IN THE UNITED STATES DISTRICT COURT FOR THE …zeekrewardsreceivership.com/pdf/Disner-Brief iso Motion for SJ.pdfFOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION KENNETH

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

KENNETH D. BELL, in his capacity as court-appointed Receiver for Rex Venture Group, LLC d/b/a ZeekRewards.com,

Plaintiff, vs. TODD DISNER, in his individual capacity and in his capacity as trustee for Kestrel Spendthrift Trust, et al. Defendants.

)))))))))))))))

Civil Action No. 3:14-cv-91

RECEIVER’S MOTION FOR SUMMARY JUDGMENT AGAINST REMAINING NAMED DEFENDANTS AND PARTIAL SUMMARY

JUDGMENT AGAINST THE NET WINNER CLASS

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, Kenneth D. Bell, the

Court appointed Receiver of Rex Venture Group, LLC (“RVG”), respectfully moves this

Court to enter summary judgment in his favor for the ultimate behalf of the victims of the

ZeekRewards Ponzi scheme on all claims against Jerry Napier; Durant Brockett; Darren

Miller; Rhonda Gates; T. Le Mont Silver Sr.; Global Internet Formula, Inc.; Karen Silver;

Aaron and Shara Andrews; Innovation Marketing, LLC; David and Mary Kettner; Desert

Oasis International Marketing, LLC; and Kettner & Associates, LLC. The Receiver

Case 3:14-cv-00091-GCM Document 133 Filed 06/30/16 Page 1 of 3

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further moves for partial summary judgment on all liability issues against the Net Winner

Class previously certified in this action.

The undisputed facts, admissions by the Defendants and their expert witness, and

legal analysis supporting this conclusion are described more fully in the Receiver’s

supporting memorandum filed together with this motion. For those reasons and others,

there is no genuine issue of material fact and the Receiver is entitled to judgment as a

matter of law on his claims against the defendants named above and a finding of liability

on his claims against the Net Winner Class.

Dated: June 30, 2016 Respectfully submitted,

/s/ Irving M. Brenner Kenneth D. Bell, Esq., Receiver Irving M. Brenner (NC Bar No. 15483) Susan Rodriguez (NC Bar No. 40035) Matthew E. Orso (NC Bar No. 42409) McGuireWoods LLP 201 North Tryon Street, Suite 3000 Charlotte, North Carolina 28202 (704) 373-4620 (704) 373-8836 (fax) [email protected] [email protected] [email protected] [email protected] Attorneys for Plaintiff


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CERTIFICATE OF SERVICE

I hereby certify that the foregoing was served upon counsel of record with the

Clerk of the court using the CM/ECF system, which will send notification of such filing

to the following:

James Kevin Edmundson EDMUNDSON PLLC 21209 Highway 71 West, Suite 3 Spicewood, TX 78669 Counsel for Class of Net Winner Defendants

Durant Brockett 2859 Gallant Hills Drive Las Vegas, NV 89135 Darren Miller Post Office Box 2104 Coeur d’Alene, ID 83816 David Kettner 7727 W. Willow Avenue Peoria, AZ 85381 Mary Kettner 7727 W. Willow Avenue Peoria, AZ 85381

Mr. T. Lemont Silver 6337 Nightwind Circle Orlando, FL 32818

Ms. Karen Silver 6337 Nightwind Circle Orlando, FL 32818

Global Internet Formula, Inc. 6337 Nightwind Circle Orlando, FL 32818 Sra. Karen Silver y T. Le Mont Silver Calle Lucrecia Acosta s/n Sector Tierra Bella 33000 Cabrera, Provincia Maria Trinidad Sanchez República Dominicana

Jerry Napier 1915 West King Street Owosso, MI 48867

This the 30th day of June, 2016. /s/ Irving M. Brenner

Irving M. Brenner (N.C. Bar No. 15483 McGUIREWOODS LLP 100 North Tryon Street, 29th Floor (28202) Post Office Box 31247 Charlotte, NC 28231 Telephone: (704) 343-2075 Facsimile: (704) 373-8935 [email protected]



CHARLOTTE DIVISION



)))))))))))))))


MEMORANDUM OF LAW IN SUPPORT OF RECEIVER’S MOTION FOR

SUMMARY JUDGMENT AGAINST REMAINING NAMED DEFENDANTS AND PARTIAL SUMMARY JUDGMENT AGAINST THE NET WINNER CLASS

INTRODUCTION

Rex Venture Group, LLC (“RVG”) operated a massive Ponzi and pyramid scheme

through a “multi-level marketing” program named ZeekRewards from at least January

2011 until August 2012 in which hundreds of thousands of participants lost over $800

million dollars. As part of the scheme, RVG promised substantial payouts to all

participants, but relatively few actually benefitted. In total, Zeek’s “net winners” (those

who received more money from Zeek than they paid in to Zeek) received over $282


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million in net winnings, with the largest winners each receiving well over a million

dollars.

Like all classic Ponzi schemes, the vast majority of the Zeek winners’ money

came from the Zeek losers rather than legitimate business profits. Of the over $900

million that was paid in to Zeek, only approximately $10 million (1.1%) came from

actual retail purchases. More than 97% came from the sale of “VIP bids” and

“subscriptions,” which were the currency of the scheme. And, nearly all (93%) of those

payments came from net losers. Two of the primary creators and operators of the

ZeekRewards scheme have already admitted it was a Ponzi scheme and pleaded guilty to

criminal conduct in connection with the scheme. In sum, the evidence that ZeekRewards

was a Ponzi scheme is overwhelming. Even the Defendant class’ expert has

acknowledged finding no evidence that “disproves that the business as a whole operated

as a Ponzi scheme.”

Because Zeek’s net winners “won” (the victims’) money in an unlawful Ponzi

scheme, under long settled law those winners are not permitted to keep their winnings

and must return the fraudulently transferred funds back to the Receiver for distribution to

Zeek’s victims. Now before the Court is the Receiver’s motion for summary judgment on

all claims against the remaining individually named defendants1 and for partial summary

judgment on all liability issues against the Net Winner Class previously certified in this

1 The Court has previously entered judgment against a number of the named defendants, including Michael Van Leeuwen, Todd Disner, David Sorrells, Trudy Gilmond and Trudy Gilmond, LLC.


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action. As discussed in detail below, the undisputed facts and governing law establish

that there is no genuine issue of material fact and the Receiver is entitled to judgment as a

matter of law on its claims against the individually named defendants and a finding of

liability on his claims against the Net Winner Class.

STATEMENT OF UNDISPUTED MATERIAL FACTS

BACKGROUND OF THE PARTIES, RVG AND THIS ACTION

RVG

Rex Venture Group, LLC is a Nevada limited liability company with its former

principal place of business in Lexington, North Carolina. RVG wholly owned and

operated ZeekRewards, an internet website (www.zeekrewards.com) with a physical

location for operations in Lexington, North Carolina, and internet customers and contacts

in this judicial district and throughout the United States and internationally. See Exhibit

A (Affidavit of Kenneth D. Bell (attaching RVG documents)) (hereinafter “Bell Aff.”) at

Ex. 1. RVG also owned and operated Zeekler.com, an online auction business.

Paul R. Burks was the owner and former top executive of RVG. He was the

acknowledged leader of Zeek. Dawn Wright-Olivares was RVG’s Chief Operating

Officer and the Chief Marketing Officer of ZeekRewards. Together with Burks, Dawn

Wright-Olivares developed the ZeekRewards scheme. See Exhibit B (Excerpts of Darryle

Douglas Deposition) (hereinafter “Douglas Dep.”) at 70-71. Other key employees of

RVG included Daniel (“Danny”) Olivares, Dawn Wright-Olivares’ stepson who was

responsible for designing and running RVG’s websites and databases with Burks;


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Alexandre (“Alex”) de Brantes, Dawn Wright-Olivares’ then-fiancée who had the title of

Executive Director of Training and Support Services; Roger Plyler, who handled

“affiliate relations”; and Darryle Douglas, who was a member of RVG’s senior-level

management (collectively, RVG’s “Insiders”). Id.

The SEC Action and the Appointment of the Receiver

On August 17, 2012, the Securities and Exchange Commission filed an action in

this Court, Securities and Exchange Commission v. Rex Venture Group, LLC d/b/a

ZeekRewards.com and Paul Burks, Civil Action No. 3:12-cv-519 (the “SEC Action”), to

obtain injunctive and monetary relief against Paul Burks, shut down the ZeekRewards

Ponzi and pyramid scheme, freeze RVG’s assets, and seek appointment of a receiver for

RVG. See SEC Action Complaint, Doc. No. 2. Also on August 17, RVG, through Burks,

admitted to this Court’s jurisdiction over RVG and the subject matter of the SEC action,

and it consented to entry of judgment in favor of the SEC. SEC Action, Doc. No. 5 at ¶¶

1–2. As a result, the Court entered consent judgments against RVG and Burks, enjoining

them from violating the federal securities statutes or participating in, or facilitating, the

solicitation of any investment in any security or in the offering of a security. SEC

Action, Doc. Nos. 6, 8.

On the same date, in an Agreed Order Appointing Temporary Receiver and

Freezing Assets of Defendant Rex Venture Group, LLC (the “Agreed Order”), this Court

appointed Kenneth D. Bell to be the Receiver for and over the assets, rights, and all other

interests of the estate of Rex Venture Group, LLC, d/b/a ZeekRewards.com and its


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subsidiaries and any businesses or business names under which it does business (the

“Receivership”). SEC Action, Doc. No. 4. This Court authorized and directed Mr. Bell

as RVG’s Receiver to institute actions and legal proceedings seeking the avoidance of

fraudulent transfers, disgorgement of profits, imposition of constructive trusts and any

other legal and equitable relief that the Receiver deems necessary and appropriate to

preserve and recover RVG’s assets for the benefit of the Receivership Estate. Id.

Within 10 days of his reappointment on December 4, 2012, the Receiver filed the

original Complaint and Agreed Order in the SEC Action in all of the United States

District Courts pursuant to 28 U.S.C. § 754 giving this Court jurisdiction over RVG’s

property in every federal district. The Court has previously ruled that the Receiver has

standing to bring the claims asserted against the Defendants and this Court has subject

matter jurisdiction over this action and personal jurisdiction over the Defendants. Order

dated December 9, 2014 (Doc. No. 90). In accordance with the Agreed Order, The

Receiver obtained the permission of this Court to file this action.

The Named Defendants

The named defendants in this action are among the largest net winners of the

ZeekRewards scheme, with winnings for each reaching as high as $1,875,000. The Court

already has entered Judgments against several of these named defendants – who either

failed to answer or cooperate in the action. See supra at n.1 and Doc. Nos. 76, 93, 95 and

119. Two defendants, Lori Jean Webber and P.A.W.S. Capital Management LLC, have

reached a settlement with the Receiver.


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The remaining named defendants are: Jerry Napier (Owosso, Michigan; a “net

winner” of more than $1,745,000); Durant Brockett (Las Vegas, Nevada; a “net winner”

of more than $1,720,000); Darren Miller (Coeur d’Alene, Idaho; a “net winner” of more

than $1,635,000); Rhonda Gates (Nashville, Tennessee; a “net winner” of more than

$1,425,000); T. Le Mont Silver Sr. (Orlando, Florida / Dominican Republic; a “net

winner” of more than $773,000; Mr. Silver also used Global Internet Formula, Inc.,

which is, upon information and belief, incorporated in Florida, as a shell company

through which he was a ZeekRewards “net winner” of more than $943,000); Karen

Silver (T. Le Mont Silver’s wife; a “net winner” of more than $600,000); Aaron and

Shara Andrews (Lake Worth, Florida; the Andrews used Innovation Marketing LLC, a

Florida shell company to win more than $1,000,000) and David and Mary Kettner

(Peoria, Arizona; “net winners” of more than $930,000 using the shell companies named

Desert Oasis International Marketing, LLC and Kettner & Associates, LLC as nominal

payees). See Exhibit C (Expert Report of David S. Turner) (hereinafter “Turner Report”)

at Ex. F.

The Net Winner Class

Pursuant to Federal Rules of Civil Procedure 23(a) and (b)(1)(A) and (B), the

Receiver moved on July 30, 2014 to certify a defendant class consisting of all persons or

entities who were “Net Winners” in ZeekRewards in an amount in excess of one


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thousand dollars ($1,000) (the “Net Winner Class”).2 See Doc. No. 68. Net Winner

Class members are defined as those ZeekRewards participants who received more money

from RVG/ZeekRewards (as “profit payments,” “commissions,” “bonuses” or any other

payments) than was paid in to RVG/ZeekRewards for the purchase of “bids,” monthly

“subscriptions,” “memberships,” or other fees. Payments to or from third parties other

than RVG/ZeekRewards are not included in the calculation of the amount of a

ZeekRewards participant’s net winnings for the purpose of inclusion in the Class. Id.

In February 2015, this Court certified the Net Winner Class under both Rule

23(b)(1)(A) and (b)(1)(B), noting that “the efficiency of one action in which all parties

can argue their case and assert their rights will benefit both the Receiver and small

winners,” consistent with the intent of the rules permitting class actions. See Order,

February 10, 2015 (Doc. No. 101). The common class questions to be resolved with

respect to the Net Winner Class include “whether ZeekRewards operated as a Ponzi

and/or pyramid scheme” and “whether the payments from ZeekRewards to class

members are fraudulent transfers that must be disgorged and repaid.” Id. at 4-5. On

September 14, 2015, the Court appointed Kevin Edmundson as class counsel and

subsequently the Court authorized the defendant class to engage an expert witness,

Berkeley Research Group (“BRG”), at the primary expense of the Receivership. See

Doc. Nos. 117, 125.

2 Excluded from the Net Winner Class in this action were persons or entities that have entered into a settlement agreement approved by this Court or who resided outside the United States at the time of their participation in ZeekRewards.


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The ZeekRewards Ponzi Scheme

A Ponzi scheme is a fraudulent scheme in which returns to participants are not

financed through the success of the underlying business venture. Instead, the money to

pay returns comes from the payments made by other (usually later) participants in the

scheme. Participants are led to believe they will receive unrealistically high returns for

their payments. Then, money from the scheme is used to pay high returns to early

participants in order to create the (false) appearance of profitability and attract new

participants to perpetuate the scheme. See U.S. v. Godwin, 272 F.3d 659, 666 n.3 (4th

Cir. 2001); United States v. Dawn Wright Olivares, et al., No. 3:13cc335, Doc. No. 1, ¶¶

1-2; Doc. Nos. 2-3.

Beginning at least as far back as 2000, Paul Burks operated a number of generally

unsuccessful multi-level marketing businesses through Rex Venture Group, LLC (and

related entities) with names such as Go-Go Hub, Free Store Club, My Bid Shack, New

Net Mail and Signed and Numbered International. See, e.g., Bell Aff. at Ex. 2, 3;

Douglas Dep. at pp. 50, 54-55, 71, 78; Exhibit D (Excerpt of Durant Brockett Deposition)

(hereinafter “Brockett Dep.”) at pp.18-19, 30. In 2010, RVG launched Zeekler.com, a

so-called “penny auction” website where items ranging from personal electronics to cash

were auctioned to bidders. See id.

A “penny auction” does not work like a typical auction. In a normal auction, it

costs nothing to bid, and the auction price rises based on the amount of the bid until there

is no higher bid or the amount of time set for the auction expires. In a “penny auction,”


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bids must be purchased by bidders (e.g., for $1 per bid), and each incremental bid placed

raises the amount of the total price of the auction item only by $0.01. Penny auctions

have a timer, but unlike a typical auction, each new bid at the end of the timer resets the

bid clock, usually for 30 seconds to a minute. The penny auction ends when the bid

clock expires with no new bid. The winner then pays the auction price (plus the cost of

bids used), which is typically well below the retail price. However, the unsuccessful

bidders lose all the money they spent to purchase bids. See Bell Aff. at Ex. 10, p.3.

During 2010, the Zeekler penny auctions were not very successful. RVG’s

fortunes changed in 2011 when RVG launched a new money-making scheme –

ZeekRewards. RVG promoted ZeekRewards as Zeekler.com’s “private, invitation-only

affiliate advertising division.” Bell Aff. at Ex. 4. In reality, ZeekRewards was just a

multi-level marketing scheme grafted onto the Zeekler business. It purported to pay a

portion of the alleged “profits” from the Zeekler penny auction business to participants

who earned bid balances or points, primarily by buying auction bids. RVG told potential

participants that “Zeekler tallies total sales and pays a percentage to all active

ZeekRewards members.” Bell Aff. at Ex. 5. Also, participants in ZeekRewards, called

“Affiliates,” were paid for recruiting other participants in a pyramid “multi-level” sales

format.

Bidders on the Zeekler penny auctions could purchase bids at retail for $0.65, or

they could acquire bids as ZeekRewards affiliates (or as free samples from RVG or an

affiliate). ZeekRewards affiliates paid $1 for what RVG variously referred to as


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“compounding,” “sample” or “VIP” bids. The retail bids and the compounding / sample /

VIP bids all had the same effect in the auctions – placing a bid raised the price of an

auction item by one cent. However, bids bought through ZeekRewards rather than as

retail bids were more valuable because purchasing those bids gave the affiliates “points”

that supposedly entitled Affiliates to a portion of the profits from the business. This was

the real (and only) reason Affiliates would pay $1 for auction bids they could buy for

$.65. See Brockett Dep. at 77-78. As one Affiliate told Burks, “I know how the system

works mathematically and you know I know. Whether you call the bids bids or

hamburgers makes no difference. People are not joining Zeek to get hamburgers, or

auction bids; they are joining Zeek to make money….” Bell Aff. at Ex. 6.

Further, ZeekRewards made clear that even though bids bought through

ZeekRewards could be used in the auctions, that fact was irrelevant to the multi-level

marketing scheme. Affiliates were told that using the bids in the auction would have no

effect on their all-important bid or points balance (“Each time you buy a Compounding

Bid in your ZeekRewards Back Office a bid is added to the Compounding bucket.

Spending the bid in an auction does not remove it from the bucket.”) (emphasis added).

Bell Aff. at Ex. 7. Not surprisingly, even though a largely bogus “bid giveaway

requirement” was added later in the scheme, relatively few ZeekRewards participants or

“bid giveaway” recipients used their sample/VIP bids in the Zeekler auctions. Prior to

shutdown, RVG estimated that only approximately 19 million VIP bids were used in


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auctions out of over 7 billion VIP bids created – less than 1/3 of 1%. See, e.g., Bell Aff.

at Ex. 8.

From the beginning, RVG intended to use “bids” in ZeekRewards not as a product

but as a proxy for money deposited into the program. Dawn Wright-Olivares was very

clear about the plan, telling Danny Olivares on January 21, 2011: “We’re just going to

use bids as currency.” Bell Aff. at Ex. 9(a). On another occasion, Dawn Wright-Olivares

referred to the compounding bids as “Monopoly money.” Bell Aff. at Ex. 9(b). Quickly,

RVG’s focus changed from Zeekler to ZeekRewards, which was the source of nearly all

the company’s income. Relative to ZeekRewards, little or no money was made in the

Zeekler “penny auction” business.

