in the united states district court for the western ...zeekrewardsreceivership.com/pdf/motion to...

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IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

)

SECURITIES AND EXCHANGE

COMMISSION,

)

)

)

Plaintiff, )

)

vs. )

) No. 3:12-CV-519

REX VENTURE GROUP, LLC

d/b/a ZEEKREWARDS.COM, and

PAUL BURKS,

)

)

)

)

Defendants, )

)

)

RECEIVER'S MOTION TO APPROVE THE SALE OF CERTAIN NET WINNERS

JUDGMENTS

Matthew E. Orso, the Court-appointed Successor Receiver for Rex Venture

Group, LLC d/b/a ZeekRewards.com (the “Successor Receiver”) by and through his

undersigned counsel, respectfully files this Motion (the “Motion”) seeking approval of

the sale of certain final judgments entered against the defendants in Civil Action

Number 3:14-cv-91 (the “Net-Winner Action”). In support of the Motion, the

Successor Receiver states as follows:

A. Introduction.

As this Court is aware, the Receiver has been working toward the final

resolution and closing of the Receivership Estate. To do so, the Receiver undertook

an analysis of how to best monetize the judgements he obtained in the Net-Winner

Case 3:12-cv-00519-GCM Document 752 Filed 07/04/19 of 11

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Action—sell these judgments in a lump sum to obtain funds to pay to the victims of

the Zeek Scheme or seek to collect the judgments and make a final distribution after

such collection efforts have ceased. After discussions with counsel at numerous debt

collection law firms and an external process to seek potential purchasers of the

judgments, the Successor Receiver ultimately determined that it would be in the best

interest of the victims of the Zeek Scheme to sell the judgments.

A process of selecting a potential purchaser of the judgments occurred over

several months because neither the Successor Receiver nor the Initial Receiver was

able to obtain an offer he believed would be in the best interest of the Receivership

Estate. However, after reviewing offers from numerous potential purchasers, the

Successor Receiver received an additional, increased offer from Big Sky Research

Bureau, Inc. (“Big Sky” or “Buyer”) that exceeded all other offers. The Receiver

believes that the sale of the judgments to Big Sky is in the best interest of the

Receivership Estate. However, in the unlikely event that another purchaser were to

offer more to the Receiver for the judgments, the purchase agreement is terminable

by the Receiver, subject to a right of first refusal for Big Sky. As such, the Receiver

thinks it is in the best interest of the Receivership Estate to go forward with the sale

of the judgments to Big Sky.

B. Background

1. Defendants Rex Venture Group, LLC (“RVG”) and Paul Burks (the

“Defendants”) operated a large Ponzi and pyramid scheme (the “Scheme”). As a result

of the Scheme, on August 17, 2012, the Securities and Exchange Commission (“SEC”)


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commenced a civil enforcement action against the Defendants alleging various

violations of securities laws. (Doc. No. 2).

2. Kenneth D. Bell (the “Initial Receiver”) was appointed as the Receiver

for the estate of Rex Venture Group, LLC d/b/a ZeekRewards.com (the “RVG Estate”).

(Doc. Nos. 4 & 21). On May 22, 2019, Judge Bell, the Initial Receiver, was confirmed

as a United States District Judge, and thereafter Matthew E. Orso became the Court-

appointed Successor Receiver for Rex Venture Group, LLC d/b/a ZeekRewards.com.

(Doc. No. 739). For purposes of this Motion, the actions of the Initial Receiver and

Successor Receiver are both referred to generally throughout as actions of the

Receiver.

C. Net Winners Action

3. On February 28, 2014, the Receiver filed Civil Action Number 3:14-cv-

91 in this Court (the “Net Winners Action”), in which he sought the net winnings from

the parties that received more money from the Scheme than they paid into the

Scheme (the “Net Winners”). The Court certified a defendant class consisting of all

Net Winners in the United States that had net winnings in an amount in excess of

$1,000 (the “Net Winners Class”).

4. The Court entered final judgments on various dates against certain

individuals and class members in the Net Winners Action. (Civil Action No. 3:14-cv-

91, Doc. Nos. 145-147, 149-151, 179). On January 4, 2018, the Court entered an Order

Granting Motion to Clarify that Previous Judgments are Final Judgements,

confirming that its judgments were final judgments. (Civil Action No. 3:14-cv-91,


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Doc. No. 229). Additionally, the Fourth Circuit Court of Appeals affirmed the Court’s

certification of the Net Winners Class and certain Final Judgments entered by the

Court in the Net Winners Action. (Civil Action No. 3:14-cv-91, Doc. Nos. 246, 249,

251).

