Securities and Exchange Commission v. Rex Venture Group, LLC et al
Filing
199
ORDER APPROVING DISTRIBUTION PROCEDURESAND CERTAIN OTHER RELATED RELIEF re #170 MOTION For Order Approving Distribution Procedures and Certain Other Related Relief. Signed by Senior Judge Graham Mullen on 3/26/2014. (Pro se litigant served by US Mail.)(eef)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
vs.
REX VENTURE GROUP, LLC
d/b/a ZEEKREWARDS.COM, and PAUL
BURKS,
Defendants,
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No. 3:12-CV-519
ORDER APPROVING DISTRIBUTION PROCEDURES
AND CERTAIN OTHER RELATED RELIEF
This matter is before the Court upon the Receiver’s Motion for an Order Approving
Distribution Procedures and Certain Other Related Relief (the "Motion").1 Through that Motion,
the Receiver sought the approval of the following relief: (1) procedures for the resolution of
certain Claims reconciliation matters, including, but not limited to, granting the Receiver
authority to settle Claims asserted against the Receivership Defendant, establishing a procedure
for settling Claims filed against the Receivership Defendant, appointing retired Judge Frank W.
Bullock, Jr. of the United States District Court for the Middle District of North Carolina, to serve
as special master over objections to Claim Determinations that the Receivership Team has been
unable to resolve through negotiations with the Claimant, and establishing the method by which
a Claimant or the Receiver may appeal an adverse determination of the Special Master (once
1
Capitalized terms used, but not defined herein, shall have the meanings ascribed them in the Motion.
appointed) to this Court; (2) the establishment of the priority of distributions to the holders of
allowed Claims; (3) the establishment of the rising tide methodology for determining the
distributions to be made on account of the allowed Claims held by Affiliate Investors; and (4) the
procedures for making distributions, including, but not limited to, the collection of necessary
information to make distributions to holders of allowed Claims, and the establishment of the
procedures for making distributions.
After reviewing and considering the Motion as well as the objection of non-party Johnny
Belsome, et al., the Court hereby GRANTS the Motion in all respects.
IT IS HEREBY FOUND, DETERMINED, ORDERED, ADJUDGED, AND DECREED,
AS FOLLOWS:
1.
The notice of the Motion that was sent via electronic mail to all entities that fully
submitted claims on the Claims Portal via the electronic mail address provided in the
Claim submission process by such entity constitutes good and sufficient notice of the
Motion and all the relief sought therein, including the appointment of the Special Master.
Appointment of Special Master
2.
The holders of Claims against the Receivership Defendant hold no jury trial right in
respect to the determination, allowance, disallowance, adjudication, and/or liquidation of
such Claims.
3.
An exceptional condition warranting a Special Master exists in this Case in regard to the
Claims.
4.
Retired Judge Frank W. Bullock, Jr. of the United States District Court for the Middle
District of North Carolina, is hereby Appointed as the Special Master.
5.
The Special Master shall file the affidavit required by Rule 53(b)(3)(A) within ten (10)
days after the filing of this Motion.
6.
The duties and powers of the Special Master shall be limited to those duties and powers
described herein. The Special Master shall not have the power to issue any orders or
impose any sanctions.
7.
The Special Master shall only review and make determinations regarding Claims if:
(i) (A) the Receiver has issued a Claim Determination regarding the Claim; (B)
the Claimant timely objects to the Claim Determination; (C) more than 90 days
has passed since the issuance of a Claim Determination or an amended Claim
Determination (as the case may be), subject to the Receiver consenting to a
shortening of this period; (D) negotiations between the Receiver and the Claimant
have commenced and have not resulted in a settlement; and (E) either the
Claimant or the Receiver has requested that the Special Master review and
intervene in the Claim dispute (a “Request for Intervention”); or
(ii) the Receiver reaches a settlement with a Claimant that requires the review of
the Special Master as set forth in Paragraph 21 hereof (a “Settlement Review”).
8.
A Request for Intervention must be made in writing and served via electronic mail to the
opposing entity and the Special Master.
9.
The Request for Intervention must include a statement setting forth the Claimant’s or the
Receiver’s position, as the case may be, with respect to the amount of the Claim (the
“Position Statement”).
10.
