Charlotte judge’s order could aid recovery of millions in Ponzi losses

In the world of ZeekRewards, there were only two kinds of people: winners and losers.

Tuesday, their roles shifted.

A federal judge in Charlotte cleared away a major hurdle in the effort to recover hundreds of millions of dollars from what authorities call one of the largest Ponzi schemes in American history.

ZeekRewards, described by prosecutors as an Internet scam, used penny auctions and the promise of high returns to attract more than 1 million investors worldwide. Some 50,000 North Carolinians took part, including 1,500 Charlotte residents.

Investigators say 7 out of 10 investors lost money, more than $700 million in all, making ZeekRewards the largest Ponzi scheme on record in terms of the number of victims.

U.S. District Judge Graham Mullen’s order, though, was directed at the scheme’s 9,400 winners. Some of them collected more than $1 million from ZeekRewards, according to court documents. Many of the others received hundreds of thousands of dollars more than what they paid in.

Prosecutors say ZeekRewards founder Paul Burks of Lexington alone cleared $10 million.

Charlotte attorney Ken Bell, serving as receiver for Burks’ former Rex Venture Group and the ZeekRewards victims, had asked the courts to lump the winners together into a legal class. This would allow Bell to file a single court action against all of them instead of suing thousands of them separately.

Mullen agreed, saying that the net winners are linked by the illegal payouts they received.

“Those who did benefit were paid not with profits from a legitimate retail operation but rather from money paid in by later investors in the scheme,” Mullen wrote in his order.

The judge put the winners’ share at $283 million.

A year ago, Bell filed a motion in court going after that money, saying the net winners can’t keep what he says were illegal payments. He named nine of the winners as defendants for the entire defendant group. Most of them, he said, are among ZeekRewards’ biggest winners.

Bell, a former federal prosecutor, described Mullen’s decision as rare – most federal class certifications involve plaintiffs, not defendants – but pivotal to the recovery of assets.

“Now we don’t have to sue 9,400 people individually,” Bell said. “It will allow us to move much more quickly – in a matter of months rather than a matter of years – with much less expense.”

Charlotte attorney Will Terpening, who represents four of the named defendants, called Mullen’s order measured and reasonable.

“The problem my clients have is they are being asked to carry the weight of the defense for nine and a half thousand other so-called net winners,” he said, adding that the receivership should shoulder some of the costs.

Mullen agreed, though he added that the defendants’ “protestations of poverty ring hollow in the light ... that together they won over $11 million from ZeekRewards.”

Later this year, Bell said he will ask the judge to rule on his complaint; Terpening said his clients “are entitled to a trial.”

Burks, who was indicted last fall, faces a trial of his own on charges of conspiracy and fraud. If convicted, the former disc jockey and retirement home magician faces up to 65 years in prison, a $1 million fine, and a probable forfeiture order that could cost him millions more.

He is scheduled to be back in court next month. Burks’ attorney says his client has not committed any crimes.

This story was originally published February 10, 2015 at 7:14 PM with the headline "Charlotte judge’s order could aid recovery of millions in Ponzi losses ."