The sale of compounding / sample / VIP bids in ZeekRewards dwarfed the sale of

“retail” bids. According to the ZeekRewards database, ZeekRewards sold approximately

$820 million in compounding / sample / VIP bids, but only about $10 million in retail

bids were sold. See Turner Report at 8. While over $400 million dollars was paid out to

ZeekRewards Affiliates over the course of the scheme, the money used to fund

ZeekRewards’ distributions to Affiliates came almost entirely from new participants

rather than income from the Zeekler penny auctions. Id. at Exhibit E. Only about $10

million dollars in retail bids were sold (of which $2.3 million reflected purchases by net

losing Affiliates). So, the “profit” from the penny auction business, if there was any at

all, could not have supported even 3% of the total payments made to participants.


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Burks and the other Insiders were aware that the payouts to Affiliates would be

funded by new participants rather than retail profits from the penny auctions. Dawn

Wright-Olivares excitedly told Burks early in the scheme, “I think we can blow this OUT

together- we’ve already attracted a great many big fishes.” Bell Aff. at Ex. 4.

ZeekRewards Compensation Plan

ZeekRewards succeeded because it promoted a lucrative “compensation plan,”

offering large amounts of passive income to entice individuals to participate in the

scheme. The participants in the ZeekRewards scheme invested money in the scheme by

buying so-called “bids/points,” “memberships,” “subscriptions,” customer names, and

other items related to the scheme. The compensation plan consisted primarily of two

components: (1) the “Compounder,” also known as the “Retail Profit Pool” or “RPP,”

which supposedly allowed participants to collectively share up to 50% of Zeek’s net

retail profits and receive a 125% return on investment; and (2) the “Matrix,” which was a

multi-level marketing commission program.

Initially, ZeekRewards promised a 125% return on a passive investment,

describing the program as follows: “What if you found a very simple and quick way to

earn 125% profit on the dollars you spend with us without ever having to sell a thing or

recruit a soul?” Bell Aff. at Ex. 10. Another pitch touted the income participants would

receive: “I found something I believe is absolutely out of this world . . . it’s called the

‘Compounder’ and “grows income for you by compounding it daily;” . . . “the new

system [lets] you earn every 24 hours and can generate for you 4 or 5 figures or more per


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month . . . .” “[I]f you’ve ever wanted to earn 5 figures or more monthly, passively, then

this is your chance.” Bell Aff. at Ex. 11. Similarly, de Brantes boasted that by

participating in ZeekRewards: “Many are currently receiving $2,000 to $3,000 per month

PASSIVELY.” (emphasis in original). Bell Aff. at Ex. 12.

Early ZeekRewards participants were told to expect profit shares of .5% to 4%

daily. Bell Aff. at Ex. 10. The first day the Compounder share percentage was allocated

to participants was January 20, 2011, and the share percentage was 3.24%. Bell Aff. at

Ex. 13. As the scheme progressed, participants continued to be told to expect large,

consistent daily returns. On May 14, 2011, Paul Burks told Michael VanLeeuwen

(“Coach Van”) that “our goal has always been 1% Mon-Thurs and 1/2% weekends, Fri-

Sun. We have always maintained those averages and exceeded them often.” Bell Aff. at

Ex. 14.

And, even after counsel advised against publicly promoting a 125% return, RVG

continued to tell Affiliates and prospects to expect large returns. For example, de Brantes

told an affiliate in July 2011:

[O]ur average has been between 1.6–1.8% which would actually be a great deal more than 125%. The attorneys our [sic] advising us on what we can and can’t say and now it’s our job to figure out how much we need to pay daily to get everyone exactly what we intend to give (it makes it a little tricky but it is our intention to maintain a system that pays 125% without saying it anywhere on the site). …Right now we’re still working on the 125% cap system. We just aren’t saying 125%.

Bell Aff. at Ex. 15.


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Therefore, Affiliates paid and invested money into ZeekRewards with the

expectation that they would profit from their payments based on the success of the

company’s operations. All the income received by ZeekRewards and Zeekler, regardless

of source, was pooled and comingled in a cast of financial institutions that changed as the

scheme evolved or as financial companies refused to work with RVG.

Although the specifics and the terminology of the ZeekRewards “Compensation Plan”

changed from time to time as Burks and the other Insiders tried to prolong and prop up

the scheme, the two pillars of the plan for most Affiliates were always: (1) “profit”

sharing (first called the Compounder then later the Retail Profit Pool (or “RPP”)) and (2)

the multi-level marketing pyramid that paid Affiliates a “commission” on the

membership fees paid by recruited “downline” Affiliates (known as the Matrix).

The Compounder a/k/a Retail Profit Pool

ZeekRewards’ Affiliates’ primary money making tool was the “Compounder.” To

participate in the Compounder, Affiliates purchased “compounding” bids, which earned

Affiliates one point for each “compounding” bid that they purchased from the company.

To become an Affiliate “qualified” to receive points required little or no effort, despite

the bogus claim that Affiliates “earned” points. As discussed in more detail below,

Affiliates were required to place daily one free digital ad (generally prepared by the

company) for Zeekler.com. Later, Affiliates were told they needed to “give away” the

bids in order to obtain points, although in practice this so-called “requirement” was easily

met: Affiliates could simply pay extra to have the company “give away” the bids for


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them. Bell Aff. at Ex.16. In effect this was, in turn, just yet another revenue source for

the company.

As the inducement to purchase these “compounding” bids, ZeekRewards told

Affiliates that the company would give a portion of the company’s daily earnings or

profits (often claimed to be 50%) to point-holding Affiliates. The size of the daily “profit

sharing” payment each affiliate received through the Compounder was based upon the

number of points the affiliate held in his or her account. The size of each Affiliate’s daily

award depended only on the Affiliate’s point total. Thus, regardless of the Affiliates’

efforts, buying more points resulted in a larger profit share, just like having more shares

of stock results in a larger dividend for a stockholder.

ZeekRewards described the “Compounder” process as follows: “At the end of

each business day (7 days a week) the company determines its daily overall profitability

and rebates a percentage back to its Active Advertising Affiliates based on each

individual Premium Members Compounder Bid Balance.” Bell Aff. at Ex. 4. Each day,

affiliates had a choice to be paid all or a portion of the so-called “profit” award in cash or

to use the “cash” award to buy more bids/points, which then added to the bid / points

balance and “compounded” as the daily percentage awards were made. Burks and the

other insiders understood that the compensation plan would be unsustainable in both the

short run and the long run because there would not be enough new participants to support

full daily cash payments to a growing number of existing Affiliates. See, e.g., Turner

Report at Exhibit G, p.15.


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Prior to the shutdown of ZeekRewards, there were over 3 billion VIP bid points in

the ZeekRewards system. See Turner Report at Ex. G. Based on the actual average daily

“profit” percentage of 1.43% used during the scheme, the daily “profit” award to

Affiliates would be over $40,000,000 on 3 billion points. The amount of money paid in

to ZeekRewards daily was far less than $40 million. Therefore, if RVG had been required

to pay the daily awards supposedly available to Affiliates in cash, ZeekRewards would

have quickly collapsed. Specifically, during the last month ZeekRewards operated (July

16, 2012 to August 15, 2012) the daily average RPP award purportedly available to

participants was $38,237,036, but the daily receipts (from all sources, not just retail

auctions) were much smaller, averaging approximately $9,722,000. See Turner Report at

Ex. G. Thus, not only were the ZeekRewards payouts made from the money put in by

other participants, but the so-called “profit” awards greatly exceeded total receipts,

which, of course, was unsustainable.

So, to maintain the program for as long as possible and generate the most income,

ZeekRewards actively discouraged Affiliates from requesting actual payment of all their

profit awards in cash. Instead, Affiliates were encouraged to let their balances

“compound” and only take 20% or less of their “earnings.” Bell Aff. at Ex. 17.

ZeekRewards eventually changed the name of the Compounder to the “Retail

Profit Pool,” or “RPP.” In addition, they changed the name of compounding bids to “VIP

bids” or “sample bids.” However, while the names changed, the essential nature of the

“profit” sharing scheme remained the same. In one email, when referring to


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compounding bids being renamed VIP bids, Wright-Olivares wrote, “wherever you see a

(compounding) next to VIP – you will know that these terms are interchangeable,” and

she later wrote that “no change has been made in how they operate, qualify or earn.” Bell

Aff. at Ex. 18. Indeed, Wright-Olivares admitted that she thought the name changes were

a joke. In a June 15, 2011 email to O.H. Brown, an RVG advisor whose company

created marketing videos for ZeekRewards, about a company webinar script, she said:

“you’ll see where I started to say Retail Profit Pool (lol) instead of Compounder….

We’re going to call compounding bids – VIP bids.” Bell Aff. at Ex. 19.

Whether called the Compounder or the Retail Profit Pool, the program was a fraud

because the payments had no relation to actual “retail” profits nor were they calculated

from real receipts or expenses. Instead, the alleged “profit percentage” was nothing

more than an arbitrary number made up by Burks or one of the other Insiders. Most days,

Burks made up the number. As Danny Olivares explained to RVG’s internet provider,

“Paul [Burks] goes in nightly and opens up adm_displayCompunder3.asp and enters a

decimal percentage.” Bell Aff. at Ex. 20. Sometimes, the number was made up by Dawn

Wright-Olivares or Danny Olivares.

Rather than reflecting the typical variances that might be expected in a company’s

profits, the alleged profits paid in ZeekRewards were remarkably consistent, falling

nearly always between 1% and 2% on Monday through Thursday and between .5% and

1% on the weekends, Friday through Sunday. The goal of this fake consistency was to

project the appearance of a stable source of income to entice new participants and to


18

encourage existing Affiliates to allow their bid balances to compound rather than request

payment of their daily award in cash. And, with RVG’s knowledge, Affiliates regularly

touted the consistent payments in their recruiting of new participants. For example,

“Coach Van’s” email footer stated: “It has been going like clockwork for over 220 days,

7 days per week.”…. “EVERYONE. . .GETS. . .PAID. . .FIRST. . .DAY!” . . . This

works every time with just one minute per day! If you’re not getting paid every single

day for 1 minute of work, . . . [sic] why not?” . . . “100 percent of our active members are

paid daily 100 percent of the time within their first 24 hours without any referrals.” Bell

Aff. at Ex. 21.

The payouts were so consistent that when a mistake was made (such as when an

extra decimal place was added to the “profit” percentage or the lower “weekend”

percentage was used on a “weekday”) Affiliates would immediately complain. For

example, on August 3, 2012, de Brantes sent Danny Olivares a Skype message saying,

the “Thursday [RPP] commission’s % are running like a weekend commission % and

everyone is going crazy.” Bell Aff. at Ex. 9(c). Olivares replies that, he is “working on

it.” Id.

And, the Insiders realized that not paying Affiliates, even once, was not an option

if they wanted to keep the scheme going. On May 20, 2012, there were problems with

payments to affiliates. Dawn Wright-Olivares texted Danny Olivares and instructed him

to post an update letting affiliates know their payments would eventually be processed


19

and commissions would be paid, telling him, “[t]he fastest way to get charge [sic] as a

Ponzi scheme is for distributors to claim they are not getting paid.” Bell Aff. at Ex. 22.

Burks deliberately evaded affiliate questions asking how the RPP was calculated.

In a Skype chat with an affiliate, he said: “[a] proprietary system is used to determine the

amount of profit sharing that is done each day. We do not divulge the details of how

those numbers are determined. Our stated target of minimum of 1% weekdays (Mon-

Thur) and .5% weekends (Fri-Sun) has always been met and exceeded. It is clearly not

directly tied to the number of auctions in a particular day. It is the overall average that

counts.” Bell Aff. at Ex. 9(d). Behind the scenes, the Insiders were not even subtle about

the fake earnings numbers. Often, the company simply used the previous week’s daily

RPP percentages. For example, on one occasion, Danny Olivares sent a text message to

multiple insiders stating, “Need a % for rpp when you can.” Dawn Wright-Olivares

responded, “Do whatever was last Monday.” Bell Aff. at Ex. 40. Or, from Paul Burks:

“Hey Dan. Sorry about last night. What percent did you use?” Danny Olivares: “Same

as last Friday. 0.009.” Bell Aff. at Ex. 23.

Sometimes, Burks even told Danny Olivares in advance what a day’s profit

number would be, such as on September 14, 2011, when in the early morning Burks told

him “to start the RPP run shortly after 7p.m. using .00179 as the percentage” because

Burks was not going to be able to run it himself. Bell Aff. at Ex. 24. Even if the Insiders

had intended to calculate actual profits (which they plainly did not), RVG did not

maintain financial records sufficient to allow Burks or anyone else to calculate a daily


20

retail profit for the company. See Turner Report at 7 (“[T] there is no indication that the

records existed that could calculate Zeek’s daily profit.”).

ZeekRewards’ “Advertising” Requirement

In an unsuccessful effort to avoid the obvious legal infirmity of Affiliates simply

buying points in return for the expectation of a share of the profits (like a stock purchase),

ZeekRewards told Affiliates that in order to supposedly “earn” their points, they were

required to place a short, free digital ad each day on one of the many free classified

websites available on the internet. Affiliates were told to merely copy and paste free ads

created by ZeekRewards into a free digital classified ad website. Bell Aff. at Ex. 25.

Affiliates then submitted the ad’s internet link to ZeekRewards to verify that they had

placed the ad. Placing more ads or better ads did not change an Affiliate’s share of the

profits in any way. And, the ad “requirement” was not imposed on all Affiliates. Burks

even wrote a computer program that allowed a number of Affiliates who managed

multiple accounts to avoid placing the ads altogether. As Burks wrote in an email to

Danny Olivares on January 23, 2011, “This allows us to defer to some of our major

people like Agnita Solomon who manage dozens of accounts so that they don’e [sic] have

to place so many ads every day.” Bell Aff. at Ex. 26.

The “ad” process was intended to be very simple and was widely advertised as

taking only 3-5 minutes each day. For example, Burks routinely told Affiliates: “Placing

an ad takes three to five minutes a day and can be done from anywhere there is an

Internet connection.” Bell Aff. at Ex. 27. The company did not believe that these digital


21

ads made any material difference in the success of the Zeekler auctions and did no

research to determine if the ads were successful. In reality, the ads were just an attempt

to manufacture a cover for what was nothing more than the investment of money by

Affiliates with the expectation of receiving daily “profit” distributions.

ZeekRewards’ Bid “Give Away” Requirement

In a further effort to justify the Affiliates’ investments of money, beginning in

August 2011, ZeekRewards purportedly required Affiliates to “give away” their

purchased VIP bids to earn points. Bell Aff. at Ex. 28, 29. The claimed intent of this

“requirement” was to promote use of the auctions by new retail customers who received

these free bids. However, Burks and the insiders knew that in practice the bid “give

away” program (like the free ads) had no material impact on the success of the penny

auctions.

First, the company made little or no attempt to determine if bids had in fact been

given to legitimate prospective retail customers. Many Affiliates simply listed fake email

addresses, addresses of other existing Affiliates or those planning to be affiliates, family

members, and other non-productive locations for where the bids had been given away.

Bell Aff. at Ex. 30. In some cases, the company just agreed not to require the affiliate to

give away their bids to earn points.

Also, both as a way to minimize any real effort by Affiliates and a way to make

more money, Affiliates were given the opportunity to pay to have the company

(supposedly) give the bids away on behalf of the affiliate. Bell Aff. at Ex. 31. Points


22

were earned when the bids were given to the company (supposedly) to be given away. In

fact, the company did not find prospective retail customers to whom it could give away

all the bids, so millions of bids remained in the company unused. But, ZeekRewards did

make an additional $2.00 - $2.50 per customer “sold” to Affiliates. And, because there

were alleged limits on the number of bids that could be given away to any one person

based on the Affiliate’s membership level, tying the “give away” of bids to the accrual of

points drove “upgrades” in membership levels which increased revenues even more. Bell

Aff. at Ex. 31.

Danny Olivares explained the process of how VIP bids were automatically given

away to accrue points for Affiliates as follows: After a VIP bid is purchased, the

“Company pool automates the process of giving bids away as samples. Giving the bids

away as samples is what generates VIP points. Which the rpp uses to calculate your

award. So we come full circle.” Bell Aff. at Ex. 32.

Burks told Affiliates that the company-wide Bid Pool would “take ALL of the

sting out of the whole bid-give requirement! . . . [Y]ou will be able to automatically give

your bids each day” and “you will automatically receive the VIP points as soon as you

receive your daily RPP award each day. . . . All you’ll have to do is select the “Give my

bids to the Zeek bid pool” option and the system will automatically give your bids to your

customers and every customer that registers @ Zeekler.com that wants free bids! If you

do not have any customers then you simply purchase them as you need them from the

customer co-op, and that will be automated as well!” Bell Aff. at Ex. 29.


23

Later, Affiliates were not allowed to simply pay the company to “give away” the

bids for them, but they were allowed to pay third parties to do so. Bell Aff. at Ex. 33.

Again, RVG made no effort to determine if these bids were in fact given to legitimate

potential retail customers.

The Matrix

The second broad component of the ZeekRewards compensation plan was paying

Affiliates to recruit other Affiliates in a pyramid-style payment system. ZeekRewards

referred to this system as the “Matrix.” The Matrix pyramid was initially a “2x21” matrix

in which Affiliates made multi-level marketing commissions for 21 levels down in their

“organization.” Bell Aff. at Ex. 34, 35. Later, ZeekRewards used a “2x5 forced-fill

matrix,” which is a pyramid with 63 positions within the five levels (the number of

persons doubles at each successive level). The scheme paid a bonus to Affiliates for

every “downline” investor within each affiliate’s personal matrix, plus a “matching

bonus” for every 5th level where certain qualifiers were met. Therefore, commissions

could be earned indefinitely as the pyramid expanded.

To get bonuses through the Matrix, Affiliates just had to (1) enroll in a monthly

subscription plan requiring payments of $10, $50, or $99 per month; and (2) recruit at

least two other “Preferred Customers” (i.e., investors who also enrolled in a monthly

subscription plan). Bell Aff. at Ex. 18. Once qualified, affiliates earned bonuses and

commissions for every paid subscription within their “downline” pyramid, whether or not

they personally recruited everyone within the matrix. Simply put, Affiliates were


24

rewarded merely for recruiting new investors without regard to any efforts by the

Affiliates to sell bids or products or otherwise materially support the Zeekler retail

business.

The funds raised through the Matrix were commingled with the money raised

through the Compounder / Retail Profit Pool (and what little money came in from the

retail auction business), so nearly all the money used to pay the pyramid commissions

came from other investors in the scheme. While some commissions were available to

Affiliates on customers’ purchases of retail bids for use in the Zeekler auctions, Affiliates

did not need to sell retail bids to customers in order to receive commissions through the

Matrix. Furthermore, overall commissions from the sale of retail bids to end-user

customers were miniscule (retail bids accounted for only 1.1% of the money paid into the

scheme). See Turner Report at 8. These retail commissions, referred to by RVG as “Zap

Commissions,” were merely incidental to the overall commissions earned through the

Matrix for downline subscription payments and through the Compounder/RPP.

As with the Compounder, the Insiders changed the terminology for the Matrix, but

they never changed the real essence of the scheme. Dawn Wright-Olivares explained the

cosmetic changes to the Matrix this way: “you [will] in effect be paid on levels 5-10”....