The Receivership Team shall, within 30 days after receiving or making the Request for
Intervention, provide the Special Master with the data provided by the Claimant when it
asserted the Claim (including, but not limited to, the amount the Claimant asserts it
funded to ZeekRewards, the amount of payments the Claimant asserts it was paid by
ZeekRewards and any backup submitted), the information stored in the ZeekRewards
database relating to the Claimant, and any further information regarding the Claim that
the Receivership Team may have in its possession (collectively, the “Claim Data”).
11.
The entity that receives the Request for Intervention from the opposing entity shall have
30 days from service of the Request for Intervention, subject to extension by agreement
between the Receiver and the Claimant or by consent of the Special Master, to respond to
the Position Statement (the “Reply”) in writing via electronic mail to the entity that made
the Request for Intervention and the Special Master.
12.
Upon receipt of the Position Statement, the Reply and the Claim Data, the Special Master
shall review this information and hold a hearing where the Receivership Team and/or the
Claimant may produce evidence regarding the validity and amount of the Claim.
Attendance at such hearing shall not be required. Entities may attend the hearing by
telephone or other electronic means.
13.
After the conclusion of such hearing, the Special Master will serve, via electronic mail, a
written decision detailing his findings regarding the validity and amount of the Claim (a
“Decision”) on the Claimant and the Receivership Team.
14.
Each of the Claimant and the Receivership Team shall have 30 days from the date of
service of the Decision via electronic mail to file an appeal of the Decision with this
Court (an “Appeal”). Such Appeal shall be filed in the miscellaneous proceeding that
shall be commenced by the Receiver (the “MP”). The Receiver shall commence the MP
within 30 days after the date on which this Order is entered. The entity that seeks review
by filing a Notice of Appeal in the MP shall pay an appropriate filing fee in an amount
equal to the cost to commence a civil action in this Court ($400.00).
15.
If the Receiver and a Claimant reach a settlement which, as set forth in Paragraph 21
hereof, would require the approval of the Special Master, the Receiver shall request that
the Special Master perform a Settlement Review. The Receiver shall provide the Special
Master with the Claim Data and any other information which the Special Master may
request. The Special Master shall then render a determination on whether the settlement
is approved or whether the parties need to alter the settlement for it to be approved.
16.
Imposing the expenses of the Special Master on the Estate is fair and reasonable.
17.
Within 30 days after the close of each calendar quarter, the Special Master shall file a
report that states the number of Claims he has reviewed and the number of Decisions he
has rendered.
18.
The Special Master shall engage in ex parte communications with the Claimant solely for
the purposes of discussing scheduling and logistical issues regarding the review of the
Claim Data. The Special Master shall engage in ex parte communications with the
Receivership Team only for the purposes of discussing scheduling, logistical issues and
administrative matters, including, but not limited to, the payment of the Special Master’s
fees. The Special Master shall be paid $450 per hour for the work he performs in his
capacity as Special Master in this matter. The Special Master shall submit his bills to the
Receiver for payment.
Amendment of Claim Determinations
19.
The Receiver may, in his discretion, amend and reissue Claim Determinations.
20.
The Receiver may stipulate to the allowance of a Claim against the Receivership
Defendant without the approval of this Court so long as the Claim, as allowed, does not
exceed an amount that is $10,000.00 greater than the amount such Claim was maintained
in the database of ZeekRewards.
21.
The Receiver may seek to stipulate to the allowance of a Claim that would be in an
amount that is in excess of $10,000.01 greater than the amount that such Claim was
maintained in the database of ZeekRewards, but less than $100,000.00 greater than the
amount that was maintained in the database of ZeekRewards if approved by the Special
Master after the Settlement Review or upon an order of this Court.
22.
The Special Master shall have authority to approve stipulations of Claims which meet the
criteria set forth in Paragraph 21 hereof.
23.
The Receiver may seek to stipulate to the allowance of a Claim by filing an application
with this Court. The Receiver may seek this Court’s approval of multiple settlements in
one motion (an “Omnibus Motion”). Any such Omnibus Motion will clearly identify
each of the settlements for which the Receiver is seeking approval.
Priority of Claims
24.
The Distribution Protocol is fair and equitable and is approved in its entirety.
25.
