Federal Court Certifies Ponzi Scheme ‘Winners’ as Defendant Class, A Victory for Victims Represented by McGuireWoods

February 12, 2015

A federal judge in North Carolina has certified a putative defendant class of 9,400 “net winners” in a massive Ponzi scheme that had more individual victims than any other in U.S. history. The ruling marks a significant victory for a McGuireWoods team working to recover hundreds of millions of dollars lost by victims of the scheme, which was run through Rex Venture Group LLC’s ZeekRewards.com website.

McGuireWoods partner Kenneth Bell, a former federal prosecutor, is the court-appointed receiver for as many as 840,000 potential victims of the scheme. Bell filed a “clawback” action in February 2014 asserting that net winners in the $850 million scheme are not permitted to keep the money and must return the funds for distribution to victims.

ZeekRewards database records show that 92 percent of the money paid into ZeekRewards came from net losers rather than net winners, but net winners received more than $283 million in winnings. Bell, a partner in the firm’s Charlotte office, asked the U.S. District Court for the Western District of North Carolina to certify the U.S.-based net winners as a defendant class.

U.S. District Court Judge Graham Mullen granted the motion Tuesday and wrote that he is “firmly convinced that a class action is the only means to reasonably and efficiently resolve the Receiver’s claims against 9,400 net winners.”

“We’re pleased with the court’s order, which will allow for an efficient process to resolve these claims and recover more funds for victims,” said Bell, a former assistant U.S. Attorney for the Western District of North Carolina.

The Securities and Exchange Commission shut down Rex Venture Group in Lexington, N.C. in 2012, alleging it had sold hundreds of millions of dollars’ worth of unregistered securities online through its ZeekRewards site. Since his appointment as receiver, Bell has instituted proceedings to recover more than $342 million for victims. In addition to lawsuits against the scheme’s U.S. net winners and insiders, complaints have been filed against foreign net winners and attorneys who advised the fraudulent scheme’s principals.

In October, Mullen approved a settlement the receiver had reached with all but one of the defunct company’s top officials, including ZeekRewards president Paul Burks. Mullen described the settlement as “fair and equitable” and “in the best interests of the Zeek victims.” That same month, a federal grand jury indicted Burks on charges of wire and mail fraud, conspiracy and tax fraud. Bell succeeded in obtaining a default judgment against the lone top official who was not part of the settlement.

Since September, the receivership has mailed nearly 100,000 checks totaling $147 million to victims as a first partial interim distribution.

Bell is a member of McGuireWoods’ Government, Regulatory and Criminal Investigations Department, which respected and independent authorities rank among the nations’ elite white-collar criminal defense groups. The widely-read legal news service Law360 recently ranked McGuireWoods’ GRCI practice as a white-collar “Practice Group of the Year” for 2014 and specifically cited Bell’s work on the ZeekRewards case in its report. McGuireWoods is one of only five firms to earn the prestigious honor in this high-profile practice area.