and if that is five years ago then that’s the way it is.
It a flippin civil case. All it takes is a preponderance of evidence fOr the plaintiff to prevail. The jury can readily decide if Kaplan “should have known.” From where I am sitting it looks like he should have.
While Dawn’s criminal conviction has been mentioned, I think it is being highly overlooked that Dawn made a plea deal in her criminal charges.
You can bet part of this plea deal was for her to spill the beans on all the major players behind the scenes and the role they all played in Zeek’s Ponzi.
There is no doubt in my mind that she has given evidence that Bell will use against Grimes and Kaplan at trial. I also don’t doubt that they are just the first of several more of these type of charges being filed against other major players: Nehra and Laggos and possibly Craddock as well I think will happen.
Remember Craddock was hired to get rid of all the “negative” posters/blogs/forums that he could through intimidation and lying to hosting companies of those blogs/forums in an attempt to get them shut down.
This legal beagle arm chair banter from non-lawyers is hilarious. It might help if the arm chair legal beagles actually knew about the law they are making all their comments on. But it is entertaining and funny.
It’s like the old saying: “It’s not that you are ignorant, you just know so much that isn’t true.”
Can an ex-lawyer or current lawyer comment on how much insurance is carried by typical attorneys and if their liability insurance covers “legal malpractice” and such?
I thought I read somewhere that some state bars require dues from the members which goes into an insurance pool (sorta like FDIC requires banks to pay up to participate in FDIC deposit coverage). Is Bell going after insurance money? Is that why the attorneys are first?
If so, why not Nehra & Waak, who’s actually on Zeek’s creditor list, and not Grimes & Reese? (that I recall)
IMHO, Laggos has more culpability in trying to perpetuate Zeek including that MMBJ fluff piece / special highlight issue as well as alleged coaching to swap payment processors periodically and other pseudo-compliance issues. And wasn’t it Laggos that brought in Caldwell and gang for the “endgame”?
I pointed out something similar to that in post #5?
The logic (main focus) in my posts is about whether Bell’s upcoming lawsuit is rather thin and vague, as it has been presented in this article and in the court documents.
I don’t see the other parts as main points, but they may be needed to clarify the correctness of something. “Other parts” are mostly about tax rules.
The logic I have used when analysing it has been, among other factors, to look for vague arguments and “constructed theories”.
* I have pointed out the lack of WHAT and HOW = vague allegations about “he knew or should have known” not correctly backed up by details or evidence (the evidence is mostly about how ZeekRewards operated, plus one email).
* The allegations are mostly about the tax advices (“Schedule C” rather than “Schedule D”), that Howard Kaplan appeared in 2 leadership calls and allowed Zeek’s management to borrow his name as an advisor / use it to add credibility to the program.
The case would have been much more solid if it had involved Howard Kaplan being directly or indirectly engaged in “cooking the books”, “fixing the numbers”, “concealing the true nature of the scheme” and similar factors. The email evidence doesn’t point in that direction, and the other information don’t point in that direction either.
“BELL HAVE PROBABLY MUCH MORE EVIDENCE”
Most people seem to agree on that Bell probably have a more solid case with much more evidence, e.g. testimonials from Dawn.
Those arguments will actually support the conclusion I came to about a too vague case “as it has been presented”.
“OTHER PARTS”
That discussion has mostly been about tax rules and which tax forms they should have used, and about Bell’s logic for the argument “he should have recommended Schedule D rather than Schedule C”.
I believe the logic used there is flawed, thin and constructed (I have tried to analyse it). I have also pointed out that people might accept that logic if they primarily are looking for reflections of their own ideas.
For goodness’ sake, stop misleading people.
No “case has been presented”
A highly skilled, highly experienced court appointed receiver with the backing of a similarly highly skilled law firm, together with the support staff employed by both of them, has asked for, and been granted permission to, institute a civil action against Kaplan and Grimes and subsequently issued civil summons against both of them.
There is no “laymans’ understanding” there is no misunderstanding and there is definitely no “Mr Bell making these decisions on his own and writing the documents presented to the court on his own”
You seem to have this image of Mr Bell squirreled away in some tiny office beavering away writing all this stuff himself, based on his own ideas.
He has presented the minimum amount of evidence required to gain permission to proceed with his intended action/s and, given the fact he has been “inside” Zeek Rewards for months, will doubtless have mountains of evidence to flesh out what is actually presented to the court / jury.
That supported my conclusion? “Minimum amount of evidence” is very close to my conclusion about vagueness. It’s just another way to describe it.
People seem to agree on that the Receiver probably have much more evidence. It has probably been stated several times already, directly or indirectly.
Since I haven’t made any arguments about that it won’t make any sense arguing against it either. It’s actually another way of saying that the legal action eventually will become less vague?
“in a bit of limbo” is an understatement….and really confusing…. since 1099-Divs are reported on Schedule B. Only Gregg Evans knows for sure.