Allowed Claims shall be paid in the following order of priority:
a. First, on account of Claims for the actual necessary costs and expenses incurred
by the Receiver and the Receivership Team subsequent to the appointment of the
Receiver, including, but not limited to, the payment of the fees authorized by this
Court, tax obligations that are incurred from activities undertaken subsequent to
the appointment of the Receiver (not tax obligations that merely become due
subsequent to the appointment of the Receiver), and the fees and costs associated
with making distributions of the assets collected by the Receivership Team to
holders of allowed Claims in these cases (collectively, “Class 1 Claims”) until
such Claims are paid in full. Such Claim may, in the Receiver’s discretion, be
paid in the ordinary course of business as and when they become due.
b. Second, on account of allowed secured Claims, to the extent such claims exist,
including, without limitation, the allowed secured Claims of taxing authorities,
until such claims are paid in full, but solely from the proceeds of the collateral
held by the Estate in which the secured Claim holder holds an interest
(collectively, “Class 2 Claims”);
c. Third, pro-rata to holders of allowed Claims of Affiliate Investors and subrogees
of Affiliate Investors on account of the allowed Claims of Affiliate Investors and
subrogees of Affiliate Investors (collectively, “Class 3 Claims”) until all such
claims are paid in full without interest, costs or fees;
d. Fourth, to the extent not paid in full above and solely to the extent there are
remaining funds after payment in full is made on account of all allowed Claims in
Classes 1, 2 and 3 in accordance with the treatment set forth above, pro-rata to
holders of allowed Claims of taxing authorities and other governmental entities
allowed in the reconciliation process (collectively, “Class 4 Claims”) until such
Claims are paid in full without interest, costs, penalties or fees; and
e. Finally, to the extent there are remaining funds after payment in full is made on
account of all allowed Claims in Classes 1, 2, 3 and 4 in accordance with the
treatment set forth above, pro-rata to the holders of allowed general unsecured
Claims on account of all allowed general unsecured Claims2 (collectively, “Class
5 Claims”) until such Claims are paid in full without interest, costs or fees.
26.
Under no circumstances shall the Receiver be permitted to make any distributions on
account of the membership interests of the Receivership Defendant or any distributions to
the holders of the membership interests of the Receivership Defendant absent further
Order of this Court.
27.
The Receiver shall maintain the Claims data filed in regard to Class 4 and Class 5
Claims, but shall not be required to determine or otherwise reconcile such Class 4 and
Class 5 Claims, unless and until the Receiver determines that, subject to adequate
reserves, there are adequate assets remaining in the Receivership Defendant’s Estate to
pay the Claims in Classes 1, 2 and 3 in full in accordance with the treatment set forth in
Paragraph 25 hereof.
Approval of Rising Tide Methodology for Distributions
28.
The methodology for distributions set forth in the Motion is fair and equitable and is
approved in all respects.
29.
‘The Receiver shall use the Rising Tide methodology to make Distributions on allowed
Claims.
30.
The Receiver is authorized to establish and release reserves for the holders of allowed
Claims in these cases in his discretion.
Distribution Procedures
31.
The Distributions Procedures set forth in the Motion are fair and equitable and are
approved in all respects.
2
General unsecured Claims were denoted on the Receiver’s Claim Portal as Trade Creditors, Independent
Contractors, Claims of Directors, Officers and Employees, and Claims asserted in the “Other” category.
32.
The Receiver shall collect from all holders of allowed Claims, the ( i) Release, (ii) W-9
form or W-8 form (as applicable), and (iii) an OFAC Certificate. Failure to provide any
of these documents shall cause the distribution payable on account of such Claim to be
forfeited in accordance with Paragraph 37 hereof.
33.
Delivery of Distributions in General. The Receiver shall make distributions solely to the
holders of allowed Claims without regard to any Claim or interest asserted by any third
party in such distributions. Distributions shall be made to the holders of allowed Claims
at the addresses set forth in the Claims asserted by such holders, as amended by such
holder on the Claims Portal.
34.
Payments. Distributions shall be made to all holders of allowed Claims by checks drawn
in United States dollars on a United States domestic bank.
35.
Interest on Claims. Interest shall not accrue or be paid on any Claim, and no holder of a
Claim shall be entitled to interest accruing on any Claim. Interest shall not accrue or be
paid upon any Claim in respect of the period from the date the Receiver was appointed to
the date this Case is closed.