“but we can’t SAY that. Deep matrices get shut down. So instead...we say that you are

getting a matching bonus on all of the 2x5’s on your 5th level. It’s semantics, but

semantics mean a great deal with regulators.” She went on, “[I] don’t really understand

how they can say they have levels 10, 15, etc. when it’s a 2x5, but if we can get away


25

with it this way - then it’s my vote to leave it alone.” Bell Aff. at Ex. 9(e). Similarly,

Keith Laggos, a ZeekRewards advisor, emailed Dawn Wright-Olivares (copying Burks)

in July 2011: “when talking about matching bonuses, you are showing being paid on 1 to

10, 1 to 15 and 1 to 20 levels. This defeats what we did by going to a 2x5 matrix. You

should say a 100% matching on all your 5th, 15th and 20th level affiliates’ 2 x 5 matrixes.

I know you want to show they get paid on 20 levels in a 2 by 20 matrix, but that is when

you can get a pyramid investigation or charge.” Bell Aff. at Ex. 36.

The Insiders’ Efforts to Avoid Discovery of the ZeekRewards Ponzi and Pyramid Scheme

RVG’s insiders often worried about being caught and sought to make the unlawful

scheme seem legitimate in many ways. As described above, the changing of terminology

or the rules of the game, but not the substance of the scheme, was a common practice.

Throughout 2011 and 2012, Burks and the Insiders regularly changed the names of the

program elements or demanded that Affiliates stop using certain words, which accurately

described the scheme but highlighted its illegality. For example, on July 26, 2011, de

Brantes emailed an Affiliate with a list of things the Affiliate can and cannot say,

including: “compounder, compound, compounded, compounding, 125%, Members,

Interest, Investment, Mature.” On the list of sanitized things the Affiliate could say:

“You make a purchase and re-purchase; You earn bids; The bids retire on a 90 day

timeline averaging 1.5% a day; You get cash rewards; Retail Profit Pool; Everyone is an

Affiliate and they own business center subscriptions; Your Bid balance can increase as

oppose to mature.” Bell Aff. at Ex. 37.


26

Also, RVG employees openly discussed the words that could and could not be

used when promoting the scheme, even adding a bit of black humor as the scheme headed

towards its inevitable demise. On June 8, 2012, de Brantes and others discussed

“training” Affiliates on “the top 10 or 12 words that every Affiliate should erase from

their vocabulary”. The list included “investment, put money in, roi [return on

investment], fund, passive income, passive returns, returns and points are not dollars.” In

response to this list, Ken Kilby (a supposed “compliance officer”) suggested adding:

“BBB, Attorney General, FBI, FTC, Report, turn you in.” Bell Aff. at Ex. 38.

Beyond the shifting terminology, Burks and the Insiders tried to bolster the

perception of the legitimacy of the scheme by running “Compliance” courses for

Affiliates. Bell Aff. at Ex. 39. As with the advertising or bid give-away “requirements,”

the “compliance” courses were just an effort to obscure the fraud and wrap it in a cloak of

propriety, while making even more money in the process.

THE RECEIVER’S AND THE DEFENDANT CLASS’ EXPERT REPORTS

Both the Receiver and the Net Winner Class have engaged experts to offer

opinions related to RVG’s financial affairs and certain facts underlying the question of

whether ZeekRewards operated as a Ponzi scheme. FTI Consulting Inc., a firm

specializing in forensic accounting and other related services, was retained by the

Receiver to review available ZeekRewards information and analyze funds moving into

and out of the program. See Turner Report at 2. David Turner, a Senior Managing

Director at FTI who regularly performs analyses of financial and accounting data and


27

who is an expert in the areas of system and database design, management and analysis,

led the FTI engagement and authored the expert report detailing FTI’s findings. Id.

In Mr. Turner’s report, he first concludes that nearly all funds (approximately

97%) came in to Zeek in the form of payments made for VIP bids and subscriptions from

Affiliates and that Zeek's auction business produced no additional revenue. Id. at 6. The

remaining funds came from retail bids (1.1%) and “additional items” (1.85%)3. Without

new incoming VIP bid payments, there would not have been sufficient funds from which

to pay Affiliates. Then, after noting that the ZeekRewards scheme resulted in a

significant number of net winners (there were over 9400 individuals in the United States

who received at least $1,000 more in payments from Zeek than they paid in to Zeek), he

states that nearly all of the net winners' money came from the contributions of Zeek net

losers. Id. Again, over 97% of funds paid in to Zeek came from VIP bids and

Subscriptions, and approximately 93% of these funds came from usernames that were net

losers. Thus, the primary sources of funds used to pay RPP awards were funded almost

entirely by usernames that were net losers. And, he concluded that the RPP awards bore

no relation to any measure of company earnings as the daily awards were often many

multiples greater that RVG’s daily cash deposits to its accounts. Id. at 15. Other details of

FTI’s findings, along with numerous exhibits containing specific calculations and other

3 In the Turner Report, Turner explains that “Additional items” reflected $17.4 million in cashier’s checks that were found in the RVG offices when the company was shut down in August 2102 and not otherwise accounted for in the RVG database. See Turner Report at 10.


28

information are included in the report, many of them referenced in the factual summary

above.

The Net Winner Class’ expert is Berkeley Research Group (“BRG”), who despite

an expansive opportunity to review the RVG records and ask questions of FTI, has not

raised or suggested any material objections or evidence that challenges FTI’s

conclusions. In its initial report dated January 18, 2016, BRG agreed that it was able to

“replicate the exhibits in the Turner Report, within a reasonable margin of difference.”

Then, in its “Phase II” report, BRG reached two conclusions (bolded in the report):

a) [B]ased upon a preliminary analysis, it does not appear that the magnitude

of profit from the auction business would materially impact the assessment of

whether or not the business, taken as a whole, operated as a Ponzi scheme.

b) As a result of our testing in Phase II, we have not found evidence that

definitively disproves that the business as a whole operated as a Ponzi scheme.

See Exhibit E (BRG Report, Phase II Performance and Finding, May 26, 2016). Both of

these conclusions are, of course, fully consistent with FTI’s conclusions.

DAWN WRIGHT-OLIVARES AND DANNY OLIVARES’GUILTY PLEAS

On or about December 20, 2013, the United States Attorney’s Office for the

Western District of North Carolina filed a Bill of Information (the “Information”) against

Dawn Wright-Olivares and Danny Olivares alleging that they, with others, engaged in an

over $850 million Ponzi scheme through Zeekler and ZeekRewards. United States v.

Dawn Wright Olivares, et al., No. 3:13cc335, Doc. No. 1, ¶¶ 1-2; Doc. Nos. 2-3.


29

More specifically, the Bill of Information charged, among other facts, that “the co-

conspirators falsely represented that Zeek was generating massive retail profits,” “the true

revenue from the scheme – approximately 98% of all incoming funds – came from

victim-investors rather than the claimed … profits from the penny auctions,” the daily net

profit figure was “rigg[ed]” and the money from victim-investors was “used, in Ponzi-

like fashion, to pay other victim-investors in the scheme and to personally enrich the co-

conspirators.” Id.

On the same date, Dawn Wright-Olivares agreed to plead guilty to engaging in a

securities fraud conspiracy and tax evasion as charged in the Information and Danny

Olivares agreed to plead guilty to engaging in the same securities fraud conspiracy as

charged in the Information. Id. On February 5, 2014, both Dawn Wright-Olivares and

Danny Olivares entered pleas of guilty (as described above), which were accepted by the

Court. Id. at Doc. Nos. 17, 22.

CLAIMS IN THIS ACTION AND RELIEF SOUGHT IN THIS MOTION

After an extensive investigation, the Receiver filed this action on February 28,

2014. The Complaint asserts claims for violation of the North Carolina Uniform

Fraudulent Transfer Act, Common Law Fraudulent Transfer and Constructive Trust. The

Receiver seeks Judgment against each of the named Defendants in the amount of their net

winnings from the ZeekRewards scheme. With respect to the Net Winner Class, the

Receiver seeks a declaratory Judgment determining that the net winnings they received

were fraudulent transfers from RVG that must be repaid to the Receiver and are subject


30

to a constructive trust for the benefit of the Receivership Estate. Ultimately, the Receiver

seeks a final Judgment against each Net Winner Class member in the amount determined

to be their net winnings through a process to be set by the Court that provides class

members the opportunity to respond to the Receiver’s calculation of their net winnings.

For purposes of this Summary Judgment motion, the Receiver seeks a full Judgment only

against the individual named defendants; the Receiver seeks a partial Summary Judgment

as to liability only against the Net Winner Class.

ARGUMENT

Summary judgment should be granted where there is no genuine issue as to any

material fact and the “movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). The party opposing summary judgment cannot rely on conclusory allegations,

unsubstantiated assumptions or a scintilla of evidence. Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 585-86 (1986). Rather, the non-moving party must

“set out specific facts showing a genuine issue for trial.” The News & Observer Publ’g

Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). As established

in detail below, the Receiver is entitled to summary judgment on each of the claims

asserted in this action as a matter of law.

I. RVG FUNDS WERE FRAUDULENTLY TRANSFERRED TO THE DEFENDANTS AND MUST BE REPAID.

The Receiver’s first and second claims for relief are for the Fraudulent Transfer of

RVG Funds in violation of the North Carolina Uniform Fraudulent Transfer Act and

Common Law Fraudulent Transfer. As discussed in detail below, because the


31

ZeekRewards scheme was undisputedly a Ponzi scheme, the transfers of money to the

defendants in excess of the money they paid into the program – their “net winnings” – are

fraudulent transfers as a matter of both statutory and common law. These net winnings

therefore must be repaid to the Receivership Estate for the benefit of the scheme’s

victims, whose losses funded these “winnings” in the first place.

A. The North Carolina Uniform Fraudulent Transfer Act

1. The Claim for Actual Fraud and The “Ponzi Scheme Presumption.”

The North Carolina Uniform Fraudulent Transfer Act (“NCUFTA”) permits a

receiver to avoid a transfer made “with the intent to hinder, delay, or defraud any creditor

of the debtor” within four years after the transfer was made. See N.C. Gen. Stat. §§ 39-

23.4(a)(1) (fraudulent transfers); 39-23.1 (definitions); 39-23.9 (statute of limitations).

Section 39-23.4(a)(1) is a claim for actual fraud. However, when determining intent to

defraud, a “Ponzi scheme presumption,” long settled in a number of jurisdictions and

under an analogous section of the Bankruptcy Code, may be used to supply the required

intent.

Bankruptcy Code Section 548(a)(1)(A) provides that a trustee may avoid a transfer

of an interest of the debtor in property, if the debtor made such transfer with actual intent

to hinder, delay, or defraud creditors. 11 U.S.C. § 548(a)(1)(A). A majority of federal

courts have held that proof of operation of a Ponzi scheme is sufficient to establish actual

intent to hinder, delay, or defraud creditors to permit avoidance of a fraudulent transfer

under section 548(a)(1)(A). See, e.g., Gold v. First Tenn. Bank, N.A. (In re: Taneja), No.


32

10-1225, 2012 Bankr. LEXIS 3554, *13-14 (E.D. Va. Jul. 30, 2012). Transfers in

furtherance of a Ponzi scheme “have achieved a special status in fraudulent transfer law”

from which intent of actual fraud may be inferred. In re Cohen, 199 B.R. 709, 717 (9th

Cir. 1996).

Courts in the Receivership context outside bankruptcy also routinely apply the

Ponzi scheme presumption to avoid fraudulent transfers. In a particularly instructive

example, the Tenth Circuit Court of Appeals affirmed a summary judgment entered by

the Utah District Court in favor of a court appointed Receiver on claims under Utah’s

Uniform Fraudulent Transfer Act to reclaim transfers from a company involved in a

Ponzi scheme. The Court described the governing rule and the relevant evidence as

follows:

Under the UFTA, once it is established that a debtor acted as a Ponzi scheme, all transfers by that entity are presumed fraudulent. See Donnell, 533 F.3d at 770 ("The mere existence of a Ponzi scheme is sufficient to establish actual intent to defraud." (quotation and alteration omitted)). Before the district court, the Receiver submitted the twenty-eight-page declaration of Gil Miller, a forensic accountant who concluded Vescor "exhibited characteristics of a Ponzi scheme at least as early as the year 2000." The Receiver also submitted testimony from former Vescor employees, such as Monique Fisher, a former controller for Vescor who testified Vescor commingled investor money.

Wing v. Dockstader, No. 11-4006, June 6, 2012, 10th Cir. 2012. See also, Warfield v.

Carnie, No. 3:04-cv-0633, 2007 WL 1112591 *2 (N.D. Tex. Apr. 13, 2007).

Similarly, in connection with the Stanford Ponzi scheme litigation, the Fifth

Circuit Court of Appeals upheld the District Court’s entry of summary judgment on


33

uniform fraudulent transfer claims (under the Texas UFTA) against purchasers of

certificates of deposits who profited from the Stanford scheme. The court explained:

TUFTA requires that the debtor transferor make the transfer 'with actual intent to . . . defraud any creditor of the debtor.'" "In this circuit, proving that [a transferor] operated as a Ponzi scheme establishes the fraudulent intent behind the transfers it made." This is because "'the transferees' knowing participation is irrelevant under the statute' for purposes of establishing the premise of (as opposed to liability for) a fraudulent transfer[;]" instead, the "statute requires only a finding of fraudulent intent on the part of the 'debtor[.]'"

It is well-established that the Stanford principles—Stanford and

Davis—were operating a Ponzi scheme. In both DSCC and Alguire, we explained that Stanford "created and perpetrated a 'Ponzi scheme.'" We noted that Davis' Plea "reflects a classic Ponzi scheme," and that the "Van Tassel Declarations also provide clear, numerical support for the creative reverse engineering undertaken by Stanford executives to accomplish the Ponzi scheme[.]"

See Janvey v. Brown, 767 F.3d 430, 438–39 (5th Cir. 2014) (internal citations and

quotation marks omitted).

The Rule is the same under the NCUFTA. In 2012, the U.S. Bankruptcy Court for

the Middle District of North Carolina held that the “Ponzi scheme presumption” of actual

fraudulent intent also arises in fraudulent transfer actions brought under N.C. Gen. Stat. §

39-23.4(a)(1). Ivey v. Swofford (In re Whitley), 463 B.R. 775, 781 (Bankr. M.D.N.C.

2012). In reaching its conclusion, the Court looked to the interpretation of the Uniform

Fraudulent Transfer Act in other jurisdictions, as well as the relevant sections of the

Bankruptcy Code. See Ivey (In re Whitley), 463 B.R. at 782 (citing In re AFI Holding,

525 F.3d 700, 704 (9th Cir. 2008); In re Mortg. Store, Inc., Slip Copy, 2011 Bankr.

LEXIS 3408, 2011 WL 3878355, at *2 (Bankr. D. Hawaii Sept. 1, 2011); In re Dreier


34

LLP, 452 B.R. 391, 435 (Bankr. S.D.N.Y. 2011); PHP Liquidating, LLC v. Robbins (In

re PHP Healthcare Corp.), 128 Fed.Appx. 839, 847 (3d Cir. 2005); ASARCO LLC v.

Ams. Mining Corp., 396 B.R. 278, 365 (S.D. Tex. 2008)).

Therefore, if RVG operated a Ponzi scheme, then the law considers transfers from

the scheme to be fraudulent transfers that may be avoided under the NCUFTA.

2. ZeekRewards is a Ponzi Scheme

As in the cases cited above, this Court should have little difficulty finding that

ZeekRewards was a Ponzi scheme. The Fourth Circuit defines a Ponzi scheme as a

“phony investment plan in which monies paid by later investors are used to pay

artificially high returns to the initial investors.” U.S. v. Godwin, 272 F.3d 659, 666 n.3

(4th Cir. 2001). To prove that a Ponzi scheme existed, the Receiver must prove: “(1)

deposits were made by investors, (2) the debtor conducted little or no legitimate business

operations as represented to investors, (3) the debtor’s purported business operation

produced little or no profits or earnings, and (4) the source of payments to investors was

cash infused by new investors.” Ivey (In re Whitley), 463 B.R. at 782-83 (citing In re

Norvergence, Inc., 405 B.R. 709, 733 (Bankr. D. N.J. 2009); In re Pearlman, 440 B.R.

900, 904 (Bankr. M.D. Fla. 2010)).

In Ivey, the defendant was an investor in the Debtor’s scheme and received at least

$124,000 in transfers from the Debtor. Id. at 779. The Court found the Trustee’s

allegations of a Ponzi scheme were sufficient to satisfy all four elements and invoke the


35

“Ponzi presumption” under which payments made in furtherance of the scheme are

presumed fraudulent where he alleged:

(1) individuals transferred funds to Debtor for the purpose of investing in the factoring programs, (2) Debtor was conducting very little or no actual commerce or legitimate commercial activities, but represented that he was conducting legitimate business operations, (3) no actual profits or earnings were produced in any material fashion from the operation of the fictitious factoring program, and (4) to the extent that any alleged profits or returns were made on the investments, they were funded through additional funds obtained from additional investors into the fictitious factoring program.

Id. at 783.

The ZeekRewards scheme meets the Fourth Circuit’s definition of a Ponzi

scheme: a “phony investment plan in which monies paid by later investors are used to

pay artificially high returns to the initial investors.” U.S. v. Godwin, 272 F.3d 659, 666

n.3 (4th Cir. 2001). As an initial matter, Courts may consider the criminal conviction of a

Ponzi scheme operator as proof of actual intent to defraud the scheme’s creditors. See

Terry, et al. v. June, 432 F. Supp. 2d 635, 640 (W.D. Va. 2006) (citing, inter alia, In re

Raiford, 695 F.2d 521, 523 (11th Cir. 1983); Nathan v. Tenna, 560 F.2d 761, 763–64 (7th

Cir. 1977)). Two Insiders of the ZeekRewards scheme, Dawn Wright-Olivares and

Daniel Olivares, have already pleaded guilty to a criminal Information alleging that they

engaged in an over $850 million Ponzi scheme through Zeekler and ZeekRewards. (Paul

Burks is set to go to trial on July 5, 2016).

Each of the elements of a Ponzi scheme described in Ivey are also present. Ivey,

463 B.R. at 782–83. First, there were deposits made by investors. The participants in the

ZeekRewards scheme invested money in the scheme by buying so-called ‘bids/points,’


36

‘memberships,’ ‘subscriptions,’ customer names, and other items related to the scheme.

Second, RVG conducted little or no legitimate business operations as represented to

investors. As noted above, only about 1% of the company’s revenue came from the sale

of retail bids for the so-called “penny auctions.” Third, the “penny auction” business

produced little or no profits or earnings. Even the expert for the Net Winner Class

concluded on this point that “it does not appear that the magnitude of profit from the

auction business would materially impact the assessment of whether or not the business,

taken as a whole, operated as a Ponzi scheme.” See BRG Phase II Report at 4. Indeed,

because only about $10 million dollars in retail bids were sold, the ‘profit’ from the

penny auction business, if there was any at all, was too small to support even 3% of the

total payments made to participants. See Turner Expert Report at Ex. E. Finally, it is

clear that the source of payments to the scheme’s net winners was cash infused by the net

losers. Over 92% of the money paid into Zeek ($870 million out of $941 million) came

from net losers. Id.

Therefore, based on the undisputed financial evidence and the admission of its

operators ZeekRewards was a Ponzi scheme, supporting the Ponzi presumption of actual

intend to defraud. The Receiver is thus entitled to summary judgment on his claims

under the NCUFTA as a matter of law.


