Zeek victims could see payouts soon

May. 02, 2014 @ 03:49 PM

Some victims of a $700 million, international Ponzi scheme that originated in Lexington could start seeing some restitution in the coming months.
Charlotte attorney Kenneth Bell, the attorney seeking to recover money for hundreds of thousands of Zeek Rewards victims, posted an update Thursday at www.zeekrewardsreceivership.com saying that his “best guess is that we will be making distributions in mid-summer.”
Bell said in the Thursday posting that he has been reviewing about 175,000 claims and by May 9 will have issued about 160,000 letters of determination relating to the claims. Roughly another 10,000 letters are expected to be sent before the end of May.
“There are a few thousand claims that will require additional time to review, because of conflicting information regarding the amounts claimed,” Bell said in the update. “We will send letters to this last group of claimants as quickly as we are able. Bottom line, we will have letters out to more than 95% of the claimants in the next few weeks.   
On Feb. 28, Bell filed lawsuits against the insiders and largest payout winners of Zeek Rewards, which federal authorities called a monumental Ponzi scheme on the verge of collapse when its assets were seized Aug. 17, 2012. Based from a small office in Lexington, Zeek Rewards is accused of bilking about $700 million from more than 700,000 participants in 157 nations.
In the lawsuit against the insiders, the perpetrators of the pyramid scheme are accused of pumping up the amount of payments to affiliates in tax documents to make it appear Zeek Rewards had more revenues than it actually held. Zeek Rewards purported to be a multilevel marketing business and online penny auction site, but authorities say it was the classic pyramid scheme in which initial affiliates were paid with proceeds from later ones.
In 2011, the first full year of the pyramid scheme, Zeek Rewards issued its affiliates documents known as an Internal Revenue Service Form 1099 to indicate their income, according to the lawsuit filed in the U.S. District Court for the Western District of North Carolina. Nearly 10,000 affiliates of Zeek Rewards filed 1099 forms with the IRS as part of their annual personal or business tax filings to report what they believed their income was from Zeek Rewards.
“In an effort to further the appearance that the scheme was a legitimate business enterprise, Zeek Rewards reported affiliate income on the 1099s that had not been paid out to affiliates,” the lawsuit contends. “In total, Zeek Rewards reported affiliate income of over $87 million for the year 2011 on the 1099s issued, while Zeek Rewards actually paid out less than $12 million in cash to affiliates during that year. Therefore, affiliates were forced to pay taxes on phantom income that they never actually received, and Zeek Rewards was able to use the false tax notices to perpetuate the scheme.”
Victims of the scheme range from thousands of residents in the Triad to people in 157 nations. 
When the U.S. Securities and Exchange Commission seized the assets of Zeek Rewards on Aug. 17, 2012, authorities referred to it as a monumental Ponzi scheme on the verge of collapse. In the lawsuit, Bell says more than 700,000 participants lost more than $700 million from January 2011 until August 2012.
Zeek Rewards was based from a nondescript, small office in Lexington. Authorities say Paul Burks, Zeek’s founder, is cooperating with the investigation and agreed to pay a $4 million civil penalty and cut all ties with the company.