Not very unexpected, Kaplan’s first response was a “Motion to dismiss, failure to state a claim”, plus a lengthy 19 pages “Memorandum of Law” to support the Motion (Doc-10).
NOLINK://sites.google.com/a/asdupdates.com/files-website/zeek-rewards-bell-v-howard-kaplan
I have only browsed through the Memorandum. At the first look it didn’t impress me, but the attorney actually has some valid arguments.
Motion to dismiss
* Legal conclusions must be drawn from facts, not from legal conclusions (repeating legal conclusions over and over again, masqueraded as factual allegations, simply isn’t enough).
In pari delicto
That argument was based on whether Bell, as a receiver for RVG, is “standing in the shoes of one of the wrongdoers” (with RVG as a wrongdoer), or if that problem was fixed when Paul Burks was removed from the organization.
Here she covered quite opposite viewpoints. First she showed that in pari delicto loses its sting when the wrongdoer has been removed from the organization (i.e. in pari delicto is not a protection against clawback claims), but then she showed that it’s relevant if the organization is trying to profit from its own wrongdoing (by claiming relief for damages).
It was an interesting argumentative technique (page 10 – 13 in the Memorandum, “2. The doctrine’s application to Ponzi scheme cases and receivers”). She covered the opponent’s potential counter arguments first (“in pari delicto loses its sting, when …”), before she covered her own.
—–
She has generally pointed out the same vagueness I pointed out, e.g. the repeated allegations about “knew or should have known”, but she did it indirectly rather than directly (I pointed out WHAT, but she pointed out WHY [why courts should deny something]).
Malpractice
Page 15 has some valid arguments against alleged malpractice, e.g. that there will need to be a direct relation between the actions and the damage (Proximate cause).
RVG was started and was operating as a Ponzi scheme one year before Howard Kaplan was retained as a tax advisor. Malpractice will require more than “knew or should have known, and failed to stop the client’s illegal operations”.
Malpractice is about attorney/client relationship, where the attorney have deviated from the applicable standard of care, and directly caused the losses (“the losses wouldn’t have occurred but for the attorney’s conduct”).
I pointed out something similar, but again I focused on WHAT rather than on WHY. I called some of the allegations “constructed”. “He knew or should have known that ZeekRewards was operated as a Ponzi scheme, so he should have recommended the use of Schedule D (for investments) rather than Schedule C (for misc. income)”.
Arguments like that are rather constructed. They don’t prove anything illegal. Legal logic will need both facts and rules to apply to the facts. “Knew or should have known” isn’t a fact in itself, it should normally be the conclusion to something rather than the primary argument.
CONCLUSION?
The attorney has valid arguments, but there’s impossible to draw any conclusions before Bell has responded to it.
“Didn’t impress me” was because I only had browsed quickly through the document, and I was specifically looking for some other types of arguments. Some of the arguments looked “too constructed” when I first looked at them.
“Clawback vs. tort damages, some differences”
For clawback claims (based on fraudulent conveyance), a court will normally see the “wrongdoer issue” as resolved when a court appointed receiver has replaced the former management.
But a court might see it differently if the claims are about tort damages (because those two types of claims are fundamentally different, the first one is solely about returning money while the other one is clearly about wrongdoing).
* Clawback claims will not require any wrongdoing (from the party subject to the claim) to be valid.
* Tort damages claims will require clear wrongdoing (from the party subject to the claim), and there must be a clear connection between the damages and the wrongdoing (it can’t be “something wrong”, it must be a specific causative wrongdoing).
For clawback claims, wrongdoing is not an issue. It isn’t really important whether or not RVG was directly involved in the wrongdoing, or whether or not the party subject to the claim was involved (e.g. “good faith” alone isn’t a valid defense against that type of claim, because the claim isn’t about that).
For tort damage claims, it has already been established that RVG was directly involved in the wrongdoing. A confirmed wrongdoer can’t legally sue an alleged wrongdoer for damages. The court system is simply not designed to allow wrongdoers to use a court to profit from other wrongdoers.
In pari delicto CAN be applied, and she also showed that it had been applied in relevant cases (not binding ones, but it had been used in instructive decisions in other Districts and Circuits).
Bell’s response seemingly demolishes Kaplan’s in pari delicto defense. As Bell states, public policy is in play and he represents the estate (meaning all the defrauded creditors not just the company) which is a world removed from one “wrongdoer” attempting to sue another “wrongdoer.”
Also we see a clear statement that a Receiver’s (and a Trustee’s) role comes from having been “thrust into those shoes” which is a position of “stark contrast” to that held by a normal successor in interest.
Also the “internal affairs doctrine” if applied leaves Kaplan liable for aiding and abetting the officers of RVG and it is not subject to pre-emption by North Carolina law.
The Howard Kaplan case has been stayed. It isn’t exactly “news”, it’s more about the current status of the case.
From the first quarterly report 2015.
Other lawsuits against professional advisors.