37

3. The Receiver’s Claim for Constructive Fraud

In addition to claims of “actual fraud,” transfers may also be avoided under the

NCUFTA based on constructive fraud, N.C. Gen. Stat. § 39-23.4(a)(2). A transfer may

be avoided if it is made:

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (a) was engaged or was about to be engaged in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business transaction; or (b) intended to incur, or believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

N.C. Gen. Stat. § 39-23.4(a)(2). In other words, to avoid a transfer under this section, the

Receiver must establish that:

(1) the debtor had an interest in the property transferred; (2) the interest was transferred within . . . four years under North Carolina law; (3) the debtor was insolvent at the time of the transfer or became insolvent as a result thereof; and (4) the debtor received less than a reasonably equivalent value in exchange for such transfer.

Ivey, 463 B.R. at 784 (citing In re Gutpelet, 137 F.3d 748, 751 (3d Cir. 1998); Pension

Transfer Corp. v. Beneficiaries, 319 B.R. 76 (D. Del. 2005); In re Maine Poly, Inc., 317

B.R. 1 (Bankr. D. Me. 2004); In re Dunbar, 313 B.R. 430, 434 (Bankr. C.D. Ill. 2004)).

Each of these four elements is met here. RVG had an interest in the property

transferred because all of the transfers of money to the Defendants came from RVG,

having been misappropriated in the course of the Ponzi scheme. Second, ZeekRewards

operated from January 2011 until August 2012, so any transfers made to the Defendants

occurred within four years of the date this action was filed, February 28, 2014. Third,

RVG was insolvent as a matter of law at the time of all transfers to the Defendants.


38

Ponzi-style investment schemes are insolvent by definition from their beginning because

“[r]eturns paid to investors are comprised of nothing more than the principal investments

made by other investors.” Ivey, 463 B.R. at 784.

Finally, RVG received less than reasonably equivalent value in exchange for the

transfers to the Defendants. In the case of Ponzi schemes, the general rule is that a

defrauded investor gives “value” to the debtor in exchange for a return of the principal

amount of the investments, but not as to any payments in excess of principal. Id. at 785

(citing Perkins v. Haines, 661 F.3d 623, 627 (11th Cir. 2011); Donell v. Kowell, 533 F.3d

762, 770 (9th Cir. 2008); Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir. 1995)). The

Receiver is not seeking to recover the principal payments made by the Defendants into

the scheme, only their net winnings.

Defendants provided no value to RVG in addition to their principal payments. To

the contrary, any efforts made to promote and recruit others into the scheme simply made

things worse for RVG. As the Fifth Circuit has pointed out, promoting a Ponzi scheme

and securing new investments for the scheme does not equate to “reasonably equivalent

value.” See Warfield v. Byron, 436 F.3d 551 (5th Cir. 2006) (“It takes cheek to contend

that in exchange for the payments he received, the RDI Ponzi scheme benefited from his

efforts to extend the fraud by securing new investments. . . . This argument is

unacceptable.”) (citing, inter alia, Randy v. Edison Worldwide Capital (In re Randy), 189

B.R. 425, 438–39 (Bankr. N.D. Ill. 1995) (finding that broker services provided in


39

furtherance of a Ponzi scheme were illegal services premised on illegal contracts, and did

not provide reasonably equivalent value)).

Accordingly, the Receiver is entitled to summary judgment on his claim for

constructive fraud pursuant to § 39-23.4(a)(2) against all these Defendants.

B. Common Law Fraudulent Transfer Claims

The Receiver is also entitled to summary judgment on his claim for common law

fraudulent transfer against the Defendants. To the extent that the Receiver cannot assert

claims under the NCUFTA, then he is entitled under common law to recover the

fraudulent transfers made by RVG to the Defendants. See In re Valente, 360 F.3d 256

(1st Cir. 2004) (collecting cases and concluding that the adoption of the UFTA by a state

does not preempt common law remedies relating to fraudulent transfers); Terry v. June,

359 F.Supp.2d 510 (W.D. Va. 2005) (applying the UFTA as federal common law in the

context of a widely disperse Ponzi scheme).

The leading case setting forth the common law of fraudulent conveyance in North

Carolina is Aman v. Walker, 165 N.C. 224, 81 S.E. 162 (1914). In that case, the North

Carolina Supreme Court summarized the principles of fraudulent conveyances relevant to

this action as follows:

If the conveyance is voluntary and made with the actual intent upon the part of the grantor to defraud creditors, it is void, although this fraudulent intent is not participated in by the grantee, and although property sufficient and available to pay existing debts is retained.

If the conveyance is upon a valuable consideration and made with the actual intent to defraud creditors upon the part of the grantor alone, not


40

participated in by the grantee and of which intent he had no notice, it is valid.

Aman, 165 N.C. at 227, 81 S.E. at 164; Washington v. Mitchell, 553 S.E.2d 919 (N.C.

App. 2001).

As discussed above, RVG had an actual intent to defraud RVG’s creditors based

on the ZeekRewards Ponzi scheme. As noted, whether the Defendants had knowledge of

the scheme or participated in RVG’s fraudulent intent is irrelevant. A conveyance is

considered voluntary “when it is not for value, i.e., when the purchaser does not pay a

reasonably fair price such as would indicate unfair dealing and be suggestive of fraud.”

Nytco Leasing v. Southeastern Motels, 40 N.C.App. 120, 128, 252 S.E.2d 826, 832

(1979). Again, as discussed above, beyond their principal payments into the scheme

(which are not being challenged), the Defendants did not provide reasonable value for the

profits they received.

Therefore, the Receiver is entitled to Summary Judgment on his alternate claim to

recover the Defendants’ net winnings as fraudulent transfers under the common law.

II. A CONSTRUCTIVE TRUST SHOULD BE IMPOSED ON THE FRAUDULENTLY TRANSFERRED FUNDS.

The final claim against the Defendants seeks the imposition of a Constructive

Trust with respect to any transfer of funds, assets, or property from the Receivership

Entities, as well as any assets later obtained by Defendants using the transferred funds.

As established above, the assets of the Receivership Entities have been wrongfully

diverted as a result of fraudulent transfers to the named Defendants and the Net Winner


41

Class for their individual enrichment. Because of the fraudulent transfers, the Receiver is

entitled to the imposition of a constructive trust as a matter of law.

A constructive trust . . . is a trust by operation of law which arises contrary to intention . . . against one who . . . in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy.

Roper v. Edwards, 373 S.E.2d 423, 425 (N.C. 1988) (quoting Electric Co. v.

Construction Co., 148 S.E.2d 856, 860 (N.C. 1966)). In Roper, the defendants argued

“that the absence of fraud defeats a request for constructive trust.” Id. The North

Carolina Supreme Court disagreed:

We disagree. A constructive trust is imposed “to prevent the unjust enrichment of the holder of title to, or of an interest in, property which such holder acquired through fraud, breach of duty or some other circumstance making it inequitable for him to retain it against the claim of the beneficiary of the constructive trust.” Wilson v. Development Co., 276 N.C. at 211, 171 S.E.2d at 882 (emphasis added). “Inequitable conduct short of actual fraud will give rise to a constructive trust where retention of the property by the holder of the legal title would result in his unjust enrichment.” 4A R. Powell, Powell on Real Property § 596[1], at 48-23 (1986). Fraud need not be shown if legal title has been obtained in violation of some duty owed to the one equitably entitled. Electric Co. v. Construction Co., 267 N.C. 714, 719, 148 S.E.2d 856, 860 (1966).

Roper, 373 S.E.2d at 425 (emphasis added) (internal quotation marks omitted).

As discussed in detail above, the Receiver is entitled to judgment as a matter of

law on undisputed facts for both actual and constructive fraud under the NCUFTA claim.

These claims also support a claim for constructive trust. It would be inequitable for these

Defendants to retain the funds they received under the circumstances of their receipt of

funds from an admitted Ponzi scheme, i.e., the funds are nothing more than other


42

people’s money wrongfully diverted from RVG. Therefore, Defendants have received

property which they “ought not, in equity and good conscience, hold and enjoy.” Id.

Therefore, the Receiver is entitled to summary judgment on the Receiver’s claim

to impose a constructive trust against the Defendants with respect to their winnings from

the ZeekRewards Ponzi scheme.

CONCLUSION

For all of the reasons stated above, the Receiver respectfully requests that the

Court enter summary judgment in his favor on each claim for relief in this action.

Dated: June 30, 2016 Respectfully submitted,

/s/ Irving M. Brenner Kenneth D. Bell, Esq., Receiver Irving M. Brenner (NC Bar No. 15483) Susan Rodriguez (NC Bar No. 40035) Matthew E. Orso (NC Bar No. 42409) McGuireWoods LLP 201 North Tryon Street, Suite 3000 Charlotte, North Carolina 28202 (704) 373-4620 (704) 373-8836 (fax) [email protected] [email protected] [email protected] [email protected] Attorneys for Plaintiff


43

CERTIFICATE OF SERVICE

I hereby certify that the foregoing was served upon counsel of record with the

Clerk of the court using the CM/ECF system, which will send notification of such filing

to the following:

James Kevin Edmundson EDMUNDSON PLLC 21209 Highway 71 West, Suite 3 Spicewood, TX 78669 Counsel for Class of Net Winner Defendants

Durant Brockett 2859 Gallant Hills Drive Las Vegas, NV 89135 Darren Miller Post Office Box 2104 Coeur d’Alene, ID 83816 David Kettner 7727 W. Willow Avenue Peoria, AZ 85381 Mary Kettner 7727 W. Willow Avenue Peoria, AZ 85381

Mr. T. Lemont Silver 6337 Nightwind Circle Orlando, FL 32818

Ms. Karen Silver 6337 Nightwind Circle Orlando, FL 32818

Global Internet Formula, Inc. 6337 Nightwind Circle Orlando, FL 32818 Sra. Karen Silver y T. Le Mont Silver Calle Lucrecia Acosta s/n Sector Tierra Bella 33000 Cabrera, Provincia Maria Trinidad Sanchez República Dominicana

Jerry Napier 1915 West King Street Owosso, MI 48867

This the 30th day of June, 2016. /s/ Irving M. Brenner

Irving M. Brenner (N.C. Bar No. 15483 McGUIREWOODS LLP 100 North Tryon Street, 29th Floor (28202) Post Office Box 31247 Charlotte, NC 28231 Telephone: (704) 343-2075 Facsimile: (704) 373-8935 [email protected]



CHARLOTTE DIVISION



))))))))))))))))


Exhibit A

Case 3:14-cv-00091-GCM Document 134-1 Filed 06/30/16 Page 1 of 5


CHARLOTTE DIVISION


Plaintiff,

vs.

TODD DISNER, in his individual capacity and in his capacity as trustee for Kestrel Spendthrift Trust, et al.

Defendants.

) ) ) ) ) ) ) ) ) ) ) ) ) ) )


AFFIDAVIT OF KENNETH D. BELL

1. I am the court-appointed Receiver for Rex Venture Group, LLC d/b/a

ZeekRewards.com ("RVG) and have the authority to certify the records thereof.

2. I certify that the following records referenced and cited in the Memorandum of

Law in Support of Receiver's Motion for Summary Judgment Against Remaining Named

Defendants and Partial Summary Judgment Against the Net Winner Class ("Receiver's

Summary Judgment Brief') are true copies of RVG's business records: Exhibits 1-21, 24-31,

and 33-50.

3. I further certify that the following records referenced and cited in the Receiver's

Summary Judgment Brief are true copies of records produced to the Receiver during his

1


investigation, which contain statements made by RVG employees and/or agents: Exhibits 22, 23,

32, and 40.

4. The table below provides a summary of each Exhibit to this Affidavit.

Exhibit No. Description .

\ J)i·~·. N;/

'" i'~i . .·

1 Articles of Incorooration -Rex Venture Group, LLC 2 Letter re: connection between FSC/FreeStoreClub and Zeeler/ZeekRewards - All Rex

Venture Group LLC divisions 3 E-mail from Zeekler/FSC to bluecorvette dated 1/30/11 re: convert dollars in GogoHub

to ZeekRewards 4 E-mail from D. Wright-Olivares to P. Burkes dated 2/14/11 re: FW: Please have a look

("ZeekRewards is Zeeler.com's private, invitation-only, affiliate advertising division ... ")

5 E-mail from P. Burks to D. Wright-Olivares dated 1/5/11 re: FW: ZeekRewards Movie Tweaked ("Zeekler tallies total sales and pays a percentage to all active ZeekRewards members.")

6 E-mail from [email protected] to P. Burk dated 2/5/12 re: 2-4 from Berry Ball re taxes on Zeek Rewards ("I know how the system works mathematically and you know I know. Whether you call the bids bids or hamburgers makes no difference. People are not joining Zeek to get hamburgers, or auction bids; they are joining Zeek to make money .... ")

7 E-mail from P. Burks to Development (Ray) dated 1/27/11 re: How it works ("Each time you buy a Compounding Bid in your ZeekRewards Back Office a bid is added to the Compounding bucket. Spending the bid in an auction does not remove it from the bucket.")

8 Summary of Retail VIP Bids (August 13, 2012) 9 Relevant portions of extracted skype messages

a) reference to using bids as currency b) allusion to VIP bids as "monopoly money" c) reference to Thursday commission percentage running like weekend percentage d) Burks message regarding "proprietary system" e) Discussion of Matrix and matching bonuses

10 E-mail advertisement from FreeStoreClub Admin to [email protected], et al. dated 6/3/2010 re: Paul Burks Launches NEW Company!

E-mail from D. Douglas to P. Burks dated 2/3/11 re: "I think we can blow this OUT together- we've alreadv attracted a great manv bi!! fishes."

11 E-mail from D. Douglas to P. Burks dated 2/3/11 - ":"What if you found a very simple and quick way to earn 125% profit on the dollars you spend with us without ever having to sell a thing or recruit a soul?"

12 E-mail from A. Debrantes to D. Wright-Olivares dated 8/2/11 - "Many are currently receiving $2,000 to $3,000 per month PASSIVELY."

13 E-mail from D. Olivares to P. Burks dated 1/21/11 14 E-mail from P. Burks to Coach Van.com dated 5/14/11 re: Profit Sharing

2


Exhibit No. Description %~ ..• .. .

·~ :· .

. . .•.. ,; .

15 E-mail from A. de Brantes to P. Kohn dated 7/17/1 I re: I joined your team 16 E-mail from ZeekRewards News to A. Debrantes dated 8/23/11 re: ZeekRewardsNews 17 E-mail from P. Burks to Zeekler/FSC re: Dr. Martin Zizi- Please explain 18 E-mail from D. Wright-Olivares to P. Burks dated 6/27/11 re: FW: For tonight's email

announcement 19 E-mail from D. Wright-Olivares to O.H. Brown dated 6/24/11 re: Webinar Script 20 E-mail from D. Olivares to A. Mujica dated 2/22/12 re: Retail Profit Pool, How it works

and code modules 21 E-mail from P. Burkes to S. Adlerman dated 12/17/11 re: URGENT 22 Text message referencing the "fastest way to get charge[d] as a Ponzi scheme" 23 Text message stating to use the "same as last Friday" for RPP percentage 24 E-mail from D. Olivares to P. Burks dated 9/14/11 re: Retail Profit Pool for 9/14/11 25 Letter to potential customers: "Penny auctions will dominate online shonning .... " 26 E-mail from P. Burks to D. Olivares dated 1/23/11 re: Change to Script 27 E-mail from P. Burks to Dr. Ali dated 11/22/11 re: Information 28 Online Printout - Terms: "You are now emolled for the Company Bid Pool" 29 Email from a.debrantes@=ail.com to a.debrantes 8/20/2011 30 Email from P. Burks to Zeekler/FSC dated 9/7/11 re: User Name: teacherpower-Gave

bids in error? 31 Email from A. de Brantes to C. Warren dated 11/7/11 Re: ZeekRewardsNews 32 Text message referencing the automated bid-give process 33 E-mail from G. Bessoni to P. Burks dated 4/6/12 re: API changes 34 E-mail from D. Wright-Olivares to P. Burks dated 1/5/2011 re: FW: ZeekRewards

Movie Tweaked! 35 E-mail from D. Wright-Olivares to Zeekler/FSC, et al. dated 6/28/11 re: Keepin you in

.

the loop 36 E-mail. from K. Laggos to D. Wright-Olivares dated 7/9/11 re: video 37 E-mail from A. de Brantes to S. Brant dated 7 /19/11 re: What you can and cannot say 38 E-mail from [email protected] to A. de Brantes re: 10 or 12 words that need to be

erased from Vocab 39 E-mail from ZeekRewards News to [email protected] dated 7/28/12 re:

ZeekRewardsNews 40 Skype messages including D. Olivares statement: "Need a% for rpp when you can."

And Dawn Wright-Olivares response, "Do whatever was last Monday."

5. After reasonable inquiry and to the best of my knowledge and belief, I certify that

the foregoing is true and correct.

Signature on Next Page

3


Dated: :JL? day of June, 2016

Sworn to and subscribed before me this .JO day of June, 2016,

by Cv\~(\ I\ .-w~b.\Ow

NOTARY PUBLIC ~ -r 3 - .9.0:51 I My Commission Expires: '--'

~''''~~111Auu11,11~~''" ~,, ... ~\.... · vv1.::!'1.

~";J ''St~ fo0 \'\OTAAy. '?o\ ;; MY ':Z_i ! COMMISSION EXPIRES S ; 5/13/2021 i 'Sc> ~ ~16> '°Usuc 4'1 ~+.~-9, ~ ~

~,,,,,~/Js co\l\'\ '!\,,,~~ flt111111111HU\\\\:

4

Kenneth D. Bell Court-Appointed Receiver for Rex Venture Group, LLC d/b/a ZeekRewards.com



CHARLOTTE DIVISION



))))))))))))))))


Exhibit B


IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

Case No. 3:14-cv-89

KENNETH D. BELL, in his capacity as

court-appointed Receiver for

Rex Venture Group, LLC d/b/a

ZeekRewards.com,

Plaintiff,

v.

PAUL R. BURKS, DAWN WRIGHT-OLIVARES,

DANIEL OLIVARES, ALEXANDRE DE BRANTES,

DARRYLE DOUGLAS, and BETH C. PLYLER and

JAMES L. QUICK, in their capacity as

Co-Trustees of the Roger A. Plyler

Revocable Trust and Co-Administrators

of the Estate of Roger Anthony Plyler,

Defendants.

DEPOSITION

OF

DARRYLE D. DOUGLAS

Taken at:

McGuireWoods LLP

201 North Tryon Street, 30th Floor

Charlotte, North Carolina 28202

On Wednesday, August 20, 2016

REPORTER: SALLY W. LOWRANCE, CVR-M

Notary Public


Page 2

Mr. Douglas

A P P E A R I N G

For the Plaintiff: Irving M. Brenner, Esq. Kenneth D. Bell, Esq. (at 11:52 AM) McGuireWoods LLP 201 North Tryon Street, 30th Floor Charlotte, North Carolina 28202 [email protected] For the Defendants: Samuel J. Randall, IV, Esq. Randall & Stump, PLLC 2125 Southend Drive, Suite 253 Charlotte, North Carolina 28203 [email protected]

* * * * * * * * *

I N D E X

PAGE

EXAMINATION BY MR. BRENNER . . . . . . . . . . . . . . . 3 EXAMINATION BY MR. RANDALL . . . . . . . . . . . . . . 107 FURTHER EXAMINATION BY MR. BRENNER . . . . . . . . . . 108

DEPOSITION EXHIBITS MARKED:

Number 1 - Order dated 9/14/15 (SEC v. RVG and Burks) 21 Number 2 - Facebook screenshots, Exhibit A . . . . . . 23 Number 3 - MyBidShack Pay Plan List . . . . . . . . . 53 Number 4 - Order dated 9/4/14 (in instant case) . . . 55 Number 5 - Affidavit in Support of Motion for Default Judgment . . . . . . . 58 Number 6 - 10/16/15 email to Randall from Douglas . . 85 Number 7 - 2011 Tax Return . . . . . . . . . . . . . . 92 Number 8 - 2012 Tax Return . . . . . . . . . . . . . . 94 Number 9 - 10/15/15 email re: My Bank Account Info . . 98 Number 10 - 10/15/15 email re: Bank Account Info 2 . . 101 Number 11 - 10/15/15 email re: My Bank Account 3 . . . 102


Page 3

1 Pursuant to Court Order in the aforementioned

2 matter and in accordance with the Federal Rules of Civil

3 Procedure, this deposition of DARRYLE D. DOUGLAS was taken

4 by the plaintiff beginning at 9:38 a.m. on April 20, 2016

5 before SALLY W. LOWRANCE, CVR-M, Notary Public.

