Plausible Challenge to Zeek Receiver

(December 17) Two former Zeek Rewards affiliates are mounting the first plausible legal challenge to the receiver in the case, hoping to avoid the receiver’s Ponzi clawback action that would force them to pay back their profits.

Former affiliates Trudy Gilmond and Kellie King have engaged Ira Sorkin, a notable former federal prosecutor in Manhattan and former SEC regional administrator, in their defense. Sorkin is perhaps best known for representing Bernard Madoff.

Their motion to intervene, filed Friday December 14 by Sorkin’s team, challenges the SEC’s jurisdiction along with all subsequent actions of the receiver because there were no securities involved to begin with. “What the SEC purports are investment contracts are nothing more than contractual rights entitling independent contractors to a share of a company’s profits in return for their efforts in promoting the company” according to the motion. “Because there is no security to justify the SEC’s jurisdiction in bringing this action, the individual appointed at the SEC’s request must be relieved of his duties, and the clawback suits must not go forward.”

Zeek Rewards collapsed earlier this year, a massive online Ponzi scheme involving about $660M and a million participants in 100 countries. Gilmond and King are two of the approximately 1200 “winners” being targeted by the receiver’s Ponzi clawback action. Gilmond and King’s profits taken together come to about $1,573,000, according to court filings.

(Davidson County, North Carolina Dispatch at www.the-dispatch.com)

Peregrine Auction Nets .5% of Shortfall

(December 7) An auction of the corporate vehicles, furniture and other assets belonging to disgraced commodity trader Russell Wasendorf of Cedar Falls, Iowa netted $1M.

Although considered successful by the court-appointed receiver and the bankruptcy trustee, it’s half of one percent of the $190M shortfall still owed to 25,000 investors of Wasendorf’s Peregrine Financial Group, which sought bankruptcy protection in July. The “Madoff of the Midwest” is currently awaiting sentencing on charges of mail fraud, embezzlement of about $200M over 20 years, and lying to the regulatory Commodity Futures Trading Commission. Because Wasendorf stole customer funds from legitimate commodity investments, any clawback action by the trustee targeting former investors is less likely. He could receive 50 years.

(Des Moines Register at http://blogs.desmoinesregister.com)

ZeekRewards Breaks New Ground in Clawback Litigation

December 6, 2012

 

FOR IMMEDIATE RELEASE

 

“ZEEK REWARDS” PONZI SCHEME WILL BREAK NEW GROUND IN CLAWBACK LITIGATION

The collapse of the online Ponzi scheme called “Zeek Rewards” this past August threatens to break new ground in the area of Ponzi clawback litigation. With an estimated 800,000 victims identified, another 100,000 former affiliates are being targeted by the receiver as “profiteers”, and forced to defend themselves against demands to pay back the returns they received on their investments.

Banks Law Office issues this Investment Alert to urge these former affiliates to be fully informed of their rights in this situation.

On August 17, 2012, the Securities and Exchange Commission filed a complaint against Zeek Rewards which shut down the site. The complaint described Zeek Rewards as both a Ponzi and a pyramid scheme on the verge of collapse, having taken in some $600 million since its launch in January 2011. The central figure is Paul Burks, a 65-year-old multi-level marketing veteran based in North Carolina. Burks is the sole owner of the associated penny auction site Zeekler, also closed, and of their parent company, Rex Venture LLC.

The receivers of this bankrupt Ponzi operation are now attempting to recover — to “claw back” — hundreds of millions of dollars from the affiliates who were fortunate enough to have gotten their money back before Zeek Rewards was shut down. Many of these clawback targets could be innocent investors.

As of the end of October, the receiver Kenneth Bell, of McGuire Woods LLP in Charlotte, North Carolina, believe they identified 100,000 “affiliates” who were repaid more than they contributed, based on Paul Burks’ records. The receiver has sent out 1,200 subpoenas for information to those who reportedly profited the most. These subpoenas were accompanied by a “letter offering to negotiate voluntary surrender of profits”. This clawback action is taken against those who may have been totally unaware that they had been involved in a Ponzi scheme. The likely next step is that some of those former affiliates will be sued.

Senior attorney at Banks Law Office, Bob Banks, says, “These communications from the receiver are phrased to appear authoritative and neutral, as if it these clawback amounts had already been legally decided somehow. That’s not true. This is not the SEC or the government demanding money back. It’s simply a receiver making his best attempt to collect as much as he can. Anyone who receives a proposal to voluntarily surrender profits ought to seek legal advice before making any agreement to pay.”

Banks Law Office currently represents multiple clawback defendants in the ongoing Washington Meridian Funds bankruptcy proceedings. “Trustees and receivers are increasingly pushing the envelope as to which innocent investors they can sue. We help innocent investors push back,” said Banks.

