zeekrewardsPertaining to the SEC’s case against Zeek Rewards, the court-appointed Receivership recently filed its Status Report for the third quarter of 2014.

Below is a summary of the more important points outlined in the report.

The Receivership begins by noting the ongoing cooperation between it and various government agencies to ‘to identify and recover potential outstanding Receivership Assets.’

In addition to this, the Receivership also continues to assist said agencies in “their own investigations”.

As in the second quarter, the focus of many of these efforts was on the investigation and recovery of improper transfers or withdrawals and funds that entities and individuals failed to remit to the Receiver in violation of the Court’s order freezing Receivership Assets.

On the recovery front, the Receivership deposited

  • $259,294.00 into the Affiliate Account from payments from various financial institutions relating to previously dishonored cashier’s checks, teller’s checks and bank money orders and
  • $1,868,251.77 into the Settlement Account from settlements with net-winners

Total funds currently held by the Receiver are

approximately $90.7 million in the Affiliate Account, approximately $204 million in the Seized Asset Account, approximately $295,000 in the Pre-Filing Account, approximately $4.3 million in the Settlement Account, approximately $23 million in the Withholding Account, and approximately $858,000 in the Holdback Account.

Efforts to recover ‘ dishonored cashier’s checks, teller’s checks, and bank money orders from various financial institutions continued, resulting in the recovery of $259,294.00.

Some thirty-nine unresolved claims however remain outstanding.

As of September 30, the Receiver’s conflicts counsel, Erwin, Bishop, Capitano & Moss, P.A. (“EBCM”) was working thirty-nine (39) unresolved claims currently valued at $506,258.

EBCM has advised the Receiver that litigation will be necessary to resolve thirty-three (33) of these claims. EBCM finalized a form complaint for use in litigation against non-compliant financial institutions.

EBCM and the Receiver are working to determine litigation strategy on a claim by claim basis.

Negotations with payment processor NxPay continued but at this point appear to have hit a roadblock.

$3.98 million has been recovered from NxPay but there is still $9 million outstanding. These funds were ‘transferred in violation of the Court’s freeze order’, yet NxPay continue to refuse to hand them over.

It is likely that the Receiver will commence litigation against NxPay to recover the approximately $9 million in outstanding assets that should have been frozen and remitted to the Receiver.

Investigations concerning the recovery of funds from Payza, Payment World, Solid Trust Pay, and Cyber Profit are continuing.

With respect to the approximately $13.2 million outstanding from Payza and/or Payment World, during the third quarter, the Receiver Team reviewed numerous documents that Payment World produced in response to the Receiver’s subpoena.

The Receiver Team also continues to pursue avenues of communication with, and options to recover assets directly from, VictoriaBank in Moldova, the bank that purportedly holds these outstanding Receivership Assets.

Finally, the Receiver Team is working with various United States and international government agencies in efforts to recover the outstanding funds.

The ongoing litigation against Preferred Merchants and Jaymes Meyer also gets a mention.

Sometime in the third quarter it also came to light that an individual named Matt Weber was paid $2 million by Zeek, in exchange for a “website business” that Zeek “never received.

Not too sure what the story is there but the Receivership contends the business Weber sold them “appears to have had no value.”

The Receiver Team located the bank where these funds were first deposited and petitioned the Court for a sealed ex parte temporary restraining order (“TRO”) freezing these funds pursuant to Court’s freeze order.

The Court granted the TRO, and the bank then notified the Receiver that a business account related to Mr. Weber contained approximately $1.3 million.

The Receiver Team is currently negotiating with counsel for Mr. Weber regarding these funds, and the Court granted a consent motion to extend the TRO for an additional 30 days for these negotiations.

Net-winner clawbacks are slowly progressing through the courts, with the Receivership reporting on the progress made against US-based affiliates:

The Receiver Team focused significant effort during the third quarter litigating the lawsuit against U.S. net winners.

With multiple motions to dismiss and motion for class certification fully briefed, the Receiver now awaits resolution of these motions while moving forward with discovery.

First, the Defendants collectively filed four separate motions to dismiss. In addressing these motions, the Receiver Team drafted and filed a consolidated response to all of the Defendants’ motions to dismiss in the interests of clarity, efficiency, and cost.

In addition, the Receiver moved to dismiss the various counterclaims filed by multiple Defendants.

Further, on July 30, 2014, the Receiver filed a motion to certify a class of approximately 9,000 defendants who received more than $1,000 in net winnings from RVG.