6 DARRYLE DOUGLAS, called as a witness and upon

7 first being duly sworn, testified as follows:

8 EXAMINATION BY MR. BRENNER

9 Q. Good morning, Mr. Douglas.

10 A. Good morning.

11 Q. My name is Irving Brenner. I'm a lawyer here in

12 Charlotte. Our law firm represents the receiver,

13 Kenneth Bell, in a series of lawsuits, including one

14 that was against you in connection with the Rex Venture

15 Group receivership.

16 A. Yes.

17 Q. You're familiar with those matters?

18 A. Yes.

19 Q. And have you ever been deposed before?

20 A. No.

21 Q. All right. You're here with your attorney, Mr. Randall,

22 so I'm assuming that you had some opportunity to confer

23 with him generally about the process today --

24 A. Yes.

25 Q. -- but let me just go through this briefly to make sure


Page 50

1 A. Yes.

2 Q. Because we're going to go back to the judge and tell him

3 Mr. Douglas cooperated or he didn't cooperate, okay?

4 There's a database or there is not a database?

5 A. No sir.

6 Q. All right. So I mean, I'm looking at something here

7 that's posted, all right, that appears very clearly to

8 talk about a database, all right? And you're telling me

9 the database doesn't exist?

10 A. Yes.

11 Q. All right. Well, that's fine. I'm trying to understand

12 then, I mean, if this is just made up, then it's just

13 made up. You need to tell me that. If it's not made up

14 and there is some database, then you need to turn it

15 over, or we're going to go back to the judge and tell

16 him that you got the database but you haven't turned it

17 over.

18 A. I would never --

19 MR. RANDALL: Do you understand the

20 question?

21 A. Yes. This -- no, there is no database like this. No,

22 not at all.

23 Q. All right. Then what -- so this is just made up?

24 A. Okay, then --

25 Q. Well, I mean, I'm asking you the question. I mean, that


Page 54

1 Q. Mr. Douglas, you've been handed what has been marked for

2 identification as Exhibit 3, which is a one-page

3 document that you produced this morning. Can you

4 describe what it is?

5 A. Yes. This is a listing of people who were involved in

6 MyBidShack in 2010.

7 Q. Okay. I counted this quickly. There's 36 names on this

8 list?

9 A. Yes, that's probably correct.

10 Q. Is there a longer list than this?

11 A. No.

12 Q. Is it just a one-page list?

13 A. This was just a one-page list.

14 Q. So it's 36 people?

15 A. Yes. This is -- yes.

16 Q. Thereabouts?

17 A. Yes. You asked if we had anything compiled.

18 Q. Okay. This is the only thing you've got, a list of 36

19 names?

20 A. That's compiled, yes.

21 Q. And you said this dates from 2010?

22 A. Yes.

23 Q. Any other list or database or collection of email names

24 or prospects or customers that you have?

25 A. I'm thinking. We -- I will -- I thought this was in


Page 55

1 reference to the Zeekler database, and that is the

2 reason I gave you this. I may have a listing of people

3 that I have communicated with. I'd have to go through

4 and make sure, ever, but it's not -- it's more -- it

5 would be more this than that. It would not be anything

6 close to 2 million, not even, but I will get everything

7 else.

8 Q. But you don't have any database or a list of people from

9 FreeStore Club that has thousands of people on it or --

10 A. Oh, no. No.

11 Q. MyBidShack, any of those other MLM programs?

12 A. No. And I -- want me to tell you why I don't? Because

13 we -- I no longer had access to Paul's information.

14 Q. What do you mean Paul's information?

15 A. At one time, a long time ago, we had -- we could log in

16 but -- (pause).

17 Q. Did you ever make a copy of the database?

18 A. No.

19 Q. We've been going a little ways. Why don't we take just

20 a short break, five or ten minutes?

21 A. Okay.

22 (A recess was taken from 11:17 to 11:27 a.m.)

23 Q. Mr. Douglas, you've been handed what has been marked for

24 identification as Exhibit 4. This is an order of the

25 Court in the case filed by the receiver against you and


Page 70

1 Q. You said earlier that you wanted to explain to me what

2 your role was at Zeek, and you said it was -- sort of

3 suggested it was a longer story, if you will, than just

4 being the sales director of the company, right? And I

5 said we'll get to that in a few minutes. Why don't you

6 go ahead and explain to us what your role was at Zeek.

7 A. I had known Paul for many years and had developed a

8 strong relationship. When Dawn and Danny came on, that

9 relationship fractured. Before Zeek, I was the sales

10 director. I kept the name only. Dawn took over the

11 operations and we were not friendly.

12 Q. You were not friendly with Dawn and Danny?

13 A. No, just Dawn. Dawn controlled Danny. So my role

14 changed dramatically after that point.

15 Q. When was that?

16 A. When the company became Zeekler, ZeekRewards. Before

17 that it was FreeStore Club.

18 Q. Now, you still appeared on the podcast or the affiliate

19 calls and promoted the compounder and promoted the

20 scheme, did you not?

21 A. I had a conference call that had about 100 lines that I

22 had owed or done for years. You may already know this,

23 once the company became ZeekRewards, they promoted and

24 started a new call with Dawn that had thousands of

25 lines.


Page 71

1 Q. Did you participate in those new calls with Dawn?

2 A. Not very often, a handful of times.

3 Q. All right, go ahead and tell the rest of the story.

4 A. When Dawn and Danny came to the company years ago, long

5 before Zeek, I lived in Lexington, North Carolina at

6 that time. They moved in with me originally.

7 Q. Moved into the house you were living in or the place you

8 were living in?

9 A. At the time, yes. And that's where our separation

10 began. Dawn was a crack cocaine user.

11 Q. I'm sorry?

12 A. Dawn used cocaine and was asked to leave the company

13 eventually.

14 Q. What company was that?

15 A. This was FreeStore Club. She left but came back with

16 the idea for a penny auction, which no one had ever

17 heard of. Because we had a fractured relationship, we

18 created MyBidShack, they created Zeekler. Eventually

19 Paul decided to get rid of MyBidShack and that the

20 company would only go under Zeekler, which made our rift

21 expand. It set up a war that we -- that's when I was no

22 longer allowed to have access codes or key information

23 from accessing the system.

24 Q. So when you say you began to not have access codes to

25 the Zeekler business --


Page 78

1 consultants to -- and the first question you ask is why

2 would some of the largest attorneys in the world go

3 along with them. That was the first thing that didn't

4 make sense. But they did lots of things to change.

5 That's where the, all of the -- Dawn put together all of

6 the names and the way it worked and based on customer

7 sales. And so no, you don't think that. And you don't

8 think that because you think you know Paul Burks.

9 Q. But you knew from your own experience with MyBidShack

10 that the money was not -- that penny auctions wasn't

11 generating this kind of revenue to support tens and

12 hundreds of millions of dollars payouts, you knew that,

13 didn't you?

14 A. No, no, no. See, the way you think as an entrepreneur

15 in that situation is maybe they -- and this is how they

16 put it, you are not the only one with ideas. Maybe

17 other people have ideas that you don't.

18 Q. But you had your own experience with this MyBidShack?

19 A. Yes.

20 Q. You knew that these penny auctions didn't generate that

21 kind of income, right?

22 A. MyBidShack didn't, but you know, no, I didn't.

23 Q. Were you aware that Paul was simply making up the profit

24 share numbers?

25 A. Never.



CHARLOTTE DIVISION



))))))))))))))))


Exhibit C



























































CHARLOTTE DIVISION



))))))))))))))))


Exhibit E


United States District Court

For the Western District of North Carolina

Charlotte Division

In re:

KENNETH D. BELL v. TODD DISNER, et al.


BRG Report

Phase II Performance and Findings

May 26, 2016


2

Contents

I. INTRODUCTION ................................................................................................................... 3

II. SUMMARY OF FINDINGS .................................................................................................... 4

III. MEETING WITH FTI .............................................................................................................. 5

IV. TESTING PROCEDURES ..................................................................................................... 6

i. Financial Record Review .................................................................................................... 6

a. Analysis of Recreated Books and Records and Supporting FTI Workpapers ................ 6

b. Reconciliation of a Sample of Daily Cash Receipts ........................................................ 7

ii. Database Analysis .............................................................................................................. 7

V. ZEEKLER PENNY AUCTION BUSINESS............................................................................. 8

i. Penny Auction Site Operations and Profitability ................................................................. 8

ii. Zeekler Auction Example .................................................................................................. 10

iii. Zeekler and ZeekRewards Promotions and Programs ..................................................... 11

iv. Preliminary Analysis of Zeekler’s Profitability ................................................................... 12

VI. CONCLUSION ..................................................................................................................... 13

APPENDIX INDEX ...................................................................................................................... 15

APPENDICES A - G


3

I. INTRODUCTION

Berkeley Research Group (“BRG”) respectfully submits this report (the “Phase II

Report”) summarizing the work performed and our findings upon completion of Phase II of

the revised work plan submitted to the Court on February 29, 2016 (the “Revised Phase II

Work Plan”) (Appendix A).

BRG’s involvement in the above-captioned matter commenced when it was approved as

the Defendant Class expert per the Order of this Court, entered on May 27, 2015, and BRG

was directed to proceed with the performance of Phase I of the proposed work plan, dated

March 16, 2015 (the “Work Plan”).

Upon completion of Phase I, we submitted our summary report (the “Phase I Summary

Report” which is hereby incorporated by reference) on the performance and findings of

Phase I of the Work Plan.1 As ordered by Judge Graham Mullen, we were to submit a

revised work plan for Phase II after completion of Phase I. Accordingly, on February 29,

2016, our Revised Phase II Work Plan was submitted to the Court for consideration, and we

were directed to commence work on the Revised Phase II Work Plan by Order of the Court

on March 17, 2016 (the “March 17, 2016 Order”) (Appendix B).

The scope of work, as detailed in the Revised Phase II Work Plan, differed significantly

from the scope of our original Work Plan. The Revised Phase II Work Plan stated that the

scope of our work was “to focus on issues regarding the existence of the alleged Ponzi

scheme” and specifically excluded “the review of individual ZeekRewards Affiliate

information.” These revisions were made pursuant to the agreement of the Receiver’s team

and Counsel for the Defendant Class subsequent to the submission of the Phase I

Summary Report.

Accordingly, whereas a portion of the Phase I Summary Report addressed the review

and reconciliation of a sample of individual Affiliate transactions, the Revised Phase II Work

Plan was to exclude any further investigation into issues related to individual Affiliates,

including, but not limited to, an assessment of FTI’s calculation of net winnings/losses on an

individual Affiliate basis and a reconciliation of individual Affiliate transactions between the

databases and third-party financial records.

1 The terms used in this Phase II Report were previously defined in the Phase I Summary Report.


4

In addition, after completion of Phase I, as well as an in-person meeting held with FTI

prior to the commencement of Phase II, we noted that the work performed in Phase II would

be further limited due to the absence of data dictionaries or operations manuals for the Zeek

Databases and the lack of access to Zeek employees to answer our questions regarding the

information contained in the databases.2

II. SUMMARY OF FINDINGS

Our findings are based on our review and analysis of the documents provided to us and

communication with FTI and the Receiver’s team. In the performance of the Revised Phase

II Work Plan, we have utilized a team that included a group of professionals, experts and

staff, who possess data science and advanced statistics credentials as well as extensive

experience in forensic accounting matters. Our primary findings from Phase II can be

summarized as follows:

a) Information (typically stored in database tables) related to the operations of the

business and potential profitability of the Company (e.g. auction information, bid

tables, etc.) was admittedly not considered in detail by FTI in its analyses.

Accordingly, we reviewed many of the tables that contained information regarding

the auction business that were not previously considered by FTI. However, as will be

detailed later in this Phase II Report, based upon a preliminary analysis, it does

not appear that the magnitude of profit from the auction business would

materially impact the assessment of whether or not the business, taken as a

whole, operated as a Ponzi scheme.

b) We discovered certain inaccuracies in FTI’s methodology based on our limited

testing procedures in Phase II. However, the nature and magnitude of these

inaccuracies do not appear to affect the determination of whether the business

operated as a Ponzi scheme. As a result of our testing in Phase II, we have not

found evidence that definitively disproves that the business as a whole

operated as a Ponzi scheme.

2 As referenced in the Revised Phase II Work Plan, p.2.


5

III. MEETING WITH FTI

In order to improve communication and ensure an efficient and cost-effective approach

to Phase II, on February 25, 2016, the BRG Database Analysis team met in person with

David Turner, Michael Busen, and Nicole Costaldo of FTI at FTI’s offices in Washington,

D.C. The purpose of this meeting was for BRG and FTI to discuss issues that would assist

BRG in its reassessment of Phase II of the Work Plan and the determination of whether

certain revisions were warranted.

Many of our questions for FTI were related to FTI’s use of various assumptions that

underlie many of the analyses supporting the Turner Report. For example, we inquired as to

the reason for using the “GL” database tables for purposes of quantifying the VIP Bids

instead of the “VIP External Funds” database table. According to FTI, the imbedded

assumptions used to consider or disregard a database table, as well as the application of

computer logic to a particular database table, were frequently validated by Paul Burks, the

founder of Zeek, and/or Danny Olivares, a Zeek employee (collectively referred to as the

“Zeek Individuals”); FTI admitted, however, that the Zeek Individuals did not have database

administration credentials. FTI informed us that in the absence of data dictionaries and

operating manuals, the Zeek Individuals were relied on due to their involvement in the

alleged scheme and their creation and use of the databases.3

Due to the lack of data dictionaries or other documentation specifying the information

contained in the database tables, our ability to independently test FTI’s analyses using

alternative assumptions would be limited. Accordingly, in developing our Revised Phase II

Work Plan, we noted that only certain limited testing would be able to be performed on the

assumptions used in FTI’s analyses, and we lowered our fee estimate for Phase II by 15%-

30% from the estimate included in our original Work Plan approved by the Court upon

BRG’s appointment.

3 BRG did not have access to the Zeek Individuals and FTI did not provide notes of their meetings. FTI did, however, make reasonable attempts to answer BRG’s questions based on recollection of prior conversations with the Zeek Individuals.


6

IV. TESTING PROCEDURES

i. Financial Record Review

a. Analysis of Recreated Books and Records and Supporting FTI Workpapers

After performing a preliminary review of the Recreated GL in Phase I, we continued to

analyze the Recreated GL and review FTI’s supporting workpapers previously provided. In

our review of these schedules, we noted the magnitude of the receipts categorized in the

general ledger account entitled “Uncategorized Revenues.” These receipts totaled

approximately $370 million for 2011 and 2012 combined, or roughly 50% of all of the

receipts captured in the Recreated GL. When we asked FTI what information it had related

to the source and nature of these receipts, FTI responded that these receipts represented

incoming funds where the provided documents lacked sufficient information to categorize

them in any other revenue account. In effect, these uncategorized receipts represent

incoming funds for which FTI did not have third-party documentation regarding the purpose

of the receipts, such as whether they were for VIP Bids, Retail Bids, Subscriptions, other

income, or inter-account transfers.

Additionally, as part of our analysis of the supporting workpapers, we inquired of FTI

whether they were aware of any changes to its analyses that needed to have been made for

any Affiliate as a result of the claims administration process. FTI responded that the claims

administration process did not produce any evidence that indicated an adjustment to its

methodology was necessary. In FTI’s view, the relatively small number of objections that

arose from the claims process confirmed the accuracy of its methodology. FTI’s reliance on

the statistically small number of discrepancies is potentially flawed, however, as it may be

directionally biased in favor of the Net Loser Class, because participants are likely to only

dispute the results if they are not found in their favor. A further review, which is beyond the

scope of our work, may be necessary to better understand why the revisions resulting from

the claims process do not represent errors in either the data contained in the Zeek

Databases or FTI’s methodology in its analysis of an individual Affiliate’s net

winnings/losses.


7

b. Reconciliation of a Sample of Daily Cash Receipts

BRG performed a reconciliation of a sample of daily cash receipts for the periods

covered in Exhibit G of the Turner Report:

December 22, 2011 through December 27, 2011,

February 1, 2012 through February 10, 2012, and

July 16, 2012 through August 15, 2012.

In addition, we performed a reconciliation for a sample of daily cash receipts for a

separate period of April 20, 2012 through April 30, 2012. The reconciliation involved

comparing the daily receipts as reflected in FTI’s supporting schedule to the associated

financial institution record that captured the respective daily cash receipt.

Although we discovered a few discrepancies between FTI’s supporting schedules and

the financial institution records, the amounts were minor in relation to the overall RVG

operation and do not appear to alter the determination of whether the business operated as

a Ponzi scheme. For example, in our comparison of the receipts to RVG’s First Premier

Bank accounts, we discovered that certain transfers between separate accounts were

categorized by FTI as receipts, rather than transfers, thereby overstating the inflows to RVG

per the supporting schedule. These transfers, which were all made in July 2012, totaled

$12,640,008.36. We recognize that such an overstatement of inflows would have had the

effect of benefiting the Net Winners in an analysis of their net winnings from the Company.

We noted that similar transfers in August 2012 had been categorized appropriately as

transfers. Accordingly, we do not believe that the discrepancies found in our reconciliation of

the daily cash receipts impact the overall determination of whether the Company operated

as a Ponzi scheme.

ii. Database Analysis

As noted in the Phase I Summary Report, of the 417 database tables that were collected

by FTI subsequent to the shutdown of the Company, only 23 of them were flagged as

relevant by FTI in the performance of its analyses in support of the Turner Report. We

performed a cursory review of the 394 database tables that were not considered by FTI in

order to assess whether there was information contained in these tables that could lead to

alternative assumptions that impact the results of FTI’s analyses.


8

Because we were focused on issues regarding the existence of the alleged Ponzi

scheme, we concentrated our review on the tables related to the tracking and operation of

the auction business that could be used to assess the potential profitability of the penny-

auction site, Zeekler.com (“Zeekler”). The profit from the auction business could have a

direct impact on the determination of whether the Company operated as a Ponzi scheme, as

is discussed in greater length later in this report.

After reviewing the database tables associated with the Zeekler auctions, we compiled a

set of questions regarding the data contained therein and requested from FTI any

information they may have obtained through their discussions with the Zeek Individuals. FTI

responded to the request by stating that it did not have additional information for a majority

of the questions related to the auctions. Rather, FTI noted that its scope was “primarily to

identify the money coming into the ZeekRewards program from affiliates and money being

paid out of the program to affiliates.”4

Notwithstanding the limited guidance available, we prepared various preliminary

analyses and data distributions to assess the overall operation and potential profitability of

the Zeekler auctions.

