Wednesday, August 17, 2022

Bounty hunter

By Edward Martin

In the airy penthouse of the McGuireWoods LLP law firm 30 floors above downtown Charlotte, Ken Bell describes himself as the “nicest guy in the world.” That’s contrary to his fearsome reputation earned as a federal prosecutor who busted a Hezbollah terrorism-money ring and corralled those involved in credit-card schemes, immigration-marriage fraud and other deceits.

Ardell Lanier was from a different world. Sixty miles northeast of Charlotte in Lexington, he and wife Edna established Lanier Hardware Inc. in 1940. In a town of about 19,000 that’s known more for barbecue than banks, the hardworking Laniers prospered, selling fertilizer, tools and nuts and bolts. Lanier liked to pluck roses from his garden for friends, so Caron Myers wasn’t surprised when he motioned for her to sit beside him while she was visiting the store in May 2012. He rested his gnarled hands on his cane. “I have something you really should get involved in,” he told her. Lanier encouraged her to put up $10,000, but the Florida State University graduate and advertising sales representative was suspicious until she heard that some lawyers were investing in the locally based penny-auction website and business. “If lawyers are involved, you figure it’s legal, right?” She invested $2,500. “I have a mother who’s handicapped, and I figured if it worked out, I could maybe do something to help her.”
Ken Bell never met Ardell Lanier, who died last year at age 93, but their paths now intertwine. In just 20 months, from January 2011 until August 2012, Lanier and millions of others worldwide were sucked into what Bell calls the most far-reaching Ponzi scheme ever uncovered. The ringleader was ZeekRewards President Paul Burks, a round-faced sexagenarian based not far from Lanier Hardware in a brick building that he shared with a coin laundry catering to Hispanic people. To Bell, the private attorney appointed to take over the collapsed scheme as a receiver, has fallen a daunting task. He’s trying to reclaim as much as $600 million from thousands of net winners such as Lanier, in order to redistribute it to about 170,000 others who lost money, including Myers. Bell and his team of lawyers, forensic accountants, cyber experts and others had clawed back $344.8 million through late April but are still on the prowl for at least $200 million more. The effort is unprecedented in scam history, essentially unringing the bell of an alleged fraud that reached into 158 countries. The only comparable scheme, according to the U.S. Securities and Exchange Commission and other sources, was Bernie Madoff’s scam, which cost his clients about $17.3 billion, far more than Burks’ $850 million con. But Madoff’s victims were far fewer and mostly affluent people and institutions, including Duke University.
In the ZeekRewards case, as many as 2.2 million people took part in some way, including some 50,000 in North Carolina. “There might have been Ponzis and pyramids with more money at stake, such as Bernie Madoff’s,” says Cal Cunningham, a Lexington lawyer who filed a lawsuit on behalf of about 100 investors. “But there’s certainly no precedent for the number of people involved.” His class-action case is stayed while Bell searches for ill-gotten gains. Contact with more than 25 participants in several states reveals a disproportionately older clientele, many of them retirees, and working families in need of a quick return on meager savings. “There were people on disability, people unable to keep up their house payments,” Bell says. ZeekRewards limited individual investments to $10,000, though many did end runs such as purchasing in their children’s names. Larger investments would have required reporting by banks and other financial institutions, a transparency the company wanted to avoid.
“While $10,000 is a lot of money, it’s not so much that the feds and attorneys general were going to jump on the first wave of allegations,” Cunningham says. And N.C. Attorney General Roy Cooper didn’t move quickly to shut down the program. In late 2011, his office forwarded initial complaints from several Florida investors to regulators at the N.C. Secretary of State’s office, who didn’t act because it wasn’t clear if the scheme involved securities. Cooper didn’t demand Burks’ records until July 2012, a month before federal authorities shut down ZeekRewards. By then, Montana state regulators had banned its operations, and the N.C. State Employees’ Credit Union had warned members of the alleged fraud and stopped handling related transactions. Cooper, a likely Democratic gubernatorial candidate in 2016, declined comment for this story.
Bell has identified about 840,000 believed to have lost more than $850 million. Of those, about 170,000 have documented claims totaling more than $600 million, or more than $3,400 each. Many others lost too little to bother or are embarrassed to come forward. “Some apparently just chalked it to experience,” Bell says. Meanwhile, he has filed lawsuits against more than 9,400 winners — those who earned $1,000 or more — with a goal of redistributing another $200 million or so to losers. Others participated in various ways, such as buying bid packages for, but weren’t part of what the SEC considers the sale of unregistered securities.