D. The Purchase Agreement

5. During the course of the receivership, the Receiver marketed and

solicited offers for the purchase of certain judgments entered in favor of the RVG

Estate in the Net Winners Action. The Receiver originally did not receive any offers

that in his business judgment were in the best interest of the RVG Estate due to the

low value of the amounts offered. After further negotiations, the Receiver received

an offer from the Buyer that was significantly higher and better than the other offers

he previously received. The Buyer’s offer is the highest and best offer the Receiver

has received to date to purchase judgments from the Net Winners Action. Further,

in the Receiver’s business judgment, the Buyer’s offer is in the best interest of the

RVG Estate.

6. The Receiver and Buyer have prepared a Purchase Agreement (the

“Purchase Agreement”) for the sale of all right, title and interest in certain final

judgments entered in the Net Winners Action, that are identified on Schedule 1 of

the Purchase Agreement (the “Judgments”). The Purchase Agreement is attached

hereto as Exhibit A.

7. The Purchase Agreement provides for the purchase of the Judgments at

the following rate, subject to certain adjustments (the “Purchase Price”):


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8. The Purchase Price may be adjusted by the Buyer for any Judgments

that have become Ineligible1 on or before the Effective Date2 of the Purchase

Agreement. Paragraph 7 of the Purchase Agreement sets forth a Purchase Price

adjustment calculation and procedures for disputes regarding such adjustments.

This provision, in relevant part, provides:

In the event any of the Subject Judgments have become Ineligible

(as defined herein) on or before the Effective Date, Buyer shall be

entitled to reduce the Purchase Price by an amount equal to the

product of (a) the aggregate amount of all such Subject Judgments

(the “Ineligible Subject Judgments”), and (b) the Purchase Rate (as

set forth on Schedule 2 hereto) (the “Purchase Price Adjustment”) in accordance with this Section 7.

1 “Ineligible” shall mean a Subject Judgment for which one of the following events

has occurred on or prior to the Effective Date: (a) the judgment debtor net winner

has filed a petition for relief under chapter 7 of Title 11 of the United States Code,

which has not been dismissed; (b) the judgment debtor is deceased (as determined by

the date of death); (c) the Subject Judgment has been settled by the Seller or one of

its predecessors and the relevant settlement check was received by Seller or its

predecessor prior to the Effective Date; or (d) the Subject Judgment does not comply

with any other representation and warranty as set forth in this Agreement.

2 The Effective Date is the first date on which each of the following has occurred: (i)

the execution of this Agreement by each of the Parties; (ii) the payment of the

Purchase Price (as defined herein) to the RVG Estate; and (iii) the entry of a final

order by the Court granting the Approval Motion in a form and substance acceptable

to the Parties (the “Approval Order”).


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E. The Sale of Net Winners Judgments is in Best Interest of RVG Estate

9. Pursuant to 28 U.S.C. § 2001, property in possession of a receiver may

be sold at a public sale or, after notice and a hearing, at a private sale if the court

finds “the best interests of the estate will be conserved.” 28 U.S.C. § 2001(b). Section

2001(b) sets forth certain additional appraisal and notification requirements if

property is sold at a private sale. However, district courts have broad discretion to

waive the requirements in § 2001(b) when a receiver seeks to sell property other than

real property. CFPB v. Pension Funding, LLC, et al., No. 8:15-cv-01329-JLS-JCG,

2017 WL 10562570 (C.D. Cal. May 31, 2017); 28 U.S.C. § 2004(a) (“Any personalty

sold under any order or decree of any court of the United States shall be sold in

accordance with section 2001 of this title, unless the court orders otherwise.”

(emphasis added)).

10. District courts have broad powers and wide discretion to determine the

appropriate relief in a receivership. SEC v. Torchia, 922 F.3d 1307 (11th Cir. 2019);

SEC v. Hardy, 803 F.2d 1034 (9th Cir. 1986). “In determining whether to approve a

sale of personal property, courts generally consider whether the proposed transaction

is ‘consistent with the best interests of the receivership.’” SEC v. Amerindo

Investment Advisors, Inc., No. 05-cv-5231 (RJS), 2016 WL 10826483 (S.D.N.Y. Apr.

26, 2016) (approving a private sale of securities due to limited pool of buyers and

approving purchase of highest and best offer); see also CFPB v. Pension Funding,

LLC, et al., No. 8:15-cv-01329-JLS-JCG, 2017 WL 10562570 (C.D. Cal. 2017)

(approving sale of personal property without complying with section 2001(b) because


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it would have little benefit and result in substantial costs); SEC v. Morriss, 2016 WL

3184484 (E.D. Mo. June 8, 2016) (approving sale of interest in limited liability

company without meeting requirements of section 2001 because of limited number of

potential buyers); SEC v. Billion Coupons, Inc., 2009 WL 2149531 (D. Hawaii July

13, 2009) (approving alternative sale procedures and allowing personal property to

be sold quickly to maximize sale proceeds and minimize storage fees and costs); FTC

v. E.M. Systems & Srvcs., LLC, 2016 WL 11110381 (M.D. Fla. March 4, 2016)

(allowing receiver to sell personal property in a commercially reasonably manner

without meeting requirements of section 2001 where receivership had limited

resources).