V. ZEEKLER PENNY AUCTION BUSINESS

i. Penny Auction Site Operations and Profitability

Unlike a traditional auction where there is no cost to place a bid on an auctioned item, so

called “penny auctions” are auctions where bidders purchase bids that can be placed on an

auctioned item. In a typical auction offered on a penny auction website, the auction has a

timer and each bid raises the price of the auctioned item by $0.01. The last bidder to place a

bid before the time expires wins the auctioned item. The winning bidder pays the final bid

price of the auctioned item (in addition to the price of the bids the winner used in the

auction), while the other bidders lose their bids and the cost of the bids used on the

auctioned item.

As a simple example, suppose on a typical penny auction website, the cost per bid is

$0.50 and the auctioned item is a $75 Amazon gift card. Assuming there is no price floor in

this auction, the bidding would start at $0.01. After the first bid for $0.01, a timer begins to

4 Email from Michael Busen, FTI, to BRG on April 18, 2016.


9

wind down from 30 seconds and resets after each subsequent bid. The auction will end

when the timer expires, at which point the bidder with the last placed bid wins the auction. In

this example, assume that the final bid placed before the time expires is $20. The bidder

who placed the $20 bid wins the $75 Amazon gift card at a cost of $20 and the price paid for

the bids used in the auction. In other words, for the winning bidder, this exchange was

beneficial as long as the price the bidder paid for the bids used is below $55 ($75 value of

the gift card less the $20 final price), which is equivalent to 110 bids ($0.50/bid * 110 bids =

$55). However, for the penny auction site operator, the profits from the auction can be much

more lucrative, as the bidders who did not win the auction (i.e. the losing bidders) lost all of

the bids purchased that were used at the auction. As the bids are $0.50 per bid and each

bid raises the price by $0.01, the penny auction site operator received $1,000 (20.00/0.01 =

2,000 bids * $0.50/bid = $1,000) plus the $20 final price that the winning bidder paid to

receive the item. Thus, in this straightforward example, the penny auction site operator

received $1,020 and paid $75 to purchase the gift card (assuming the gift card is purchased

at retail value), thus earning a gross profit of $945.

Clearly, as the example above demonstrates, the profit earned by the penny auction site

operator is much more than a comparison of the final price paid by the winning bidder to the

cost of the auctioned item. More importantly, the profit generated is primarily a factor of how

many bids were placed and at what cost the bids were purchased. In the example above,

the $945 gross profit is mainly a factor of all of the bids having been purchased at $0.50.

However, what if only half of the bids placed were purchased while the other half were free

bids? The gross profit would be reduced by $500 (1,000 bids * $0.50/bid) as half of the bids

placed were free. Thus, the cost of the bids placed has a direct impact on the profit earned

by the penny auction site operator for a given auction.

As noted above, FTI’s stated scope was to identify funds coming in to ZeekRewards

from Affiliates and out of ZeekRewards to Affiliates. Consistent with FTI’s “cash-in/cash-out”

approach, FTI did not attempt to assess the profitability of the business or the possibility that

some portion of the outflows are distributions of profit to the Affiliates.


10

In the Turner Report, after detailing his calculations of the sources to RVG from the

purchase of VIP Bids, Retail Bids, Subscriptions, and additional items, Mr. Turner stated that

upon his review “the operation of the auctions provided no additional revenue.”5 Mr. Turner

based this conclusion upon his review of the auction data as contained in the Zeek

Databases that reflect 52,111 auctions with winning bids of $1,741,929.17 and the cost of

auctioned items of $5,153,683.90.6 However, one should not conclude that these auctions

resulted in a loss of $3,411,754.73, because this would fail to consider the price of all of the

bids used in the auctions as demonstrated in the example above.

As the scope of our Revised Phase II Work Plan was to focus on the existence of the

alleged Ponzi scheme, we attempted to further analyze whether there were profits

generated from the auction business that could have comprised part of the distributions

made to Affiliates.

ii. Zeekler Auction Example

Using the auction database tables in the Zeek Databases, we analyzed a judgmental

sample of auctions, including one of the largest auctions conducted by Zeekler in terms of

the winning bid price and cost of the auctioned item. The auction was for a new Ford

Mustang convertible with a recorded “price” to the Company of $20,000. Per the database

tables, the auction commenced on January 1, 2012 and ended more than a month later on

February 8, 2012. The final bid price was $4,077.77, and per the database tables, it appears

that each bid raised the bid price by $0.01.7 Thus, the total number of bids placed on this

auction was 407,777.

We noted that the database tables included a field for “bid value”, and for many of the

bids placed, the field denoted a value of “0.50”. Accordingly, of the total number of bids

placed in this auction, 402,471 bids were assigned a bid value of “0.50”, and assuming that

the cost of these bids was $0.50 each (with the remaining bids being free bids), then a total

of $201,235.50 could be considered as revenue to the Company in addition to the $4,077.77

paid by the winning bidder. Taken together, this would mean that the Company potentially

5 Turner Report, filed November 28, 2014, p. 10. 6 Id., p. 11. 7 Based on aap_AuctionBids, aap_AuctionBids_archive, aap_Auctions, aap_Auctions_archive_archive tables for auction ID #12185.


11

made a profit of $185,313.27 on this auction ($205,313.27 revenue less $20,000.00 cost of

the car).

Given the potential ramifications of profit earned by the auction business that was not

previously considered by FTI, we performed preliminary analyses and data distributions

related to the bids and auctions to assess the potential profit. However, before analyzing the

data, we first needed to gain an understanding of the various promotions and programs

offered by Zeekler and ZeekRewards and whether and how they were tracked internally

within the Zeek Databases.

iii. Zeekler and ZeekRewards Promotions and Programs

There were several characteristics that differentiated the Company’s operations from

other penny auction websites. The first was that the Company offered individuals what were

called “VIP Bids”, which, in addition to serving as a bid that could be used on any auction,

gave the buyer an opportunity to share in a portion of the Company’s profits. Accordingly, for

the additional value of participating in the profit of the Company’s auction business, the VIP

Bids were sold for $1.00 per bid, while Retail Bids were $0.65 each.

Another characteristic of the ZeekRewards operation was that the Company instituted a

requirement whereby an Affiliate (that is, a VIP Bid purchaser) was required to give away

the VIP Bid to another customer in order to receive credit (points) for purposes of

participating in a portion of the Company’s profits. In effect, this created a system wherein

Affiliates were incentivized to give the purchased bids to other potential bidders for free,

rather than use the bids themselves on the penny auctions. As a result, certain of the

individuals who were bidding on the auctions were using free bids, which, as demonstrated

above, would negatively impact the Company’s potential profits from the auction operations.

In fact, according to the Company’s FAQs (Appendix C), the Company noted that free bids

would automatically be used first from a bidder’s account.8 Thus, even if a bidder had

purchased VIP Bids or Retail Bids at face value, the bidder’s free bids would be depleted

first if the bidder chose to bid on an auction.

In addition, we noted that not all of the auctions operated in the same fashion. For

example, Zeekler offered “falling price auctions,” where the auction bid price would drop

when a bidder would bid on the auction, in reverse of how a typical auction operated at the

8 Extract from the table “dbo.help_question” in the ZeekRewards Databases, Question 23.


12

site.9 We also noted in the review of the auction database tables that there were “premier

auctions” that required each bidder to use 5 or 10 bids to place his or her first bid at the

auction.

The existence and operation of these different promotions and mechanisms further

complicates the analysis required to accurately assess the profitability of the auction

business. As noted above, we were not provided a data dictionary or substantial guidance

from FTI or the Zeek Individuals in interpreting the information contained in the auction

database tables. Accordingly, a detailed quantification of the actual profit earned through the

auction business was deemed well beyond the scope of the Revised Phase II Work Plan.

Consequently, our review should be viewed as more of a preliminary testing of profitability

and not conclusive or determinative of the actual profit of the auction business.

iv. Preliminary Analysis of Zeekler’s Profitability

Using the auction database tables, we performed a data distribution of the final bid

prices as captured in the “current_bid” field on the 52,880 finalized auctions (Appendix D).

We noted that 98.5% of all of the auctions had winning bids under $250, and 77.4% had

winning bids under $40. The total of all of the winning bids was $1,761,666.10

In addition, we performed a data distribution on the “price” field that appears to reflect

the cost of the item to the Company for all auctions which had user activity (Appendix E).11

The total cost of goods sold was $5,212,871. We noted that 99% of the auctions had a

“price” under $500 and roughly 50% of the auctions had a “price” under $60. Thus, it

appears that a clear majority of auctioned items were for lower value merchandise, rather

than for luxury goods or premium products.

Because of the various methods by which an individual could obtain a bid (e.g. website

purchase, referrals from Affiliates, free sample bids), we expected that the Company would

have needed to have maintained a comprehensive database that captured the number of

bids and the price at which the bids were purchased by individual. Furthermore, as VIP Bids

9 Id., Question 77. 10 The total number of auctions and winning bids analyzed differ from those reflected in the Turner Report due to BRG’s inclusion of finalized auctions with a winning bid price but no apparent bids (“Buy Now” auctions). 11 Any finalized auction which had a “current bid” and/or bid activity associated with that ID, including “Buy Now” items.


13

expired in 90 days and free bids expired in 30 days,12 we expected that the database would

need to include expiration dates on the bids as well. We noted that the database table

entitled “PPB User Bid Count” appeared to capture this information, as it contained an

“expirydate”, “bidtype”, and “bidvalue” field by unique member identification.

Similar to the Ford Mustang auction example above, we noted that the “bidvalue” field

included “0.50” for many of the bids. Although, we are unaware of bids that could be

purchased at $0.50, we noted that it is possible that the Company ascribed a value of $0.50

to VIP Bids that cost an individual a $1.00 to purchase.

Using the “bid value” field as captured in the database tables, we analyzed the

distribution of bids placed at the auctions (Appendix F). Assuming that bids placed with a

“bid value” of “0” reflects bids that were free to the individual bidder, we noted that of the

approximately 65 million bids placed on all auctions, more than 50% were free bids. Of the

remaining bids, approximately 40% are presumably VIP Bids while only 5-6% are Retail

Bids. The remaining bids had “bid values” that did not appear to correspond with a known

type of bid. Accordingly, even assuming that the sales price of the VIP Bids ($1.00) and

Retail Bids ($0.65) are considered revenue, there would have been $27,181,739 of gross

revenue from the purchase of bids used on the auctions. Adding the $1,761,666 of

payments for winning bids would result in a total gross revenue attributable to the auction

business of $28,943,405. After taking into account the $5,212,871 of cost to purchase the

auctioned items, the gross profit on the auctions would have been $23,730,534.

Based on this preliminary analysis, the gross profit earned from the auction business

would not have been sufficient for the Company to have distributed the approximately $280

million of funds that were paid to the Net Winners in excess of the funds they paid in to the

Company according to FTI’s analyses.

VI. CONCLUSION

As outlined in the Work Plan submitted to this Court, our services were primarily

designed to test the methodology and assumptions used by FTI in its analyses.

Notwithstanding the limitations noted throughout this report, upon completion of the Phase I

Work Plan and Phase II of the Revised Phase II Work Plan, we have not found evidence

12 Extract from the table “dbo.help_question” in the ZeekRewards Databases, Questions 38 and 44.


14

that definitively disproves that the Company, taken as a whole, operated as a Ponzi

scheme.

Our total fees and costs for Phase II through May 26, 2016 are approximately $137,000

which is less than the low end of the estimated range provided in the Revised Phase II Work

Plan of $150,000-$255,000.

We reserve the right to modify this Phase II Report should additional information be

provided that would have a bearing on our analysis.

Respectfully submitted,

Raymond T. Sloane

Managing Director

Berkeley Research Group


15

APPENDIXINDEX

Appendix A – Revised Phase II Work Plan, February 29, 2016

Appendix B – Court Order, March 17, 2016

Appendix C – ZeekRewards FAQs Excerpt

Appendix D – Distribution of Winning Bid Amounts

Appendix E – Distribution of Auction Costs of Goods Sold

Appendix F – Distribution of Bids Placed by Users in Auctions

Appendix G – Curriculum Vitae of Raymond T. Sloane


APPENDIX A


1

February 29, 2016 Kenneth D. Bell, in his capacity as court-‐appointed Receiver for Rex Venture Group, LLC d/b/a ZeekRewards.com v. T. Disner et al. Phase II Work Plan -‐ Proposed Estimate of Fees and Costs Pursuant to Berkeley Research Group’s (“BRG”) March 16, 2015 work plan, which was approved by the Court on May 27, 2015, we had proposed performing our services in the areas of (A) the assessment and validation of FTI Consulting Inc.’s (“FTI”) database analysis and (B) the review and assessment of the financial records, in two phases: Phase I and Phase II. Pursuant to our meeting via conference call with Judge Graham Mullen on June 23, 2015, BRG was to report back to his Honor upon completion of Phase I with a reassessment of Phase II of the approved work plan based upon our findings. On January 19, 2016, a copy of our Summary Report for Phase I Performance and Findings was provided to the Court and the Receiver, which completed our performance of Phase I of the work plan. Accordingly, we respectfully submit the revised work plan for Phase II as shown below. After the submission of our Summary Report, the Receiver and his team have raised concerns regarding whether our performance of services in Phase I was within the proper focus and scope of work. Although we believe that we were entirely within the scope of our work as outlined in our work plan (and are prepared to detail exactly how our work in Phase I followed the tasks laid out in our work plan), the Receiver’s team and Counsel for the Defendant Class have now agreed to limit the scope of our work for Phase II. More specifically, the scope of our work has been limited to exclude the review of individual ZeekRewards affiliate information, and instead, to focus on issues regarding the existence of the alleged Ponzi scheme.

As such, our proposed Phase II work plan does not include services for areas outside the scope noted above, including, for example, the following:

• Assessment of FTI’s calculation of the net winning/losses on an individual affiliate basis, and the determination of Net Losers and Net Winners1;

• Determination of whether other databases and tables maintained by RVG are relevant to the assessment of an individual ZeekRewards affiliate’s winnings/losses; however, we anticipate that we will assess the relevancy of other databases and tables maintained by RVG, in the aggregate;

• Test the extent to which the individual ZeekRewards affiliate’s information as contained in the RVG databases can be reconciled to third-‐party financial information; and

• Assessment of the accuracy of FTI’s recreated books and records as it relates to the payment of funds from/to individual ZeekRewards affiliates.

1 It should be noted that notwithstanding that Phase II in our original work plan included a task to “perform additional analyses of a sample of individual ZeekRewards.com affiliates and the transfers in/out of RVG, using the RVG databases in comparison to the recreated financial records and the third-‐party financial records, such as RVG bank statements and e-‐Wallet records,” this task has been removed from our work plan as it is outside the revised scope of work for Phase II.


2

In addition, based upon our discussion with FTI at an in-‐person meeting on February 25, 2016, we have determined that only certain limited testing can be performed on the assumptions used in FTI’s analysis as part of Phase II.

Accordingly, we have reduced our fee estimate from the original work plan by $45,000-‐$70,000. We estimate that we will complete the performance of our revised Phase II work plan and submit our report in eight weeks from the commencement of our Phase II work. We estimate that the fees and costs for Phase II will range between $150,000 – $255,000. The fee and cost estimates are based on an approximation of actual hours at hourly billing rates ranging from $250 to $650 per hour and an average billing rate of approximately $430.

Furthermore, the fee and cost estimates are based upon certain assumptions that we have made, as shown below:

• BRG has fluid access to FTI team members periodically throughout our analysis, as necessary, to ensure efficiency;

• All field work, review, and analysis will be conducted remotely at BRG offices. To the extent that travel to RVG’s location or to the offices of the Receiver or Counsel is preferred, we will be reimbursed for our reasonable out-‐of-‐pocket expenses.

In addition, we have added a specific line item for the preparation of an expert report, which was not included in the cost of the original proposal.

Phase II – Work Plan

Estimate of Fees and Costs

Completion Time

Part A Database Analysis Assessment and Validation

i. Evaluate the extent to which the results of FTI’s analyses are sensitive to alternative (but valid) assumptions; and

ii. If appropriate, determine independent assumptions and their impacts on the results in the analyses.

$70,000 -‐ $140,000

8 weeks

Part B

Financial Record Review and Assessment

i. Reconcile a sample of daily cash receipts posted to RVG accounts (for example, the receipts detailed in Exhibit G of the Turner Report) to third-‐party financial information; and

ii. Reconcile a sample of additional daily cash receipts posted to RVG accounts to third-‐party financial information.

iii. Draft and submit report of findings for both Parts A and B.

$80,000-‐$115,000


APPENDIX B


1

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

KENNETH D. BELL,

Plaintiff,

vs.

TODD DISNER, et al.,

Defendants.

Civ. No.

3:12-cv-91

ORDER

The Defendants’ Second Fee Application is granted. The Receiver is hereby

ORDERED to pay immediately the professional fees and expenses of Berkeley Research

Group, Edmundson PLLC and Kelly Hart and Hallman as detailed in the Second Fee

Application. The Receiver may file objections, if any, to the professional fees and expenses

included in the Second Fee Application when Berkeley Research Group completes its

expert services under Phase II of the revised proposal.

It is further ORDERED that Berkeley Research Group shall begin work on Phase

II of the revised proposal. Berkeley Research Group shall complete work under Phase II

no later than May 27, 2016.

Signed: March 17, 2016

Case 3:14-cv-00091-GCM Document 131 Filed 03/17/16 Page 1 of 1Case 3:14-cv-00091-GCM Document 134-49 Filed 06/30/16 Page 21 of 42

APPENDIX C


Appendix C

Zeek Rewards FAQs Excerpt

Source: ZeekRewards Database, dbo.help_question table

QuestionID Question Answer

1 Are the VIP points we earn converted to dollars in a 1:1 ratio at the time of withdrawal or are they

converted at a different rate like 2:1 or 5:1, etc?

Points arent dollars- they are points and cannot be withdrawn. You earn awards based on points. Awards are dollars. When

you earn a daily award of $100 - you earn $100. If your system is set to repurchase at (for the sake of this

example) 80% and you withdraw 20% - on a $100 award you would be repurchasing 80 VIP bids that when given away

to customers would earn you 80 VIP points. You would have $20 in your cash available to do with what you choose.

2 How will purchasing customers be beneficial to me? If you do not have customers to give your bids to you cant get the points for those bids added to your VIP balance so that

you can earn awards on those points.

3 Can I use SolidTrustPay or AlertPay to subscribe to the 5cc? No, at present you can only use a Debit/Credit Card to subscribe to the 5cc

4 Do bids that are given away expire? Yes, bids that are given away expire in 30 days.

5 Can bids be re-gifted if they are unused and expired? No, bids that are given away can not be re-gifted. Once they expire, they're expired.

6 How do we accumulate some bids for ourselves to play in the auctions? Purchase retail or VIP bids through Zeekler.com. These bids do NOT generate points.

7 How are 1099's computed?

8 How do I control how many bids per customer are given away on sign up? Login into your back office, and click on the Give Free Bids section. Once youre in the give free bids section under the piece

of the text that reads Company Bid Pool Status is a drop down menu that you can set your bid pack samples to. Then you

click on the Update Number of Bids Given to New Customers button, and youre good to go.