The kingpin of ZeekRewards came to North Carolina after marrying Susan Waldron Sink, part of a longtime Lexington family, in September 1989, according to court documents and townspeople. The couple paid about $165,000 — nearly $300,000 in today’s dollars — for a five-bedroom frame home built in 1927 on West Second Avenue in the town’s historic district, within walking distance of downtown. Paul Burks made an unsuccessful run for state representative in 2000 as a Libertarian, and he donated $2,500 to Ron Paul’s 2012 presidential campaign. Now represented by Charlotte attorney Noell Tin, he declined requests for comment on ZeekRewards or pending criminal allegations against him. He was a veteran of Amway and other multilevel-marketing companies, in which participants profit both from what they sell personally and a share of sales secured by their recruits. Earlier, he had tried his hand as a country-music disc jockey and toured with the late David Houston, a Louisiana native who had some chart-topping hits in the 1960s, according to people familiar with Burks’ career.
In 1997, Burks established Rex Venture Group LLC in Nevada, state records show. Only in January 2011, on hardscrabble West Center Street in Lexington, two doors down from a Phillips 66 filling station, did he strike pay dirt. Penny auctions, which evoke images of gambling and snake oil, were becoming a cyber phenomenon. Their pulse is the lightning global reach of the Internet; their lifeblood, two human traits: bargain hunting and competition. “In the early days of the Internet, when people like Amazon set up a site to sell stuff, people were astounded that orders would come from every corner of the world,” says Arvind Malhotra, an expert in social-media marketing at the Kenan-Flagler Business School at UNC Chapel Hill. “Now there’s a sucker in every corner of the world wanting to make a quick buck, and the Internet’s a wonderful way to reach them.”
In penny auctions such as ZeekRewards’ related, online bidders buy the right to bid. Even though bids are cast in one-cent increments, the bidder has to pay the site each time he bids. In’s case, a “premium bid” for big-ticket items such as cameras cost $1. When the bid clock runs down, the highest bidder wins. A $500 Canon camera, for example, might go for $100, but collectively, bidders would have poured $10,000 into Profit potential is huge, which triggered a land rush of competitors with such sites. Insiders familiar with ZeekRewards describe Burks’ stepdaughter standing in a back room, fulfilling winning bids for items such as iPads. At its peak, the company had about 15 employees in Lexington and elsewhere. In their final accounting, Bell’s investigators found that the auctions accounted for less than $10 million of the more than $850 million hauled in by ZeekRewards. Only when he made the auctions the centerpiece of the Ponzi scheme, touting profits and promising investors 50% of the daily take, did the cash cascade begin.
By early 2012, had gone viral, propelled by the incredible reach of the Internet and fast-tracked by social media. Lexington’s Wes and Wanda Buckner, in their late 60s, invested $300 at the Center Street office, where potential investors at times wrapped around the building, clutching cash and checks. “A friend told us about it, and it sounded legitimate,” Wanda says. She is a retired bank customer-service agent, while her husband retired from truck driving. “We got other people to put their deposits in, too,” she says. “People were coming from everywhere. I just thank the Lord we didn’t do more than we did. Some were putting in $10,000 at a pop.” Compounded, the Buckners’ investment soared 36-fold, according to statements they received from the company. “When they were closed, we had like $11,000,” she says. ZeekRewards had encouraged investors to roll over earnings, and the Buckners complied. “We never took anything out,” she says.
Burks was becoming a local celebrity, often lunching at restaurants around town with out-of-town visitors. In a video, which appears secretly recorded by a participant, he meets with a half-dozen visitors who speak with heavy accents. Burks leans back at his desk and assures a skeptic that multilevel-marketing legal experts had cleared ZeekRewards. Among those blessing the program was Kevin Grimes, a Pocatello, Idaho, lawyer widely known in the direct-sales industry, who had formed a venture in which ZeekRewards participants could get a certificate vouching for the plan’s legality for $30. For every certificate sold, Grimes got $5, and ZeekRewards got the rest. “He was paid several hundred thousand dollars to put together an online compliance course,” says Bell, who is suing Grimes and his law firm for $100 million, alleging they created a false imprimatur of legality. Grimes denies the allegation. He has since left the firm that bore his name to practice multilevel-marketing law with another partner.
The Rev. Michael Madaris, senior pastor of Highland Baptist Church in the Stanly County community of New London, put up $10,000 about two months before ZeekRewards shut down. “I knew some people who were involved, and they seemed successful,” he says. Madaris invested his own money and recently had received less than half back, through Bell’s recovery efforts. The Buckners had received nothing; Myers, $300. “I can understand why some people, in desperation, thought, ‘God sent this my way’ or something like that,” Bell says. “But folks really do have to remember the adage, if it sounds too good to be true, it really is. A 125% return in 90 days, nobody should think that’s possible.” But there was also a second tier — the pros. “Some of these folks had been engaged in this kind of thing before, and frankly, some of our largest winners re-engaged in similar schemes right away.”

