“The United States government, including Homeland Security Investigations and the Washington, D.C. FInancial Crimes Task Force, is currently conducting a criminal investigation. As part of that investigation, the United States Attorney’s Office for the District of Columbia has requested a United States District Judge to pause currnet civil litigation relating to Payza and Obopay. The Judge has paused the litigation until January 22, 2016. Shortly after that date, additional information will be made available on this website about the status of this investigation.
NXSystems is asking the Court to reconsider its June 1st Order “directing NxPay to pay $9,069,446.52 to the Receiver within 5 days to be frozen in a segregated account pending final disposition of the dispute.”
The Motion goes on to say that NXSystems has voluntarily turned over around $22 Million dollars to the Receiver, does not have possession of any the claimed additional funds, and are financially unable to meet the Order of the Court.
In order to “comply” with the Court’s Order, they have made arrangements to transfer $1 million dollars to the Receiver’s account today. Sounds a bit short of $9 million dollars to me, but NXSystems believes it to be “substantial”, and that they still believe there are no funds owed to the receivership. They also say this payment presents a significant financial hardship for them because their business has declined steadily since being associated to the Zeek case and RVG’s wrongdoing.
They included a Declaration from Michael Busher, Chairman of the Board of NXSystems, Inc. in an effort to buttress the Motion for Partial Relief. Additionally, he repeats their interpretation for not owing any more money and that they merely acted as a go-between, that RVG deposited money into an account holder’s account, so they are therefore not the guilty party, RVG is. Good luck with that.
Many more claims are made in this Declaration, which you can read on the Files website, ZeekDoc368-1.
We also have a “Memorandum In Support” of this Motion, stating that NXSystems in incapable of paying the $9 million dollars. It is also on the Files website.
Ripple Labs Inc. and its wholly-owned subsidiary, XRP II LLC, formerly XRP Fund II LLC, have agreed to resolve a criminal investigation in exchange for a settlement agreement calling for a series of substantial remedial measures, including a migration of a portion of Ripple’s virtual currency business to a separate entity, the company’s ongoing cooperation in other investigations, an extensive remedial framework to ensure future compliance with federal laws and forfeiture and penalties totaling $700,000, announced U.S. Attorney Melinda Haag of the Northern District of California, Director Jennifer Shasky Calvery of the U.S. Treasury Department Financial Crimes Enforcement Network (FinCEN) and Chief Richard Weber of the Internal Revenue Service (IRS) Criminal Investigation Division. The agreement will resolve allegations that Ripple and its subsidiary failed to follow the law while engaging in the exchange of virtual currency and that the entities failed to establish and maintain an appropriate anti-money laundering program.
Ripple Labs Inc. is headquartered in San Francisco, California, and developed and sold virtual currency known as “XRP.” As of 2015, the currency of the Ripple network, XRP, is the second-largest digital currency by market capitalization.
The agreement formalizes the steps Ripple and its subsidiary must take to bring its virtual currency operation within the existing regulatory framework for money services businesses. The agreement consists of a settlement agreement, an agreed statement of facts, and a remedial framework for the company going forward. Aside from monetary penalties in the form of forfeiture, the remedial framework requires the migration of any component of Ripple’s business that is engaged in the exchange of virtual currency into an entity registered with FinCEN. In addition, the agreement calls for continued enhancements to the company’s anti-money laundering (AML) controls and training program. Further, the remedial framework calls for external audits through the year 2020, enhancements to the ripple protocol, increased transaction monitoring and an extensive review of historical activity.
“By these agreements, we demonstrate again that we will remain vigilant to ensure the security of and prevent the misuse of the financial markets,” said U.S. Attorney Haag. “Ripple Labs Inc. and its wholly-owned subsidiary both have acknowledged that digital currency providers have an obligation not only to refrain from illegal activity, but also to ensure they are not profiting by creating products that allow would-be criminals to avoid detection. We hope that this sets an industry standard in the important new space of digital currency.”
The agreement is the culmination of a criminal investigation conducted by U.S. Attorney’s Office and the Internal Revenue Service’s Criminal Investigation Division. FinCEN joined the investigation with a parallel civil enforcement action. In that action, Ripple Labs and XRP II have agreed to pay a $700,000 civil penalty, $450,000 of which will be designated a forfeiture to settle issues raised in the U.S. Attorney’s investigation.
“Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,” said Director Calvery for FinCEN. “Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.”
“Federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities, including those in the virtual currency arena,” said Chief Weber of the IRS Criminal Investigation Division. “Unregulated, virtual currency opens the door for criminals to anonymously conduct illegal activities online, eroding our financial systems and creating a Wild West environment where following the law is a choice rather than a requirement.”
Ripple described itself as an exchanger of virtual currency in a December 2013 filing made in San Francisco, California, federal court in an unrelated case. As an exchanger, Ripple was required to register with FinCEN and to comply with applicable federal laws and regulations. Yet Ripple sold XRP even though it had not registered with FinCEN, effectuating sales of over approximately $1.3 million in April 2013 alone. Ripple also failed to establish and maintain an appropriate AML program and failed to have policies, procedures and internal controls to ensure compliance with the Bank Secrecy Act and anti-money laundering laws. In July 2013, Ripple incorporated a subsidiary, now known as XRP II, that replaced Ripple as the seller of XRP. Although XRP II registered with FinCEN, it failed to have an effective AML program or to file appropriate suspicious activity reports. In late 2013, for example, it negotiated a $250,000 transaction with an individual who had prior felony convictions for dealing in explosive devices and had been sentenced to prison, failing to follow its own internal “know your customer” requirements.
Assistant U.S. Attorneys Kathryn R. Haun and Arvon J. Perteet handled the matter on behalf of the U.S. Attorney’s Office with the assistance of Daniel Charlier-Smith and Leslie Cook. The settlement agreement with Ripple Labs was the result of a coordinated effort by the U.S. Attorney’s Office and IRS Criminal Investigation, working in tandem with FinCEN.
RECEIVER’S STATUS REPORT FOR THE FIRST QUARTER OF 2015
Here are a few of the high points, you can see the full Report here:
The Receiver currently maintains six bank accounts on behalf of the Receivership Estate for holding Receivership Assets: the “Affiliate Account,” the “Seized Asset Account,” the “Pre-Filing Account,” the “Settlement Account,” the “Withholding Account,” and the “Holdback Account.”
Excluding earned interest and transfers between accounts, the Receiver made the following deposits into these accounts during the first quarter of 2015:
$1,577,043.06 into the Settlement Account from settlements with non-affiliate third parties;
$520,250.00 into the Affiliate Account from payments from various financial institutions relating to previously dishonored cashier’s checks, teller’s checks, official checks, and bank money orders.
As of March 31, 2015, the Receivership Estate held approximately $91.3 million in the Affiliate Account, approximately $89.3 million in the Seized Asset Account, approximately $293,000 in the Pre-Filing Account, approximately $6.3 million in the Settlement Account, $0 in the Withholding Account, and approximately $1.1 million in the Holdback Account.
The Receiver Team is awaiting a ruling on its Motion for an Order Directing NxSystems to Turn Over Receivership Assets and/or Find them in Contempt of the Court’s Order Freezing Receivership Assets regarding the approximately $9 million outstanding.
During the first quarter, the Receiver Team continued litigation against Preferred Merchants and Jaymes Meyer to recover the approximately $4.8 million they improperly transferred and failed to return in violation of the Freeze Order.
One property in the Turks & Caicos Islands has been frozen, and the Court has issued an order directing that it be transferred to the Receiver. The estimated value of this property is believed to be over $2 million. In addition, Mr. Meyer agreed to a lis pendens upon California real property that he purchased with Receivership Assets for over $400,000.
With respect to Solid Trust Pay, the Receiver Team has issued a demand to Solid Trust Pay for approximately $1.6 million in outstanding Receivership Assets and is awaiting additional information from Solid Trust Pay to evaluate its response to the Receiver’s Demand.
Litigation in the SEC Enforcement Action
The Receiver Team litigated the following matters in the SEC Action:
The Receiver Team filed a response brief in the Fourth Circuit Court of Appeals regarding the Belsome movants’ appeal of the striking of attorney charging liens.
The Receiver Team continued litigation seeking the return of Receivership Assets from NxSystems.