9 What purchase methods are available for joining ZeekRewards? Credit Card/Debit Card (Processed on site)

Alert Pay

Solid Trust Pay

10 What are the purchase methods for monthly Affiliate Subscription Fees? Credit/Debit Card

Alert Pay

Solid Trust Pay

Unpaid Matrix Commissions

Cash Available in your Retail Profit Pool

11 What payment options are available for purchasing Sample Bids? Alert Pay

Solid Trust Pay

Unpaid Matrix Commissions

Cash Available in your Retail Profit Pool

Faxed Checks (USA ONLY)

12 How do I get paid on my subscription commissions? You can request a check, or you can be paid out through Solid Trust Pay. Whether you request a check or payment through

STP you get paid on a 2 week drag.

13 How do I get my cash available in the Retail Profit Pool You can request a check or be paid via Solid Trust Pay. Both work on a 2 week drag.

14 What is a 2 week drag? Payments/Withdrawals take two weeks from the first Monday for fund clearance and processing. The pay date will be

posted in your back office.

15 Can I purchase Sample bids with money in my cash available? Yes. Go into your Retail Profit Pool Report and Click on Cash Available in the blue box, and click on the link that reads Click

Here to buy VIP bids with Available Cash and follow the prompts.

16 What is the average daily cash reward? The daily cash rewards average from 0.5%-2% daily.

17 What are bonus points Bonus points are a one time sign up offer made by the company. You can join as a Free Affiliate and receive 100 Bonus

points, Silver 110, Gold 150 or Diamond 200 bonus points.

18 When do bonus points retire? Your original bonus points will retire out of your account after 60 days. On the 60th day your earnings on the original balance

will transfer over to your VIP points, and move to a 90 day calendar. The original amount will retire.

19 Can I sponsor family members? Yes, you can sponsor family members as long as they are NOT living in the same household.

If they are living in the same household and are immediate family they must all be sponsored by the affiliate that introduced

the program to the household.

20 How many bids can a Silver Affiliate give away? Silver Affiliates can give away a max of 50 bids to one customer.

21 How many bids can a Gold Affiliate give away? A Gold Affiliate can give away a max of 250 bids to one customer.

22 How many bids can a Diamond Affiliate give away? A Diamond Affiliate can give away a max of 500 bids per one customer.Case 3:14-cv-00091-GCM Document 134-49 Filed 06/30/16 Page 23 of 42

Appendix C




23 If I have Free Bids, Purchased Zeekler.com Retail (PennyHead) Bids and VIP Bids, in which order will

they be used when I bid in the auctions?

The system is set to use your free bids first then if it is a VIP bid auction – it uses your VIP bids that have already received

points first, then it will use VIP bids that were purchased on Zeekler.com next, then it will use VIP bids that have not yet

received their points (if they have not yet been given to the company pool or a customer). If it is a retail (pennyhead icon)

auction then it uses free bids first, then retail bids purchased on Zeekler.com – in that order.

This bid-type selection process is totally automated and prioritized to save and preserve the bidders money and use what

costs the least or expires first (or both).

24 How can I change my credit card being billed for the 5cc? You can change/update your 5cc credit card on file by clicking Give Free Bids 5cc Billing Statement Click Here if youd like to

update your 5CC credit card

25 What auctions can free bids be used in? Free bids can be used in all penny auctions with the penny head icon except for Premier 5 & 10s.

26 What happens at the 90 day mark? After 90 days your original VIP point balance retires out of your account, and your left with your earnings in the 90 day

period. On the 91st day your first daily cash reward will retire, and on the 92nd your second daily cash reward will retire out

of your account etc. Please refer to your "Point Retirement Calendar" in your back office.

27 Why is there a pop up that shows up in my back office? The pop-up was implemented due to the inefficiency of email notifications and so many of our affiliates worldwide missing

critical posts, news and updates.

28 Why arent my sample bids showing up in my Retail Profit Pool after I make a sample bid purchase? In order to receive VIP points you must first give away your sample bids to your Zeekler.com customers.

29 What function does the 90 calendar serve? All the 90 day calendar does is let you know which bids will retire when. It gives you a date for the 90 calendar for each

amount of purchased bids that will retire in 90 days.

30 Why do I not receive emails for the auctions line-up anymore. Check the website daily for auction items. E-Mail is an unreliable medium. Some messages will be delivered and some may

be delayed. Some may not be delivered at all. We make ourbest effort to send them. Make sure that [email protected] is

on your approved senders list. Check your spam folder for messages that may have been incorrectly classified as spam by

your mail host. If you don't have an approved senders list then make sure that [email protected] is in your contact list for

your e-mail host/client.

31 If I give all my bids away, arent I going to lose all my money? No, when you give away bids you earn the equal amount of points in your Retail Profit Pool. 1 Bid = 1 Point. Earning points is

how your VIP points balance will increase.

32 Is every country allowed to create an account on ZeekRewards? No, when a user clicks the join tab and begins the registration process they will see a page that requires them to select a

country that is the approved list of countries.

33 How much do I get in cash rewards? Daily cash rewards are typically between 1-2% daily.

34 Why is my 5cc billing me for more customers when I havent recieved the first 5 I purchased in my

sponsorship report?

The customers will appear in your back office as they become available. Your account will automatically give the bids to the

pool for these customers, giving you the points immediately whether they are in your sponsorship report or not.

35 Will we be able to tell if someone has used the bids we gave them? No, at present you can not see if an affiliate or customer you have given bids is using them.

36 How does a customer or affiliate receive bids? A customer or affiliate receives bids that are given to them in their Zeekler.com bid banks.

37 What is the max Sample bids one can purchase at one time? You can purchase a maximum of 10,000 Sample bids for your accounts lifetime. This does not impact your bid repurchasing

in the Retail Profit Pool.

38 What is the difference between Retail bids and VIP bids? Retail bids can be used in all auctions that are marked with a penny head icon in the top left corner of auction, they cost

$0.65 per bid. VIP bids are bids that can only be used in auctions with the % icon in the top left corner of the auction, they

cost $1.00 per bid and expire in 90 days.

39 Are we supposed to get any free bids from our signup if we are a premium member from Zeek

Rewards?

New affiliate can only receive free bids if their upline sponsor chooses to give them bids. New affiliates do receive free bonus

points. 100 Bonus points for free, 110 for Silver, 150 for Gold, and 200 for Diamond

40 I log in it says successful log in but when I try to bid a message says I must log in first. What am I

doing wrong?

If you ever log into more than one account on the same computer it might log you out due to a conflict with the stored

cookie for the site. Clearing your cookies in your browser will usually fix this issue.

41 If we get a Zeekler.com customer through our website does he or she get free bids through the

company pool?

Yes, if a new customer registers on your Zeekler.com website they will receive bids based on what you have your bid pack

sample set to in your "Give Free Bids" section of your back office.

42 Can we give Sample bids to other than first level affiliates? No. First and second level customers on Zeekler.com can and will received bids based on what your bid pack sample is set to

in your Give Free Bids section in your back office.Case 3:14-cv-00091-GCM Document 134-49 Filed 06/30/16 Page 24 of 42

Appendix C




43 What is the difference in "free" retail bids and "paid" retail bids? Free retail bids are given to new customers by affiliates to use to try the penny auctions, whereas "Paid" retail bids are bids

you purchase yourself.

44 Where did my bids go?! Your bids could be gone for a number of reasons. The most common is that they expired. Many members receive their free

bids, and log on after an extended absence to find they have little to no bids left. Bids received on personal referrals expire

in two weeks, and free bids given away by affiliates expire in 30 days.

45 If I upgrade my subscription level, can I give more bids to the existing customers/affiliates that I have

given bids to?

Yes, when you upgrade your subscription level your max bids limitations are lifted to the new limitations of your current

subscription. So if your a silver affiliate and you give 50 bids to a customer and choose to upgrade to a Gold subscription you

can now give an additional 200 bids to that one customer.

46 Are we automatically enrolled in the company bid pool? Yes, when you create an account with ZeekRewards you're automatically enrolled in the company bid pool.

47 Where can I purchase the 5cc? You can purchase the 5cc in your Give Free Bids section of your back office.

48 How do I link a Zeekler.com Customer to ZeekRewards? When the customer visits your ZeekRewards home page and clicks the Join tab their is a piece of text across the top that

reads Note: If you are already a customer of Zeekler.com, Click Here once they click the link and finish the registration

prompts they will have their Zeekler.com and ZeekRewards accounts tied together.

49 How do you increase bid advance? You can increase your bid advance by signing up Zeekler.com customers. Once the user creates an account the company bid

pool will give the customer the amount of bids set in your bid pack samples, thus creating a bid advance.

50 Are Sample bids given away by ZeekRewards affiliates to customers retail or VIP? Bids given away by ZeekRewards affiliates to Zeekler.com customers become Free Bids.

51 Do free affiliates require customers to earn on their bonus points? No, free affiliates do not require customers to earn bonus points. The only requirement is that the free affiliate post their

free classified ad for Zeekler.com

52 Compounder Compounder? NO! Stop that!

53 What is a preferred affiliate customer? A preferred affiliate customer is a Silver, Gold, or Diamond Affiliate who has purchased a minimum of 10 sample bids.

54 What is a Retail auction? Retail auctions are any auction that has a penny head in the top left corner of the auction window.

55 What is a VIP auction? VIP auctions are auction designated for VIP bids, and marked with a blue % sign in the top left corner of the auction window.

56 What is a Premiere 5 or 10 auction? Premiere auctions are auctions of higher value items that take 5 or 10 bids respectively on the first bid, and each bid after

that is equivalent to that of a regular penny auction.

57 What is the difference between a VIP auction and a penny auction? VIP auctions ONLY accept VIP bids. This means that only members who have purchased VIP bids are able to bid in VIP

auctions.

58 Who can participate in the bidding process? Any member of Zeekler over 18 years of age can participate in any type of auction offered at Penny Auction Site Zeekler.

59 Are auction items new? All items are brand new in the box unless otherwise stated in the description.

60 Do you keep items in stock? We do keep some items in stock. Other items are drop-shipped direct from the vendor.

61 I won! Now what? After you win an item you will receive an email from Zeekler. That email will describe the item you won and provide a link to

to pay for the item and arrange for shipment. You can also view your won auctions under the "Won Items" link under My

Account Tab while logged into your Zeekler account.

62 Is there a win limit at Zeekler? Yes, you are limited to 8 auction wins per month.

63 Delivery Charges? The delivery charges for each item will be calculated based on item weight and shipping destination, using UPS ground rates

as the basis for calculating these charges. Please be aware that in some cases the actual amount that we pay for shipping

may be more or less than the amount we charge you. Sometimes we are even able to get free shipping from the vendor who

fills the order. When we pay lass than we have charged you, then the difference is used to help offset the cost of placing,

tracking and supporting your order. When the actual cost is greater than we have charged you then we will absorb the

difference.

64 Once Ive chosen my subscription level, whats next? You can proceed to purchase Sample Bids in your ZeekRewards back office. Remember that ONLY Sample bids purchased in

the ZeekRewards back office can be given away to generate points in the Retail Points Pool. Retail bids purchased on the

Zeekler Penny Auction site do not qualify for daily awards.

65 What is ZeekRewards? ZeekRewards is a retail profit pool. At the end of the day the company tallies up its revnue and shares 50% with all qualified

Affiliates See the Get Paid page for full details. (PLEASE NOTE: To qualify for reward points you MUST place your free

classified ad.Case 3:14-cv-00091-GCM Document 134-49 Filed 06/30/16 Page 25 of 42

Appendix C




66 Delivery Time? For US: After payment is received and confirmed please allow 5-7 business days for shipping & handling, typically it will be

faster. If you have not received your item within this time period please contact us.

International winners must take a cash out option through paypal or alertpay. Cash Payments through AlertPay or PayPal

are paid in batches and it usually takes 7 to 10 days

67 Are there computer requirements to use Penny Auction Site Zeekler? You can participate in Zeekler with nearly any computer that allows access to the Internet.

We suggest keeping only one window open to maximize your connectivity and Internet speed.

Supported operating systems:

- Windows 7/ Windows Vista / Windows XP / Windows 2000

- Mac OS X 10.3 or higher

- Linux

Recommended Browsers:

- Internet Explorer 6.0 or higher

- Firefox 2.0 or higher

- Opera 8.0 or higher

- Safari 2.0 or higher Recommended Internet connection:

- 512k DSL connection or faster68 What increments can bids be purchased from ZeekRewards? On your first purchase, you can purchase as few as 10 bids and up to 10,000. After your first purchase you can purchase as

few as one bid at a time.

The lifetime maximum per affiliate for out of pocket Sample bid purchases is 10,000 bids.

69 Why hasn't my bid registered on an auction after i clicked 'bid'? When a situation happens like this watch the price of the item if it jumps from .22 to .27 that means five other people bid at

that very moment and the most recent bidder will show. Rarely, users may click 'bid' before an auction hits zero and the

auction ends. The most likely explanation for this is a time delay (lag) in the connection from your computer to our server,

sometimes caused by your Internet connection being overloaded. This is a problem with the Internet, however here are a

few ways to minimize this:

- While bidding, do not download large files or stream videos or music.

- Don't send emails with large files / attachments

- Make sure you are the only one using your Internet connection, the more people using your Internet connection the larger

the chance to experience 'lag'

The only sure way to eliminate this problem is to not wait until the last few seconds to bid. We apologize if you experience a

problem registering bids on an auction, please try the above recommendations to help minimize these types of issues.

70 What happens if the Zeekler Auction site goes down? An outage, or downtime is an unfortunate and unforeseeable problem with the Internet. When this happens it is not

possible to place bids. If this ever happens we will add 10 minutes to the end time so that no bidders are left disadvantaged.

During an outage we advise you to refresh your browser until the site is up and running again.

71 Are Bid packages refundable? No bid packages are not refundable.Case 3:14-cv-00091-GCM Document 134-49 Filed 06/30/16 Page 26 of 42

Appendix C




72 Do you offer a standard warranty or guarantee? You can competitively shop at Zeekler with full confidence that you will be 100% satisfied, or we will gladly replace any item

or items that you return within thirty days of receipt, or refund your purchase price.

After thirty days, most items carry an additional manufacturer's warranty that you will receive with the item.

73 Automated Bidding Executive(A.B.E.) Honest A.B.E. (Automated Bidding Executive) - is your "executive" at the auctions. When you don't have time to stay

completely focused on the auction, simply choose your price range and the maximum number of bids you want A.B.E. to use -

and put him to work!

Choose an auction you would like to win.

Enter the maximum number of bids you would like to use in that auction.

Enter the price range of the auction you would like A.B.E. to bid for you.

Click "Book"

A.B.E. will start bidding when the clock runs down to /about/ 10 seconds.

If A.B.E. notices the last bidder was also using ABE, then it will bid immediately to speed up the action. Who wants to look at

2 A.B.E. bidding every 10 seconds?.

You must book a minimum of 1 bid for A.B.E. to work.

You can only book one A.B.E. at a time. As soon as the first A.B.E. is no longer active, you can book the next A.B.E.

Your maximum price has to be at least $0.01 higher than the current auction end price.

An A.B.E. booking can be deleted at any point. All unused bids at the time the A.B.E. booking is deleted will be returned to

your account.

In order to cancel an A.B.E. booking, please click the 'ACTIVE' button in the A.B.E. box and click the Cancel link.

When you type the price, do not type the dollar sign.

To say you want to bid up to 30 cents, in the 'To' box type 0.30 (zero dollars and 30 cents).

74 Where do I find the bids I purchased? You can find your bids in your Give Free Bids section of you back office. You will need to give those bids away to get the

points in your Retail Points Pool.

75 Fake or Paid-to-Sign Ups Are Strictly Prohibited Zeekler prohibits any form of fake or paid sign ups. Any representative/member caught using "Paid-to-SignUp" services or

entering fraudulent or "fake" registrations (ex. phone book listings, etc) will be subject to all free bids being revoked and a

full account review possibly resulting in complete dismissal from the Zeekler/MBS programs and will be permanently banned

from referring people for any form of compensation or from bidding on any of our sites.

76 Free & Discounted Bids Any and all discounted bid packs purchased or won through 3rd party sites as "loss leaders" offered by the company - are

non-commissionable to the referring member and carry no cash value. When you place a bid, the lowest value bid in your

account will be used first. Free bid use is limited. Free bids cannot be used in Premier or VIP auctions on Zeekler.com

77 What is a Falling Price auction? In a Falling Price auction the price of a product decreases from its starting price every second until it meets it's reserve (price

floor) or sells out. The first person to "Buy" will win the product at the price they choose and it may or may not be offered

again based on product availability. Simply click "Buy" at the price you wish to pay, and wait for the auction to close.

What is "Drop"? "Drop" allows any auction participant to place a single bid and drop the price of the auction a specific

amount -for example .50 cents.

When the price turns red - the auction is close to hitting its Reserve/Price floor.

Any bidder can choose to buy at any time - which ends the auction immediately.


Appendix C




78 Do you have an autobidder? Yes, We have A.B.E., our Automated Bid Executive, A.B.E. will bid on your behalf if you book it. See description below.

79 Is there a reserve on the auction? Every penny auction site typically starts at $0.01 and continues until the end. Other types of auctions may have reserves in

some form. Please check the details of other types of auctions to see the rules that apply.

80 How do penny auctions work? Every time there is a bid placed the auction goes up by a set amount (typically$0.01 to $0.10). Also, after a bid the time

increases a small amount (typically from 5-20seconds) once the timer dips below 30s it will not go back above 30s

(sometimes the timer may go slightly above 30s) even if multiple bids are placed. This eliminates 'sniper bidding' and gives

everyone a fair chance at winning. You win by being the last person to bid when the time expires.

81 How do I earn from my referrals? Free Bids: For every new referral that ends in the registration of a new member: You receive 10 Free Bids.

82 Can bids be refunded No, bids can not be returned once purchased or reversed after they are used.

83 How much do bids cost? Bids cost 65 cents per "retail" bid. "VIP" bids are $1 per bid.

84 How do I bid here? 1. Register and create an account. We give you 2 free bids just for registering!

2. Buy bids by selecting 'Buy Bids' link on the right hand side of your home page

3. Find a live penny auction you would like to win.

4. Click BID to place a bid on the auction.

5. You win the auction by being the last person to bid when the timer runs out.

85 How does the company share its daily revenue? Each night, after the close of the normal business day, the company takes part of the days overall business production which

can include auction sales, product sales, affiliate renewals, bid sales and other income production from our member

companies and divides them among the qualified affiliates. Qualified means you are current in your Silver, Gold or Diamond

monthly subscription and that you have purchased at least 10 VIP bids. You must also place a qualifying advertisement

during the preceding 24 hours to qualify to receive Cash Rewards for that day.

For example, Lets say you purchased 5 bids today and 50 bids tomorrow and 500 bids the next day. That means that you

would be receiving daily awards based on a total of 555 points(Assuming you gave away your 555 bids). If the

award was 1.5% you would be paid $8.32. If your Repurchase Preference was set to 100% then you would see your VIP Point

Balance increase from 555 to 563 points(Assuming you give your 8 bids away). Remember that all VIP points will

retire from your account 90 days after purchase.

86 Should I introduce new contact to my Zeekler site or ZeekRewards site? If they are looking for a income opportunity then introduce them to ZeekRewards. If they are only looking to bid on great

items at great prices then refer them to Zeekler.