After the named Defendants filed a response in opposition to this motion, the Receiver filed a reply in support of the motion on September 18, 2014.

Meanwhile, the Receiver Team worked to prepare discovery responses and produce documents to one requesting defendant. In addition, the Receiver issued discovery requests to all named Defendants, receiving documents from some.

One group of defendants, after receiving an extension of thirty days to produce documents to the Receiver, refused to produce the documents and filed a last-minute motion to stay discovery pending the Court’s resolution of the motions to dismiss.

The Receiver team worked drafting a response to the motion to stay during the final days of the third quarter.

Finally, the Receiver obtained entry of default against Defendants Michael Van Leeuwen, Todd Disner, and David Sorrells. The Clerk of Court entered default judgment against Van Leeuwen on August 25, 2014 for the sum of $1,617,444.99.

The Receiver is awaiting ruling upon the motions for default judgment against Disner and Sorrells.

Clawback litigation against Canadian net-winners has also begun, with litigation pending in other non-US jurisdictions:

The Amended Complaint seeks the return of fraudulent transfers from twenty-six net winners in Canada who each received more than $50,000 from the ZeekRewards scheme through one or more usernames.

Collectively, these defendants received over $2.9 million from the scheme.

The Receiver will soon pursue similar actions against additional foreign defendants.

And lastly we have the victim payments that went out on September 30th;

On September 30, 2014, the Receiver made a first partial interim distribution, issuing checks to approximately 91,000 Affiliate claimants who hold allowed claims.

Those claimants received a distribution that, using the rising tide method, ensured that such Affiliates had received, in the aggregate, 40% of the amount of cash that they paid to ZeekRewards during the course of the ZeekRewards Scheme.

The first interim, partial distribution totaled $134.2 million, from which approximately $23 million was withheld on account of potential tax withholdings.

The Receiver is continuing to investigate and discuss with the Internal Revenue Service (IRS) whether he can distribute these funds to claimants or whether he is required to provide them to the IRS.

The Receiver will provide an update on the Receivership Website regarding this issue as soon as possible.

Despite the issuance of approximately 167,000 claim determinations, approximately 61,000 Affiliates have failed to respond to their claim determination.

By Order of this Court, an affiliate who does not provide the required Release and the OFAC Statement is not eligible to receive a distribution.

These Affiliates will remain ineligible to receive a distribution until they have completed the claim determination process.

However, the Receivership Team has maintained adequate reserves to pay all Affiliates whose claims are allowed in the amounts in which such Affiliate submitted a claim.

In the month subsequent to the end of each quarter, the Receiver will make a first partial, interim distribution to those affiliates who have become eligible to receive a distribution in that preceding quarter.

Because there are a possible 61,000 additional first partial, interim distributions to be made, as well as ongoing expenses in the administration of the Receivership Estate and pursuit of Receivership Assets, the magnitude of a second distribution will depend on how much more money can be brought in the door through settlements, clawback litigation, other litigation, and the pursuit of Receivership Assets through other avenues.

Approximately 1,000 Affiliates have objected to the claim determination issued by the Receiver Team.

The Receiver Team is continuing to address these objections in an effort to resolve such objections before intervention from the Special Master or the Court would be needed.

The Receiver Team has been successful in resolving the majority of these objections to date.

Approximately 8,000 claims remain subject to reconciliation and review at this time.

The Receiver Team anticipates issuing claim determinations to these remaining affiliates and holders of subrogation claims by the end of the fourth quarter of 2014.

Some victims had reported issues with cashing checks issued to them, with the Receiver issuing the following notice on the Receivership website on October 30th:

Various foreign claimants have reported that their banks have refused to deposit the distribution checks I have sent to you.

It is likely that these banks are mistakenly seeking to deposit the checks in the local currency instead of in United States dollars.

ALL checks issued by the Receivership are issued in United States dollars. Please inform your bank when you are depositing your check that it is in United States dollars.

I am unable to issue checks in any currency other than United States dollars.

All in all, payments to victims are being made and slowly but surely, the top profiteers in the scam are being forced to pay back their stolen winnings.

At a $50,000 cutoff non-US recovery is far from perfect, but at least it’s something. And in the US, the day those who made the most are stripped of their winnings draws ever closer.


Footnote: Our thanks to Don @ ASDUpdates for providing a copy of the Receivership’s 3rd Quarter 2014 Status Report.