The Receiver’s conflicts counsel filed a Motion for Order to Show Cause or Turn Over Receivership Assets Against Compass Bank.
The Receiver team continued litigation to recover Receivership Assets from James Meyer and Preferred Merchants Solutions, LLC.
To date, almost 121,000 Affiliate claimants have accepted their claim determinations and have been or will be issued a distribution in the near term. The next distribution date for claimants who have not already received a distribution is April 30, 2015. . However, in excess of 50,000 Affiliate claimants have failed to respond to their claim determinations. Each claimant is required to act further if they would like to receive a distribution from the Receivership Estate. Failure to act further may eventually cause a claimant to forfeit the distribution.
The Receiver contacted each of the Affiliate claimants who failed to respond to their claim determination to request that such claimants respond to the claim determination by April 15, 2015 and notified them that, pursuant to authority granted by court order, they would be deemed to have accepted their claim determination if they failed to respond by that date.
Approximately 1,800 Affiliates have objected to the claim determination issued by the Receiver Team. The Receiver Team is continuing to address these objections in an effort to resolve such objections before intervention by the Special Master or the Court would be needed. The Receiver Team has been successful in resolving the majority of these objections to date.
Along with the Status Report are 2 Exhibits detailing financial information. Exhibit A and Exhibit B
Defendant Kristine Johnson has filed two interesting Motions yesterday, one a Joint Motion requesting the authority to transfer funds, and the second a Joint Motion to Seal further filings so that Defendants Troy Barnes and Work With Troy Barnes, Inc. do not have access to them. It seems there may be trouble in paradise.
One very interesting revelation in the Transfer of Funds motion is this:
2. Contemporaneously with the civil proceedings in this case, Ms. Johnson is a target of a federal criminal investigation by the United States Attorney’s Office for the Western District of North Carolina.
This Motion goes on to say that these “criminal authorities” had approached Ms. Johnson’s attorneys regarding the voluntary transfer of over $800,000 associated to both the ongoing criminal and civil investigations. Because these funds “derive directly or indirectly from any investor”, and are located in Hong Kong. Due to the Preliminary Injunction, Ms. Johnson cannot execute a voluntary transfer without violating the Preliminary Injunction.
Hence the Joint Motion from Ms. Johnson and the SEC to relax the injunction on a one time basis
to permit the funds transfer from the “ipayDNA.info” account, to which she has access, to a pre-arranged bank account located in the United States, such that authorities will be able to freeze and potentially seize the funds as part of their on-going criminal investigation.
Ms. Johnson shall not execute the transfer of funds from the ipayDNA account until such account has been established, and she has received the express written permission of undersigned counsel for the Securities and Exchange Commission to transfer the funds.
The second filing is this:
Because of the nature of the proceedings referenced in the parties Joint Motion for Authority, the parties’ interests, as well as that of other entities not party to the motion, at this time substantially outweighs the public’s interest in open proceedings. If not sealed, it is possible that the relief sought by the parties’ Joint Motion could be stymied by adverse interests.
Defendant Kristine Johnson and the SEC respectfully request that the Joint Motion and any subsequent order be restricted only to the filing parties – Defendant Johnson and the SEC – and the Court. Specifically, the parties request that Defendants Troy Barnes and Work With Troy Barnes, Inc., not have access.
These two filings are on the Files Website, Doc 28 and 29.
Preferred Merchants Solutions, LLC filed a “Motion to Dissolve” the TRO recently ordered by the Court, and indicate the reason for this filing:
Before filing this motion, pursuant to Local Civil Rule 7.1(b), counsel for Preferred
contacted the Receiver’s counsel in a good faith attempt to resolve areas of disagreement. On October 31, 2014, the Receiver’s counsel responded with an email saying the Receiver would “not agree to dissolve the TRO.”