Despite their monstrous on-paper gains, thousands of investors grew restive. In July 2012, they’d pulled out $160 million from ZeekRewards, new ones had invested only $162 million, and the pace of withdrawals was accelerating. On Aug. 16, The (Lexington) Dispatch newspaper published a 4,000-word story questioning the company’s legality and describing its popularity and complex business strategy. The following day, the U.S. Securities and Exchange Commission told a federal court in Charlotte that Rex Venture Group LLC, doing business as ZeekRewards and, was a Ponzi and pyramid scheme that was illegally selling unregistered securities. Fully 98% of the money it had paid to early investors came from new money pumped in by later ones. ZeekRewards’ marketing insisted that it was selling subscriptions and bids, not stock or any type of investment. But Burks’ boasts in meetings, video conferences, Internet postings and other communications that his company was worth $2.8 billion attracted the people paying to play. The SEC, concluding the company could survive only another five days, urged the judge to take emergency action while there was still value to salvage. U.S. District Judge Graham Mullen appointed Ken Bell to oversee the job.

When Bell walked into Burks’ office on Monday, Aug. 20, 2012, a jaw-dropping scene greeted him. In the cramped office with a big “Z” in a blue circle on its front, Bell found overflowing mail bins. “There was some $80 million in cashier’s checks lying around,” Bell says. Surrounded by knickknacks and autographed pictures of his favorite country singers, Burks, then 65, sat at his cluttered desk. He was choking on money, having succeeded so well in collecting cash that he had become unbankable. On Burks’ desk were five $1 million cashier’s checks. “It was just sitting there waiting for us,” Bell says. “Large financial institutions wouldn’t deal with them, so they had nowhere to put it.”

ZeekRewards had riffed through a succession of banks, including Johnston County’s Four Oaks Fincorp Inc., which agreed in 2014 to a $1.2 million U.S. Justice Department fine for processing as much as $60 million in ZeekRewards transactions, even though some carried the address of a vacant lot. Greensboro-based NewBridge Bancorp had stopped accepting ZeekRewards-related money in May 2012, according to court documents. NewBridge, formerly Lexington State Bank before a merger with Greensboro-based FNB Southeast in 2007, is the bank-deposit market share leader in the city. It had $11.6 million of Rex Venture Group’s funds when the feds swept in, a fraction of the company’s $225 million deposited in 15 domestic and foreign banks.
With religious fervor, some investors refused to believe Burks had done wrong, blaming Bell and federal authorities for an overzealous prosecution. A day after the business was shut down, a sign appeared on its window: “If Zeek is a Ponzi scheme, Social Security is the same.” More than 55,000 names are listed on two petitions filed with the White House, protesting actions by the SEC, U.S. Justice Department, U.S. Secret Service, Internal Revenue Service and other federal agencies, all involved in shutting down ZeekRewards. The White House won’t intervene, spokeswoman Kaelan Richards says.
Bell and other investigators allege Burks took about $10 million for his personal use over the less-than-two-year life of Zeek-Rewards. Some went to family members, but otherwise, it’s unclear how he spent it. On the day Bell took over, Burks agreed to pay the SEC a $4 million penalty and surrender his rights to appeal. Two top aides, Dawn Wright-Olivares and her stepson Daniel Olivares, forfeited a combined $11 million after pleading guilty to securities fraud, tax evasion and other charges in 2013. (They lived in Arkansas.) Burks is awaiting trial on federal indictments alleging wire, mail fraud and tax conspiracy. He pleaded not guilty and no trial date is set. He could face $1 million in fines and as many as 65 years in prison — a lighter sentence than Madoff, who pleaded guilty to nearly a dozen charges and is serving a 150-year term at Butner Correctional Institution north of Durham. Burks left Lexington and now lives in a tan-colored brick home in Meadowlands, a secluded golf-course neighborhood of $500,000 homes in the Walburg community south of Winston-Salem. Myers tracked him down there, begging Burks to return $7,000 invested by a factory worker’s family that needed to pay for treatment of their daughter’s leukemia. Keep my money, she told him, but give theirs back. “I told him, ‘These kids won’t get Christmas this year.’ He said, ‘That’s not my problem, that’s their problem.’”

Bell normally focuses on white-collar criminal defense, internal investigations and regulatory compliance, working for a 900-lawyer firm with office locations from Belgium to Texas. “I like to think of it as, we’re here when the government comes knocking — or you’re afraid they will.” This time, the government wanted Bell’s help. Several days before the SEC froze ZeekRewards’ assets in 2012, federal officials had asked Bell if he would agree to be a court-appointed receiver. Federal officials considered two other possibilities, Bell says, then late on Friday afternoon, Aug. 17, he received the court order naming him. He spent the weekend cramming and, on Monday, took control of ZeekRewards.