Trustee under fire in New Mexico Ponzi clawback

(December 3) Judith A. Wagner, the trustee who filed 161 controversial clawback complaints in the ongoing Vaughan Realtors Ponzi / bankruptcy case in Albuquerque, is fighting a legal tactic that would remove her.

In February 2010 it was found that real estate executive Doug Vaughan had defrauded 600 victims out of $75M. He’s been sentenced to 12 years in federal prison. One victim, retired attorney and clawback target Julius Wollen, has moved to convert the bankruptcy from Chapter 11 reorganization to Chapter 7 liquidation. This would oust trustee Wagner, who has argued that Vaughan’s investors were incriminated by unrealistic returns and by being exposed to Madoff publicity, and who has sought clawbacks from investors who lost money to Vaughan.

(Albuquerque Journal at www.abqjournal.com)

Corporate executives newly vulnerable in Section 304 clawback ruling

(November 14) A U.S. District Court Judge in Austin, Texas has ruled that the officers of a corporation may have their bonuses, stock options and stock profits “clawed back” (ordered repaid) when their corporation violated securities laws — even when those officers were not directly involved in the violation.

The ruling is consistent with previous rulings but goes further by determining that Section 304 of the Sarbannes-Oxley Act does not infringe on the officers’ constitutional Due Process protections. Judge Sam Sparks noted that SOX was drafted to require corporate officers not only obey securities law, but formally certify that their employees have too. The SEC has been increasingly aggressive in pursuing Section 304 clawbacks.

(Alison Frankel editorial for Reuters News Service at blogs.reuters.com)

Clawback Claims Coming to ZeekRewards Ponzi Scheme?

Forbes Magazine recently reported that many of the so called “net winners” in the ZeekRewards (“Zeek”) Ponzi Scheme will almost certainly be targeted for “clawback” lawsuits seeking the return on their profits. Our firm represents good faith investors who have been sued by trustees and receivers in clawback actions.

Our senior attorney at Banks Law, Robert S. Banks Jr., posted a comment on the article online:

“While I have compassion for ponzi victims and have often represented them against wrongdoers, I find it unfortunate that filing clawback lawsuits against good faith investors has become so routine for receivers. Indeed, this article states that the receiver has no choice but to file the cases. We represent a group of clawback defendants in the Meridian Mortgage cases filed in Seattle, and there the receiver tried to strong arm all “net winners” to pay back all of their interest paid to them, even if the last payments were as far back as 2004 and even if their “net winnings” were as little as $900. Many of these innocent investors don’t have the money anymore, many are elderly, and most are living in fear of what might happen if they lose. Our clients in the Meridan cases live all across the nation, and all are being sued in Seattle. Many of the innocent defendants have valid legal defenses based on statute of limitations and lack of proof of a ponzi when they got their payments, but unless they are represented as a group, they can’t afford to fight these lawsuits, most of which are seeking under $100,000. Receivers need to think about the consequences of their actions before bringing clawback actions against good faith investors, and courts need to apply the law and sanction receivers who file the cases without good legal basis and without regard to the costs to the estate for filing.”

For nearly thirty years, the Banks Law Office PC has developed a focused practice in financial litigation, winning awards and settlements in the tens of millions of dollars against major Wall Street firms, small brokerages, investment advisors, financial planners, and others.

Our clients have included judges, NBA basketball players, construction workers, credit unions, retirement plans, securities regulatory agencies, and large investor groups. We have a single mission for every client: getting their money back. Contact Banks Law Office now for a free, confidential evaluation at (800) 647-8130.

Update on Meridian Clawback Claims

Investors are reporting to our office that they continue to receive calls and correspondence from the Meridian trustee, Mark Calvert, and his law firm K&L Gates, pressuring investors to pay his settlement demands before June 12. Our clients report that Mr. Calvert continues to refuse to settle for anything less than 100% of the interest payments received by investors, regardless of when the payments were received. Calvert and his lawyers are telling investors that if they do not meet those unreasonable settlement demands, they will be sued and will have to pay the full amounts of their principal Meridian investments, plus interest. The law does not support those threats made to good faith investors.

We have advised Mr. Calvert’s attorneys that we are more than willing to have reasonable settlement discussions to avoid litigation, but our clients will not accede to his hard line and bullying demands. We have clients who are prepared to let the trustee brings his claims, assert their defenses, and allow a judge and jury decide whether they owe any money to the trustee.