36.
No de Minimis Distributions. The Receiver shall not be required to make a distribution to
the holder of an allowed Claim if such distribution is an amount of less than $100.00.
The Receiver has determined that the cost involved in making distributions in amounts of
less than $100.00 would not be cost effective. Any holder of an allowed Claim that does
not receive a distribution solely because of this provision will have such distribution
reserved until such time as the holder would receive a distribution in the amount of
$100.00 or more.
37.
Forfeited Distributions. The holder of a Claim that fails to provide, within 180 days of
the Claim Determination becoming final, a (i) Release, (ii) W-9 form or W-8 form (as
applicable), or (iii) an OFAC Certificate, shall be deemed to have forfeited any
distribution to which they would otherwise be entitled (a “Forfeited Distribution”).
Forfeited Distributions shall be deemed forfeited on the 181 st day subsequent to such
Claimant’s Claim Determination becoming final.
38.
Unclaimed and Undeliverable Distributions.
a. “Unclaimed Property” shall mean distributions (i) that are Forfeited Distributions;
(ii) that are returned to the Receiver as undeliverable and no appropriate
forwarding address is received within 90 days after such attempted distribution by
the Receiver is made to such holder; (iii) for which the check making such
distribution is not negotiated within 180 days of its issuance and no request for reissuance is made within such 180 day period, at which time, such distribution
shall be cancelled through a stop payment order or other means; or (iv) remaining
after the Final Distribution. The Receiver is under no affirmative obligation to
attempt to locate any holder of an allowed Claim.
b. If the combined total of Unclaimed Property related to allowed Claims totals (i)
$100,000 or more, the Unclaimed Property shall, subject to Section 4 (“No de
Minimis Distributions”) and other relief approved by this Court in this Motion, be
redistributed to the other holders of allowed Claims in Class 3 until the holders of
allowed Claims in Class 3 are paid in full on account of their allowed Claims in
Class 3, and, thereafter, distributed by the Receiver to other holders of Claims
allowed in the order of priority established by this Court, or (ii) if less than
$100,000, the Unclaimed Property shall be donated to a non-denominational
charity to be selected at a later date by the Receiver; provided that, all Claims in
respect of the Unclaimed Property shall be deemed disallowed, and the holder or
successor to such holder of any Claim so disallowed will be forever barred,
expunged, estopped and enjoined from asserting any such disallowed Claim in
any manner against the Receiver, the Estate, or their respective property,
notwithstanding any federal or state escheat laws to the contrary.
39.
Interim Distributions. The Receiver, in his discretion, may, but is not required to, make
interim distributions to the holders of allowed Claims entitled thereto in accordance with
the procedures contained herein.
40.
Final Distribution. The Receiver shall make a final distribution to holders of allowed
Claims entitled thereto in accordance with the procedures contained herein. Such final
distribution shall provide for the distribution of as much of the Estate’s assets as is
possible without causing a disparity in the pro-rata distribution to be made on allowed
Claims. Any remaining Estate Assets shall be treated as Unclaimed Property. Upon
making the final distribution, the Receiver shall file a report with this Court.
41.
Reserves for Claims not Yet Allowed. For the purpose of making interim distributions,
the Receiver shall establish, in his discretion and without further order of this Court,
reserves for all Claims that have not been disallowed (whether pursuant to Paragraph 38
hereof or in the Claim reconciliation process).
42.
Compliance with Tax Requirements. In connection with the distributions made in
accordance hereto, to the extent applicable, the Receiver shall comply with all tax
withholding and reporting requirements imposed by any governmental unit and all
distributions shall be subject to such withholding and reporting requirements. The
Receiver shall be authorized to take any and all actions that may be necessary or
appropriate to comply with such withholding and reporting requirements.
43.
Compliance with Applicable Regulations. If an entity is not permitted to receive a
distribution or is required to forfeit any distribution because of any Applicable
Regulation, the Receiver shall retain such distribution and treat such distribution as if it
were Unclaimed Property unless required to treat such distribution differently by
applicable United States law. The Receiver shall have no liability to any holder of a
Claim because he has acted in accordance with what he believes is an Applicable
Regulation.
Signed: March 26, 2014
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