As part of his deal with the SEC and federal court, Burks agreed to cooperate by turning over a massive, baffling database of ZeekRewards investors, affiliates and records. Bell quickly contacted the company’s software vendor in Florida to notify it that ZeekRewards was frozen, and FBI computer forensic sleuths began digging. “They had terabytes of data,” Bell says. “Not as any other business would have in books or records, but they did have lots of data. For instance, like their daily profit-awards bit, it was just made up out of the blue. You can’t look at it and discern any basis whatsoever for it.” Of ZeekRewards’ massive monetary take, less than 2% was in profits from the penny auctions. Bell contacted Burks for help with the database. He was pleasant, “nothing confrontational at all.”
Bell almost immediately identified 2.2 million email addresses in the Rex Venture database, some of them possibly duplicated. Net winners — if they invested, for example, $10,000 and got back $12,000, they’d be a $2,000 net winner — would be required to return their earnings; losers could submit claims. In part, he was calling on his experience as a former U.S. attorney. “As we used to say, follow the money. You follow it back. You know this amount came in, where did it go?”
Bell grew up in Winston-Salem, where his father was a law professor at Wake Forest University. He attended undergraduate and law school there, graduated in 1983, and immediately joined the U.S. Attorney’s office in Asheville. He moved to a private firm in 1988, and in 1990, ran for Congress from Winston-Salem. He lost convincingly, washed his hands of politics and rejoined the U.S. Attorney’s office in Charlotte. In 2002, the FBI, with the help of the Canadian Security Intelligence Service, smashed a Hezbollah smuggling ring that was transporting truckloads of untaxed cigarettes from tobacco-producing North Carolina to Michigan, one of the nation’s highest cigarette-tax states. Proceeds were funding terrorism in Lebanon and elsewhere. Bell broke new ground while prosecuting the case, convincing the courts to allow Canadian wiretaps as evidence, and using for the first time the U.S.’s new material-support law, which forbids a broad range of support for blacklisted organizations, passed in the wake of 9/11. A federal jury in Charlotte convicted Mohamad Hammoud, 28, and his brother, of money laundering, racketeering and smuggling nearly $8 million worth of cigarettes. Hammoud, the ringleader, was sentenced to 155 years in prison. (His sentence was reduced in 2011.) Bell oversaw many other well-publicized prosecutions and grew used to potential backlash. One target sought a hit man capable of “putting two bullets in the brain of that arrogant bastard prosecutor.” The FBI posted a protection detail at his home and equipped his car with a remote starter.
Bell leads a ZeekRewards core team of barely a half-dozen people, including Irving Brenner, a McGuireWoods partner in Charlotte who focuses on commercial litigation; several lawyers that work with Brenner; a senior associate in the firm’s Washington, D.C., office who specializes in tracking down money; and a New York attorney who heads the claims process. Bell can also tap the vast resources of McGuireWoods, but he describes himself as “pretty hands on. I don’t think there’s anything happening in this receivership that I don’t know about, that I didn’t task and don’t monitor.” He also relies on a bevy of support from the FBI, IRS, Secret Service and other agencies. There’s also a contract with FTI Consulting Corp., a Washington, D.C.-based company that played key roles in investigating Madoff and the $600 billion bankruptcy of Lehman Brothers Holdings Inc. in 2008, the largest in U.S. history. FTI, a publicly traded company, helps Bell determine which claims for compensation are legitimate. “We also didn’t want the scam getting scammed.” For their work, McGuireWoods had received $7.2 million — Bell’s tab is more than $600 an hour — and FTI $5 million through late April, as approved by Mullen.
More than two years into the process, Bell walks a tightrope, with a court mandate to unwind the wrong insofar as possible, but constrained by common sense. Some settlements have been small, while others have topped $100,000. “Our touch point has been, never spend more money getting money than you’re going to get back.” In some cases, he’s thrown his all into the search. A California businessman, apparently sensing the SEC was closing in, spirited about $5 million offshore moments before the shutdown, leading Bell in March to get court permission to seize a “water-view” vacation home in the Turks & Caicos Islands. In other cases, by hiring foreign lawyers, he has tried to retrieve as much as $15 million stashed in Eastern Europe. He is willing to throw in the towel on what can’t be collected, including probably millions held by Chinese nationals, beyond reach because of the country’s complex currency and legal systems.
Even when Bell receives court approval to chase down ZeekRewards money, getting it isn’t simple. “When we win settlements, that’s not money in hand. We then have to figure out how to collect it — by our own efforts, or farming it out, say to 50 [collection] firms in 50 states.” For Bell, the quest will probably last another year or more.
Three counties away, in Lexington, many seem glad memories of a scheme that catapulted the old furniture town into the cyber future are fading. On West Center Street, the building where ZeekRewards was based is empty, for lease at $2,500 a month.
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