Along with this filing, they included Memorandum of Law in Support that laid out their arguments:
First, the timing of the relevant events shows a temporary restraining order is not warranted. Preferred initiated the transfers at issue before the Court entered its freeze order. Thus, contrary to the Receiver’s assertions, Preferred had no legal obligation to freeze any assets prior to the entry of that order. Second, the purpose of a temporary restraining order is to maintain the status quo pending a preliminary injunction. Here, the TRO effectively obliterates the status quo and drastically alters the relative positions of the parties. Third, the Receiver has not demonstrated a likelihood of success on the merits or a threat of irreparable harm, both necessary elements in order to obtain a temporary restraining order. Accordingly, the Court should grant Preferred’s Motion and dissolve the TRO. Additionally, the Court should grant Preferred’s pending motion to lift the stay and proceed with its declaratory judgment action against the Receiver.
Apparent;y, the Court agreed with them and Ordered the TRO to be Stayed and issued the following Order:
In light of the contentions raised in Preferred’s Motion, the Court STAYS its previous Temporary Restraining Order (Doc. No. 274) pending resolution of Preferred’s Motion to Dissolve. The Receiver is directed to file a response to the Motion to Dissolve as soon as practicable. The hearing set for November 12 will remain in place unless otherwise ordered.
Of course, we will continue to follow this development as the outcome will be most interesting, especially how Preferred plans to disprove the SEC’s phone records.
ANNOUNCEMENT FROM THE RECEIVER – September 30, 2014
I am pleased to announce that today, September 30, 2014 approximately 90,297 checks are being issued and mailed to Affiliates that hold Allowed Claims as their first interim, partial distribution. These first interim, partial distributions total approximately $134.2 million (with approximately $23 million of the $134.2 million required by law to be withheld for tax purposes) of the assets collected by the Receivership Team.
This first interim, partial distribution represents, with certain limited exceptions, an amount equal to 40% of the Allowed Claims of all Affiliates holding Allowed Claims as of August 15, 2014, using the “rising tide” method of calculation previously approved by the Court.
Affiliates that are being mailed checks on account of the first interim, partial distribution have each filed a claim, had such claim determined by the Receivership Team, accepted that claim determination, and provided the required release and OFAC Certification to the Receivership team. These items are all required by the Court in order to have an Allowed Claim. If you met these criteria as of August 15, 2014, and your first interim, partial distribution is in excess of $100, you will receive a distribution check via mail.
If, as of August 15, 2014, you had not received a claim determination, had not accepted a claim determination, or had not provided the required release and OFAC Certification to the Receivership team, you did not hold an Allowed Claim on August 15, 2014, and were not eligible to receive a first interim, partial distribution. Additionally, if you held an Allowed Claim, but you would have received a distribution of less than $100, no first interim, partial distribution will be paid to you. You will be paid on account of your Allowed Claim in the future.
Additionally, approximately 70,000 Affiliates hold claims that will be allowed against the Receivership Estate if and when any of those Affiliates provide the required release and OFAC Certification to the Receivership team. All of these 70,000 Affiliates (or any additional Affiliates that receive and accept their claim determination prior to December 31, 2014) will be issued their first interim, partial distribution on January 30, 2015 if that Affiliate provides the required release and OFAC Certification to the Receivership Team by December 31, 2014. Affiliates whose claims become Allowed Claims after December 31, 2014 will receive their first interim, partial distribution on a subsequent distribution date.
We have 7,000 more claims to review. If you have not received your claim determination, please be patient; it is coming shortly. If you have already received a claim determination, or when you do, I encourage you to respond as soon as you are able and provide all the required information so that we can mail you your first interim, partial distribution on the next distribution date on which you are eligible.
If you have questions regarding whether your claim determination has been issued, the general status of your claim or to provide the required release and OFAC certification, please log into the following website: https://cert.gardencitygroup.com/zrwdet/fs/home.
Our efforts on your behalf continue. Thank you for your continued support and patience.
From 3:12-cv-00519-GCM, the original SEC v Rex Ventures case, we have a filing from Kenneth Bell, the receiver, in which he asks the Court to find Preferred Merchant Solutions, LLC in Contempt and gives the following reasons:
it is critical that, in whatever process the Court determines would be best for resolving these issues, if the Court does not order the immediate repayment of the $4.8 million, the Court should exercise its rights in equity and under the Agreed Order to require that the $4.8 million immediately be deposited with the Receiver, who can, if necessary, maintain the funds in a segregated account pending a final resolution. If Preferred Merchants and Jaymes Meyer are allowed to continue to retain these funds, there is a risk that the money will be dissipated or otherwise unavailable in the future, further limiting the Receiver’s ability to compensate the victims of the scheme.
