Belsome et al v. Rex Venture Group LLC et al

Filing 56

ORDER denying 47 Motion to Lift Stay. Signed by Senior Judge Graham Mullen on 12/30/2013. (blf)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:12CV800
JOHNNY BELSOME, et al.,

)
)
Plaintiffs,
)
)
Vs.
)
)
REX VENTURE GROUP, LLC d/b/a
)
ZEEKREWARDS.COM, and PAUL BURKS,
)
)
Defendants.
)
__________________________________________)

ORDER

This matter is before the Court upon the Plaintiffs’ Motion to Lift the Stay imposed by
the Court on July 3, 2013 so that Plaintiffs may proceed with their case against Defendant Paul
R. Burks (“Burks”).
FACTUAL BACKGROUND
This purported class action was originally filed in the Eastern District of Louisiana on
August 24, 2012 and transferred to this Court on December 3, 2012. This Court stayed the case
pursuant to the Order entered by the undersigned on August 17, 2012 in SEC v. Rex Venture
Group, LLC, d/b/a Zeekrewards.com and Paul R. Burks, 3:12CV519. In the August 17 Order,
the Court appointed a Receiver to investigate, pursue and recover all potential claims and other
assets of the Rex Venture Group, LLC (“Rex Venture”) receivership estate in the aftermath of a
massive alleged Ponzi scheme perpetrated by Rex Venture that involved hundreds of thousands
of victims worldwide who collectively lost hundreds of millions of dollars. The Order directed a
stay of all other litigation related to the Receivership Defendants, Receivership Property, etc.
Plaintiffs filed the instant lawsuit despite the stay ordered by the Court. Plaintiffs have sued the

1

Receivership entity and Paul Burks for securities fraud, misrepresentation and breach of
fiduciary duty. They now seek to lift the stay to enable their lawsuit to proceed.
Since the time the Court entered its Order of August 17, the Receiver has been diligently
working to marshal all available receivership property. Recently, the Receiver has sought leave
to filed clawback litigation against Rex Venture insiders and net winners. The Receiver is
charged with the responsibility of making an equitable distribution of the funds collected so that
all the victims of the scheme are treated fairly and consistently.
DISCUSSION
“It is axiomatic that a district court has broad authority to issue blanket stays of litigation
to preserve the property placed in receivership pursuant to SEC actions.” SEC v. Stanford Int’l
Bank, 424 Fed. App’x 338 (5th Cir. 2011). “[T]he power to stay proceedings is incidental to the
power inherent in every court to control the disposition of the causes on its docket with economy
of time and effort for itself, for counsel, and for litigants.” Landis v. North American Co., 299
U.S. 248, 254 (1936).
When considering whether to lift a stay of litigation, courts often consider the factors set
forth in SEC v. Wencke. These factors include: (1) whether allowing the stay to remain in place
preserves the status quo, or whether the moving party will suffer substantial injury if not allowed
to proceed; (2) the time in the course of the receivership at which the motion to lift stay occurs;
and (3) the merit of the moving party’s underlying claims. 742 F.2d 1230, 1231 (9th Cir. 1984).
While factor three would appear to weigh in favor of lifting the stay, the Court finds that the
other two factors, as well as other considerations, weight heavily against granting Plaintiffs’
motion at this time.
Plaintiffs will not suffer substantial injury if their case remains stayed. The Receiver

2

has indicated that he will very soon file a lawsuit seeking to recover all of Mr. Burks’ ill-gotten
gains received through the operation of the ZeekRewards scheme. Many of the Plaintiffs herein
have already filed claims through the Receiver’s claims process and will be compensated, to the
extent they have valid claims, along will all other net-loser claimants. Thus, the only “injury”
that may flow from a continued stay of this action is preventing Plaintiffs from being allowed to
jump ahead of the rest of the net losers in the claims process.
Plaintiffs argue that their claims against Burks are independent and personal to the
Plaintiffs and are distinct from derivative claims brought on behalf of the corporation that
benefitted from Burks’ fraudulent statements. However, Plaintiffs’ claims need not be identical
to the Receiver’s claims to warrant a stay. Landis, 299 U.S. at 254. As noted above, the
Receiver has sought leave to begin filing clawback litigation based on the same transactions and
occurrences, for the benefit of the same Rex Venture victims and seeking to recover for the same
harms. The Receiver’s claims against Burks will fund the recovery of victims of the scheme,
while Plaintiffs’ proposed claims against Burks will pursue the very same assets in order to fund
a recovery for the same group of people. Further, in pursuing a class action for all net losers of
the scheme, class counsel would serve in a largely duplicative role as the Receiver, seeking to
recover ill-gotten assets for the benefit of all net losers.
Furthermore, the Court finds that the instant motion is ill-timed in the course of the
Receivership. The Receiver and his team are currently engaged in intensive investigation and
analysis, reconstructing the financials of Rex Venture Group, analyzing large volumes of
documents, liquidating the company’s assets, and preparing for the filing of clawback actions,
which are now imminent. The Receivership is still in its early stages. Allowing Plaintiffs’ action

3

to proceed at this time would be inefficient and confusing to victims and would burden the
Receivership.
Also, Plaintiffs’ suggestion that allowing their action to proceed now would be more
efficient is contrary to the entire thrust of the equitable Receivership that the Court has put in
place to respond to this massive scheme. It is plainly most efficient to have one person
marshaling the company’s assets and claims and distributing the proceeds equitably among the
victims. If the Court allows this action to go forward, another class action (filed in North
Carolina state court prior to Plaintiffs’ Louisiana action) might move forward as well, likely to
be followed by innumerable1 other “individual” competing actions. Having competing lawsuits
for the same funds at the same time with different counsel (and more on the horizon) could not
possibly be more efficient. Each of the counsel would have different interests, focus and
strategies. Moreover, Rex Venture is the main repository of documents and relevant information
about the company. So, with multiple actions, the Receiver would likely be forced to respond to
countless written discovery requests, requiring further document review, and likely forced to be
involved in multiple depositions across the country. This is all in addition to the Receiver’s many
current tasks, as well as the upcoming clawback lawsuits the Receiver will file.
Allowing Plaintiffs’ purported class action to proceed will open the floodgates to a
multiplicity of competing actions seeking to enrich individual plaintiffs and their counsel. This
will cause a massive burden and expense on the assets of the Receivership and will ultimately

1

Because there are at least eight hundred thousand victims, the number of competing
“individual” actions or purported “class actions” (which will of course overlap each other and the
class of victims that the Receiver is already trying to benefit) could easily be in the hundreds if
not more. The cost and effect on the Receivership and the burden on the Court(s) where these
actions would be filed would be enormous.
4

work to the detriment of all other Rex Venture victims who will, through the Receiver, bear the
ultimate cost of the increased inefficiency and litigation chaos.
IT IS THEREFORE ORDERED that the Plaintiffs’ Motion to Lift Stay is hereby
DENIED.

Signed: December 30,

2013

5