11. The Receiver believes selling the Judgments to the Buyer consistent

with the terms of the Purchase Agreement is in the best interest of the RVG Estate.

Subject to adjustment, the Purchase Agreement will result in approximately $10

million for the RVG Estate, which is the highest and best offer the Receiver has

received to date. Selling the Judgments will greatly reduce the costs and expenses

associated with attempting to collect, over a long period of time, over six thousand

judgments. Additionally, the Purchase Agreement will result in millions of dollars

available to the RVG Estate potentially within days or weeks of the Effective Date of

the Purchase Agreement, permitting the wind down of the Receivership to occur in

the near term.

12. On the other hand, it may be years before the RVG Estate collects

anything on the Judgments, if at all, if the Judgments are not sold. This would,


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therefore, leave the Receivership open and subject to continued administrative costs

and expenses.

13. Additionally, pursuant to the Purchase Agreement, the Receiver has the

right to terminate the Purchase Agreement prior to the entry of a final order by this

Court granting the Motion in the event that the Receiver receives an offer that he

believes, in good faith, will provide a greater economic benefit to the RVG Estate than

the purchase price and any adjustments as set forth in the Purchase Agreement,

provided, that the Buyer is given notice of receipt of any such offer and given the right

to increase the purchase price or rate for a period of not less than five days after the

service of such notice.

14. Prior to the entry of a final order by this Court granting the Motion, the

Receiver will consider any new offers he receives from other potential purchasers to

purchase the Judgments. Additionally, the Receiver may accept an offer that he

believes, in good faith, will provide greater economic benefit to the RVG Estate than

the current Purchase Agreement. However, the Receiver does not intend to further

market the sale of the Judgments or solicit additional offers from potential

purchasers. The Receiver previously marketed the Judgments, and the Buyer’s offer

is the highest and best offer the Receiver has received to date—indeed Buyer’s offer

is much greater than any other offer the Receiver obtained.

15. The Receiver believes that additional marketing and solicitation likely

will not result in significantly higher offers and will certainly cause additional delays,

costs and expenses to the RVG Estate. Further, the Purchase Agreement contains a


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90-day Drop Dead clause, in which it may be terminated by the Buyer if the Effective

Date does not occur on or before 90 days from the date of the Purchase Agreement.

Any additional time it may take to market the Judgments and/or solicit new offers

could result in the Receiver losing the Buyer’s offer, and it could potentially result in

a loss of over $10 million dollars to the RVG Estate. Moreover, completion of the sale

process in a timely manner will maximize the value of the Judgments because the

more time that passes after the Judgments are entered the less likely the Receiver

may be able to sell the Judgments for the amount contained in the Purchase

Agreement.

16. The negotiation of the Purchase Agreement has been an arm’s length

transaction, and the Receiver has acted at all times in good faith in the best interest

of the RVG Estate.

17. Additionally, the Receiver requests the Court approve the Notice of

Receiver’s Motion to Approve the Sale of Certain Net Winners Judgments (the

“Notice”), which the Receiver intends to publish on the Receiver’s website to provide

public notice of the anticipated sale. The Notice is attached hereto as Exhibit B.

18. The Receiver respectfully requests that the Court allow a period of 21

days to pass before entering an Order granting this Motion and approving the sale of

the Judgments to allow time under the Purchase Agreement for the consideration of

additional offers, if any.


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WHEREFORE, the Receiver respectfully asks this Court to approve the sale of

all his right, title and interest in the Judgments to the Buyer consistent with the

terms set forth in the Purchase Agreement.

/s/ Matthew E. Orso Matthew E. Orso (NC Bar No. 42409)

Court-appointed Receiver

Nicole S. Giffin (NC Bar No. 50726)

Attorney for Court-appointed Receiver

MCGUIREWOODS LLP

201 North Tryon Street, Suite 3000

Charlotte, North Carolina 28202

Telephone: 704-343-2000

Facsimile: 704-343-2300

[email protected]

[email protected]


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CERTIFICATE OF SERVICE

I hereby certify that on this date, I have electronically filed the foregoing with

the Clerk of Court using the CM/ECF system, which will send copies to counsel of

record registered to receive electronic service.

This the 4th day of July, 2019.

/s/ Matthew E. Orso


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