Specifically, the Court must determine whether the $4.8 million constitute Receivership and/or Recoverable Assets that should have been remitted to the Receiver’s custody and control as Receivership Property instead of being applied as a prohibited set off.
Whether or not the transfer came before or after the Agreed Order, if it is a fraudulent transfer, then the funds are Recoverable Assets frozen by the Agreed Order that must be returned to the Receiver.
In sum, Preferred Merchants and Jaymes Meyer violated the Agreed Order by failing to freeze and remit the $4.8 million in Receivership Assets and/or Recoverable Assets and Receivership Property, regardless of the claimed improper “set off” against its purported claims.
For the reasons discussed above, the Receiver respectfully requests that the Court continue the litigation stay, grant the Receiver’s Contempt Motion, find Preferred Merchants and Jaymes Meyer in contempt for violating the Court’s Agreed Order, order them to remit $4,854,010.40 to the Receivership Estate or, at a minimum, deposit the funds with the Receiver to be held in a segregated account pending a final resolution, award the Receivership the cost and fees incurred in connection with this Motion and the Receiver’s Opposition to Preferred Merchants’ Motion to Lift the Stay, and such other relief that the Court deems proper.
And next we have a filing in the civil case against Net Winners, 14-cv-00091, better known as Bell v Disner, et al, in which they state: (emphasis added)
Defendants Trudy Gilmond, Trudy Gilmond, LLC, Jerry Napier, and Darren Miller ask the Court for an order staying discovery until fifteen (15) days following resolution of Defendants’ Motion to Dismiss.
Because a favorable resolution of Defendants’ Motion to Dismiss would eliminate the need for discovery, good cause exists to stay discovery pending resolution of Defendants’ Motion to Dismiss.
Without jurisdiction, there is no case: The Receiver’s claimed authority to file the instant lawsuit is derived from the Court’s jurisdiction in the SEC Matter; if the Court lacks subject matter jurisdiction in that matter, the appointment of the Receiver was improper and this lawsuit must be dismissed.
The Defendants should not have to pay for the fees associated with the legal work necessary to respond to the Receiver’s discovery requests while a dispositive motion is pending before the Court. If the Motion to Dismiss is denied, the Defendants deserve a ruling as to whether the Receiver will pay some or all of their legal fees, as requested in Defendants’ Opposition to Receiver’s Motion for Class Certification, before they expend the costs and effort associated with responding to discovery.
To allow discovery to go forward will result in unnecessary expense and effort pending resolution of the Defendants’ Motion to Dismiss. The Defendants are sufficiently impoverished that they should not be compelled to incur the substantial expense of responding to expansive discovery requests before a ruling on the pending Motion to Dismiss, as this motion may either obviate any need to respond to discovery.
Some of these Defendants took out over $1 Million from Zeek and now the claim poverty? Right, let’s see how this flies with the Court. I will keep you advised on how the Judge responds to this one.
In their brief in opposition to Defendant Kaplan’s motion to dismiss, counsel for Plaintiff Bell devote significant effort offering purported equities to evade the defense of in pari delicto and permit Plaintiff’s claims against Howard N. Kaplan to proceed. Plaintiff cannot, however, escape the allegations in his Complaint:
Corporate insiders who exercised complete control over Rex Venture Group (“RVG”) conducted a Ponzi scheme to defraud investors; (Compl., ¶¶ 1, 20, 21, 56);
Such scheme, by its very nature, cannot last and will always lead to the ultimate downfall of the company (Compl., ¶ 6);
The corporate insiders were well underway with their scheme, for at least a year, before they engaged Kaplan (Compl., ¶¶ 5, 24);
Such scheme did lead to the downfall of the company (Compl., ¶ 6); and
Plaintiff, now standing in the shoes of RVG and seeking to assert whatever civil actions RVG might have, asserts a legal malpractice case against Kaplan for failing to stop the very enterprise that RVG’s insiders themselves created, implemented, and ran (Compl., ¶¶ 2, 49-67).
I have uploaded the full document onto the Files website, Doc 12.