Our office is representing Meridian clawback defendants under special fee arrangements. We are happy to discuss our arrangements with any Meridian clawback victims. Our toll free number is 800-647-8130

Alert for Meridian Mortgage Investors

May 17, 2012

 

FOR IMMEDIATE RELEASE

Meridian Mortgage investors were unpleasantly surprised to receive a letter from the K&L Gates law firm demanding that they repay interest and dividends they may have received from their Meridian Mortgage investments (Seattle Times on the web 29 April 2012). A Banks Law Office client received such a letter, which threatened to sue him for the amount of his entire Meridian Mortgage investment unless he agreed to pay approximately $90,000 in dividend payments that he received – and cashed – in good faith. Banks Law Office is defending him against that claim (US Bankruptcy Court 10-17952). According to the Seattle Times, 182 investors received that letter. Investors should not agree to make any payment until they have consulted with a professional who can explain their rights.

According to investor attorney, Robert S. Banks, Meridian investors may have defenses in response to the Meridian trustee’s demands. Some of the available defenses include:

Statute of Limitations. The claims may be time barred by the applicable statute of limitations. The statutes can be complicated, but under the federal Fraudulent Transfer Act, the trustee can only avoid a transfer that “was made or incurred on or within 2 years before the date of the filing of the [bankruptcy] petition.” The Meridian petition was filed in July, 2010. Under Washington’s Uniform Fraudulent Transfer Act, which may also apply, the claims against investors must be brought “within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” Most of the payments to investors were made more than four years ago. Under the Washington law, then, the question is whether the trustee “could reasonably have discovered” fraud at Meridian Mortgage more than one year ago. Certain bankruptcy statutes may affect the application of the statutes of limitation.

Pre-Ponzi Scheme Payments. The fraudulent transfer laws only apply to transfers made to investors if the company is acting as a Ponzi scheme. Unless the trustee can prove that payments to you were made while Meridian was operating as a Ponzi scheme, your payments are not subject to any fraudulent transfer claims.

Good Faith Defense. Additionally, many Meridian investors also are entitled to consider and present the “good faith defense,” which is recognized by Washington law, and says that if an investor acted in good faith and exchanged reasonably equivalent value for their investment and return, they are not subject to the trustee’s clawback.

Banks stressed that no investors should rely on this short article to fully inform them of their rights on a complicated legal matter. The defenses will depend on an investor’s individual circumstances. Banks Law Office, with help from Washington bankruptcy counsel, is speaking with investors facing claims by the Meridian trustee

For nearly thirty years, the Banks Law Office PC has developed a focused practice in financial litigation, winning awards and settlements in the tens of millions of dollars against major Wall Street firms, small brokerages, investment advisors, financial planners, and others. Our clients have included judges, NBA basketball players, construction workers, credit unions, retirement plans, securities regulatory agencies, and large investor groups. We have a single mission for every client: getting their money back. Contact us now for a free confidential evaluation at 1-800-647-8130.

Meridian Mortgage Investors in “Clawback” Claims Brought by Trustee Mark Calvert

Innocent Meridian Mortgage investors were unpleasantly surprised to receive a letter from the K&L Gates law firm demanding that they repay interest and dividends they may have received from their Meridian investments as long ago as 2004. One of our clients received such a letter, which threatened to sue him for the amount of his entire Meridian investment unless he agreed to repay more than $90,000 in dividend payments that he received – and cashed – in good faith. We are defending him against that claim. According to the Seattle Times, 182 investors received that letter. Investors should not agree to make any payment until they have consulted with a lawyer who can explain their rights.

Meridian investors have defenses in response to the Meridian trustee’s demands. Here are some of them:

Statute of Limitations. The claims may be time barred by the applicable statute of limitations. The statutes can be complicated, but under the federal Fraudulent Transfer Act, the trustee can only avoid a transfer that “was made or incurred on or within 2 years before the date of the filing of the [bankruptcy] petition.” The Meridian petition was filed in July, 2010. Under Washington’s Uniform Fraudulent Transfer Act, which may also apply, the claims against investors must be brought “within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” Most of the payments to investors were made more than four years ago. Under the Washington law, then, the question is whether the trustee “could reasonably have discovered” fraud at Meridian Mortgage more than one year ago. Certain bankruptcy statutes may affect the application of the statutes of limitation.

Pre-Ponzi Scheme Payments. The fraudulent transfer laws only apply to transfers made to investors if the company is acting as a Ponzi scheme. Unless the trustee can prove that payments to you were made while Meridian was operating as a Ponzi scheme, your payments are not subject to any fraudulent transfer claims.

Good Faith Defense. Additionally, many Meridian investors also are entitled to consider and present the “good faith defense,” which is recognized by Washington law, and says that if an investor acted in good faith and exchanged reasonably equivalent value for their investment and return, they are not subject to the trustee’s clawback.

No investor should rely on this short article to fully inform them of their rights on a complicated legal matter. Your defenses will depend on your individual circumstances. This is meant to provide some helpful background on the legal controversy to those investors without legal counsel. Our firm, with help from our Washington counsel, are speaking with investors facing claims by the Meridian trustee. Contact us for a free initial consultation about joining our Meridian Investor Group.