87 What is Stacking and what is your policy on that? No Stacking Policy

We have a firm no stacking policy at Zeekler/ZeekRewards.

Definition: Stacking occurs when multiple subscribers of a household sponsor each other and purchase product from the

bottom of the stack in order to earn multiple levels of commissions on their own purchases and prevent their upline sponsor

from earning on the referral of said affiliate/family into the program.

Stacking is strictly prohibited and anyone caught doing so will be immediately removed from ZeekRewards permanently and

will forfeit all commissions, bids and awarded points. A reward of 10 Zeek Sample bids will be awarded to anyone who

reports a valid and provable violation of this policy.

If multiple family members within the same household (husband, wife, daughter, son, parent) wish to become

active ZeekRewards representatives, they must do so under the original sponsor who introduced the first household

member to ZeekRewards.

88 Is the 5cc optional? Yes the 5cc is optional.


Appendix C




89 How does the billing work in the 5cc? 5cc billing occurs in $10 increments when it bills to your credit card. If you purchased 6 customers thus far - it will bill you

$20 for 10 customers and your next 4 are pre-paid.

5cc credit card billing (after initial subscription purchase of your first 5 for $10) will only occur if and when you

have no customers to give bids to and no cash available or subscription commissions to bill against.

5cc (and standard $2.50) customer purchases occur when you are automatedly giving bids to the company pool

for distribution to your customers (and receive points in the VIP Profit Pool for doing so) and have no customers

to give those bids to.

If you do not have customers for the pool to distribute your bids to, you will be billed for more customers and placeholders

for those customers will be added until it is your turn in line in the company www rotator, when a real customer is placed in

your sponsorship report that fills the placeholder.

90 With the 5cc do I still need to market Zeekler.com? The 5cc and rotators have not been put in place to REPLACE your own marketing and customer acquisition efforts, only to

enhance them and to avoid stalls in your growth. We have thousands of affiliates in the rotation to receive customers. You

should be using the 5cc as a safety net, not your only method of customer acquisition.

You can save a great deal of money and make more money in commissions (and avoid delays) by getting your

own customer registrations for free. This is the power and beauty of network marketing. Go to your friends, family, co-

workers and other contacts and ask them to register free and receive free bids to use in the auctions.

91 What is the process to get my deactivated account reactivated? Contact Support: [email protected] or live support via Skype and request reactivation.

Be sure to have your backdue funds on the card you have on file (or change the card you have on file) before this upcoming

Saturday.

The system will bill you one month's back due per week - then your current...until you are caught up.

For example, if you are a silver (let's say you are 2 months behind) - the system will bill you $10/week until you are current.

It will bill you $10 this week, $10 next week and then your current month ($10) the week after until it catches you up

completely. Then...it will bill you the saturday after the date of your renewal from that point forward. If your renewal date

is the 15th of the month (which may fall on a Tuesday) it will bill you the Saturday AFTER Tuesday the 15th.

92 How do I request a check from the Retail Proints Pool (RPP)? To request a check from the Retail Points Pool (RPP) you must first set your bid repurchase preference to

something less than 100% for a percentage of your commissions to be set aside daily into Cash Available. Once the amount

in Cash Available is over $25.00 you can request a check to be sent.

93 How long does it take for me to get my check? We pay on a 2 week drag for risk management and funds clearance. Pay periods run from Sunday midnight to Sunday

midnight and checks are cut two weeks from the Monday following.

94 My 5CC billing was declined and deactivated, what do I do? The 5cc has moved to a 2 retail preferred customer qualification. You no longer need to worry about being billed. You need

to make sure that you get and maintain 2 retail preferred customers starting April 1st 2012

95 How do I request a cash out of an auction item? On the checkout page after you enter your address it will offer you an option to choose PayPal or AlertPay and enter your

PayPal or AlertPay account name in the box.

Cash Payments through AlertPay or PayPal are paid in batches and it usually takes 7 to 10 days

96 What is a qualified rep? A qualified rep is an affiliate who has sponsored two preferred affiliate customers.

97 What are matrix "qualifiers"? The "Qualifiers" mean - whether an affiliate has personally sponsored anyone, and those qualifiers are indicated by PV.


Appendix C




98 What is PV? PV is personal volume that is tied to your personal subscription level and those you sponsor. You can see how much PV you

currently have by looking at your sponsorship report in the back office.

99 How do I get paid out in the matrix? In order to be paid in the matrix you need a minimum of two preferred customers that gets you paid on your 2x5. Three

preferred customers gets you a matching bonus on level 5, four preferred customers gets you a matching bonus on level 10,

five "qualified reps" gets you a matching bonus on level 15, and 6 "managers or higher" gets you a share of the sr. exec pool.

100 How can I check my rank and my personals rank? You can check your rank and your personals rank in your Sponsorship Report in your back office.

101 How do matching bonuses work? At Zeek - we do our matching bonuses a little differently. We do not believe in penalizing our qualified affiliates by only

matching the income of those in their matrix. Our matching bonus works this way: If you qualify for Level 5 Matching Bonus

- its as if every filled spot on level 5 is currently qualified at YOUR RANK & TITLE. So if You are an Executive - you are paid a

matching bonus on every 2x5 of the affiliates on your Level 5 as if THEY were ALSO an Executive.

102 What are the fees associated with checks?

103 How do I change my credit card information in my back office? Log in to the back office, click "Subscription Payment Report" and add or change your credit card information in the field

provided.

104 How do I use my credit card to make a payment in my back office? Login into your back office - Click "Subscription Payment Report and Make a Payment.

105 Where do I create a SolidTrustPay account? You can create an account at http://solidtrustpay.com and click on Sign UP for Your FREE Account Today! in the upper left

hand corner of the screen.

106 Which account do I create on SolidTrustPay? You can choose a Personal or Business Account. If you are

selling a product or service, running a business or registering

the account in the name of a company or business, then choose

the Business Account. Most people who are shopping, sending

gifts, or receiving commissions from an online program, only

need a Personal Account. Put a checkmark next to the desired

account type and click SUBMIT

107 What username should I use? Merchants and other members will recognize you, and send or receive payments to, your USERNAME, so choose one wisely.

examples:

GHHsdG7VNHEx= TERRIBLE username

Earn4Today= good username

LBHawkins= good username

108 How do I contact SolidTrustPay customer support? You can contact a member of SolidTrustPays' customer support team by visiting http://stpaysupport.com/introduction.htm

109 How do I set the prices in the store? In order to get in the back end of the store. You must first visit your Zeekler site, then roll over My Account in the top

navigation than on the drop down click Wholesale Store

On the store page there is top navigation that reads Look and Feel Custom Items and Set Markups Set markups is the one to

click to change the prices.

You can also change individual prices of each item simply by drilling down to the item detail, typing in the price you want for

that item, and then updating.

110 How do I "get rid of" an inactive/black spot in my matrix? As is the nature of a matrix with spill occurring and filling top-down, left to right into the first available position - each level

builds upon the one preceding it. it is not possible to "remove" a single spot due to it's lack of inactivity or it will effect all of

the others. We do not manipulate the matrix to attempt to remove inactive positions. We simply compress out all inactive

and free subscribers during all pay-runs so they do not impact our active affiliates compensation.

111 Are ZeekRewards positions willable? Yes, an affiliate can will away their position to a beneficiary. The beneficiary will need to contact Affiliate Services and

present any documents proving that he/she is the beneficiary and the information will be updated on the account.


Appendix C




112 What is the fastest method of purchase and payment to receive sample bids? STP or AlertPay as they are automated and you will receive your sample bids instantly upon purchase.

113 May an affiliate have multiple accounts? No. An affiliate may have one and only one account.

114 Who do I contact regarding billing issues? You contact ccBill

<a href="https://ccbillcs.com">https://ccbillcs.com</a>

Phone: 1-877-374-0182

Email: [email protected]

Available: 365 days a year 24/7

115 How do I change my sponsor? Open a ticket providing the USER NAMES of any and all people involved, along with a clear description of what you need

done. DO NOT BUILD A DOWNLOAD WHILE YOU WAIT FOR YOUR SPONSOR TO CHANGE. Doing so could make the change

impossible.


APPENDIX D


Appendix DZeek ASP Auction Pro Data

Distribution of Winning Bid Amounts

Auction Winning Bid ($)

Number of Auctions [1]

% of Auctions

Total Winning Bid Amount

[2]% of Total

Winning Bid$10,000+ 1 0.0% 23,365$ 1.3%

5,000 to 10,000 - 0.0% - 0.0%2,500 to 5,000 2 0.0% 8,154 0.5%1,000 to 2,500 8 0.0% 10,166 0.6%500 to 1,000 64 0.1% 39,147 2.2%250 to 500 699 1.3% 240,863 13.7%100 to 250 3,299 6.2% 525,110 29.8%80 to 100 1,414 2.7% 129,076 7.3%60 to 80 1,962 3.7% 136,945 7.8%40 to 60 4,479 8.5% 218,867 12.4%20 to 40 8,838 16.7% 250,753 14.2%10 to 20 7,791 14.7% 113,498 6.4%5 to 10 5,241 9.9% 37,948 2.2%1 to 5 9,514 18.0% 24,513 1.4%< $1 9,568 18.1% 3,260 0.2%

Total 52,880 100.0% 1,761,666$ 100.0%

Source:Analysis based on the Zeek aap_Auctions and aap_Auctions_archive_archive tables.

Notes:[1][2] BRG understands that the "current_bid" field in the aap_Auctions and

aap_Auctions_archive_archive tables represents the winning bid amount for an auction.

Test, duplicate, and non-finalized auctions excluded from analysis.


APPENDIX E


Appendix EZeek ASP Auction Pro Data

Distribution of the Auction Costs of Goods Sold ("COGS")

Auction COGS ($)


% of Auctions

Total COGS [2]

% of Total COGS

$ 10,000+ 3 0.0% 63,365$ 1.2%5,000 to 10,000 1 0.0% 6,315 0.1%2,500 to 5,000 4 0.0% 15,386 0.3%1,000 to 2,500 37 0.1% 52,194 1.0%500 to 1,000 349 0.7% 222,604 4.3%250 to 500 3,696 7.0% 1,292,910 24.8%100 to 250 12,370 23.4% 2,126,336 40.8%80 to 100 6,565 12.4% 644,607 12.4%60 to 80 3,577 6.8% 264,100 5.1%40 to 60 5,757 10.9% 299,183 5.7%20 to 40 6,909 13.1% 218,782 4.2%10 to 20 375 0.7% 6,988 0.1%< $10 13,237 25.0% 102 0.0%

Total 52,880 100.0% 5,212,871$ 100.0%

Source:Analysis based on the Zeek aap_Auctions and aap_Auctions_archive_archive tables.

Notes:[1][2]

Test, duplicate, and non-finalized auctions excluded from analysis.BRG understands that the "price" field in the aap_Auctions and aap_Auctions_archive_archive tables represents the approximate cost of goods sold in the auction.


APPENDIX F


Appendix FZeek ASP Auction Pro Data

Distribution of Bids Placed by Users in Auctions


% Auctions

Bids Placed [3]

% Bids Placed Bid Value [4]

% of Value Bid Cost [5]

% of Cost

Free 41,576 79.4% 34,470,377 53.2% -$ 0.0% -$ 0.0%VIP 20,949 40.0% 25,983,608 40.1% 12,979,730 82.3% 24,382,940 89.7%Retail 15,978 30.5% 3,366,153 5.2% 2,187,771 13.9% 2,187,771 8.0%Misc. 13,033 24.9% 967,118 1.5% 611,028 3.9% 611,028 2.2%

Total [6] 52,377 100.0% 64,787,256 100.0% 15,778,529$ 100.0% 27,181,739$ 100.0%

Source:Analysis based on aap_AuctionBids, aap_AuctionBids_archive, aap_Auctions, aap_Auctions_archive_archive tables.

Notes:[1] Bid types were assigned in the following manner:

a) Free bids are any bid with a bid value of 0.00.b) VIP bids are any bids in a VIP auction (retailallowed flag = 0) or any bid in the amount of 0.50 or 1.00.c) Retail bids are any bids not in a VIP auction with a bid value of 0.65.d) Misc. bids are any bids that do not fall into one of the above categories.

[2]

[3]

[4] Value of bid as listed in the auction database.[5]

[6] Number of auctions does not sum to total because most auctions had more than one type of bid.

Bid Type BRG [1]

Reflects the total number of bids placed, usually one bid per auction record. However if the auction is a premier auction, then the user was required to place a specified number of bids on their first bid, either 5 or 10.

Test and duplicate auctions excluded from analysis, as are auctions with no detailed bid records. Accordingly, the number of auctions differs from those analyzed in Appendices D and E.

Cost to the user for purchasing the bids. Equal to the bid value except for VIP bids, where bids of 0.50 were doubled to reflect the full $1.00 price paid for the VIP Bid.


APPENDIX G


Curriculum Vitae

RAYMOND T. SLOANE

BERKELEY RESEARCH GROUP, LLC 810 Seventh Avenue, Suite 600

New York, NY 10019

Direct: 646.862.0959 [email protected]

SUMMARY Ray Sloane is a managing director in Berkeley Research Group’s Forensic and Litigation Consulting practice. Mr. Sloane has more than 38 years of financial and consulting experience, including 24 years with public accounting firms. Mr. Sloane has provided expert witness testimony in cases involving economic losses, solvency determinations and substantive consolidation, tracing of cash flows, business valuation, auditor malpractice, and accounting issues. His experience extends to contract disputes, rebates, allowances and kickbacks, post-acquisition disputes, asset securitization, white-collar crime, fraudulent conveyances and preferences. Mr. Sloane has experience in industries such as banking and financial services, including commodities, construction, labor unions, automotive, asbestos, retail, advertising, entertainment and sports, and consumer and industrial products. In addition to being a Certified Public Accountant (CPA) and an attorney, Mr. Sloane has two forensic accounting/fraud examination designations and holds four business valuation credentials. He is also a Certified Board Advisor. He has expertise in highly complex commercial litigation involving fraud, damages, and technical accounting and auditing issues. Mr. Sloane has had leading roles in the investigation of several of the largest fraud cases in the United States. He has also conducted internal investigations on behalf of audit and special committees of boards of directors in connection with restatements of financial results and in instances of suspected embezzlement, Foreign Corrupt Practices Act violations, and other fraudulent activity. Prior to joining BRG, Mr. Sloane was a senior managing director in the Forensic and Litigation Consulting segment of a large publicly held consulting company. Before that, he was the partner in charge of the Litigation Consulting and Bankruptcy Services department of a major regional certified public accounting firm in the New York metropolitan area, where he specialized in forensic and litigation advisory and business valuation services. Before that, Mr. Sloane served as the partner in charge of the Litigation Consulting division of the New York office of an international CPA firm, where he had previously been an SEC audit partner and a partner in the Technical Research and Review department. Mr. Sloane has authored several articles in legal, business, and accounting publications, including The CPA Journal, The Attorney’s Handbook of Accounting, the Handbook of Asset-Backed Securities and Consumer Receivables, and The Corporate Accountability Report published by Bloomberg/The Bureau of National Affairs. He has lectured for groups including the New York State Bar Association, the Practicing Law Institute, the Institute of Internal Auditors, and CPA Associates International.


2

EDUCATION

J.D. Fordham University School of Law, 1984 BBA Hofstra University, 1977

PRESENT EMPLOYMENT

Berkeley Research Group Managing Director, 2013–present

PREVIOUS POSITIONS

FTI Consulting Senior Managing Director, 2001–2013 Margolin, Winer & Evens Partner, 1990–2001 Spicer & Oppenheim Partner, 1977–1990

PROFESSIONAL AFFILIATIONS

American Institute of Certified Public Accountants New York State Society of Certified Public Accountants American Bar Association New York State Bar Association Association of Certified Fraud Examiners American Society of Appraisers, Accredited Member Institute of Business Appraisers National Association of Certified Valuators and Analysts Center for Strategic Business Integrity

CERTIFICATIONS

Certified Public Accountant Certified Fraud Examiner Certified in Financial Forensics Accredited in Business Valuation Accredited Member of American Society of Appraisers Certified Business Appraiser Certified Valuation Analyst Certified Board Advisor


3

TRIAL AND DEPOSITION TESTIMONY HISTORY

Caption Reference Service Provided

In re: West End Financial Advisors LLC, Debtor

United States Bankruptcy Court; Southern District of New York

Expert testimony at evidentiary hearing, July 2011

Jersey Partners, Inc. v. Robert McCully

Supreme Court of the State of New York; County of New York Commercial Division

Trial testimony, January 2006

Cartier International v. Hai Lei Xia, et al.

United States District Court; Southern District of New York

Deposition testimony, July 2005

Isaac A. Soussis v. Julie F. Soussis

Supreme Court of the State of New York; County of New York

Court-appointed expert trial testimony, February 2001

Carol B. Gilmore v. Roy L. Gilmore Supreme Court of the State of New York; County of Nassau

Court-appointed expert trial testimony at Contempt Hearing, March 2000

Larry Miller v. Xiao Mei aka Emily Miller

Supreme Court of the State of New York; County of New York


United States of America v. Mitchel Brater

United States District Court; Southern District of New York


Kay LeRoy v. Warner LeRoy Supreme Court of the State of New York; County of New York

Trial testimony, August 1998

Herbert A. Slater and Duplex Electrical Supply Corp., Claimants and Charles W. Schwing, Respondent

American Arbitration Association

Arbitration testimony, October 1997

Application of Eleanor F. Reichenbaum, as Executrix of the Estate of Harry Reichenbaum, Deceased, To Discover Personal Property Withheld and Belonging to Decedent

Surrogate’s Court of the State of New York; County of Nassau

Trial testimony, August 1996

Zore, Inc. Claimant v. Big River Zinc Corporation, Respondent

American Arbitration Association Commercial Arbitration Tribunal

Arbitration testimony, February 1996


4

PUBLICATIONS (1) “Litigation Consulting – A Practitioner’s Guide,” The CPA Journal, April 1990 (Max Block Award

Winner, Best Article, 1990) (2) “Accounting for Success,” Legal Times, November 1994 (3) “Enhance Litigation Success with the Right Accounting Services,” The Practical Lawyer, June 1995 (4) “Access The CPA’s Litigation Consulting Services,” Corporate Counselor – NY Law Journal, June

1995 (5) “BNA Interview: Board ‘Best Practice’ When Facing a Financial Fraud Investigation,” Corporate

Accountability Report published by Bloomberg/The Bureau of National Affairs, Inc., June 28, 2013 CONTRIBUTIONS

Attorneys’ Handbook of Accounting Handbook of Asset-Backed Securities and Consumer Receivables

SPEAKING ENGAGEMENTS AND SEMINARS

“Punitive Damages – ‘Financial Means’ and ‘Ability-To-Pay’ Issues,” Practicing Law Institute, March 1994

“Marketing Litigation Services,” CPA Associates International, May and August 1993 “Accountants Liability,” Practicing Law Institute, July 1992 “Forensic Accounting – Where the Money Is in Litigation Services,” CPA Associates International,

June 1992 “Audit Evidence,” Practicing Law Institute, May 1992 “Litigation Regarding Going-Concerns Issues,” Margolin, Winer & Evens, July 1990 “Accounting For Lawyers,” New York State Bar Association, June 1990


Documents

IN THE UNITED STATES DISTRICT COURT FOR THE …zeekrewardsreceivership.com/pdf/Disner-Brief iso Motion for SJ.pdfFOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION KENNETH