Zeek Rewards: USA Files Motion Regarding Defense Experts
The US Attorney has filed a motion to limit the Defendant (Paul Burks) use of the recently produced “Handwritten Notebooks” marked as Defendant’s Exhibit 700.
The Government requests that Exhibit 700 only be admitted through the Defendant.
The Procedural History listed in the motion details begins with the August 2012 Grand Jury issued subpoena to Burks as custodian of records calling for the production of documents and testimony related to the production of those documents.
The subpoena called for:
- all documents related to daily profit
- all documents related to the calculation of daily profit share wards
- all documents related to policies/procedures applicable of Daily Profit Pool
The motions also notes that exhibit 700 was never produced in response to the Subpoena. They list a Q and A portion of Burks testimony before the Grand Jury:
During his testimony, Defendant was asked, and testified in response that:
Q. I’m just going to go through these and forgive me if I end up asking the same question but it’s important. I want to get it on the record here. All documents related to the calculation of the daily profit share awards and profit point redemption for the retail profit pool. Do you see that, sir?
A. I see that.
Q. And same question. The production that you’ve talked about here today, is that responsive in terms of everything you’ve got in your possession to that specification?
A. To the best of my knowledge. There –
Q. Again with the caveat that the receiver has a lot of this material?
During his Grand Jury testimony, the Defendant never mentioned the Handwritten Notebooks, Defendant’s Exhibit 700. They go on to say, “There can be no legitimate dispute that the Handwritten Notebooks – if they actually existed on the dates they purport to have been created – were responsive to the Grand Jury Subpoena, and, thus, Defendant’s failure to produce them was in violation of that Subpoena and his testimony that he had produced all documentation responsive to the subpoena was untrue.”
Defendant’s failure to produce these documents in response to the Grand Jury testimony, his testimony that he had produced all responsive documents, and the production of these Handwritten Notebooks on the eve of trial, without explanation, all raise serious concerns about the legitimacy of the Handwritten Notebooks.
Let’s see how Burks tries to explain this “oversight”….. You can find these documents here.
Zeek Rewards: Paul Burks Files Jury Instructions and Trial Brief
On the 24th, Burks filed his Proposed Jury Instructions which has such topics listed as:
- Jury to consider only this defendant
- Witness credibility
- Bias and hostility
- Interest in outcome
- Government Witness – Not proper to consider guilty plea
- Indifference or lack of concern
- Mismanagement not the issue
- Using motive for intent
- The indictment is not the evidence
- Good faith reliance upon advice of counsel and/or experts
Each of the topics, and others, has a page listing the instructions proposed to give the jury. I have uploaded a copy onto the Files website, (14-cr-208, Doc 84) as it is a bit lengthy to go into here.
And today, Burks filed his Trial Brief, the beginning of which states:
II. STATEMENT OF ANTICIPATED FACTS
A. Paying What He Promised
B. Bid Sales Were Final
C. Mr. Burks Made Changes to the Program in Good Faith Based on the Advice of Experts
D. Dealing with the Challenges of Explosive Growth
E. The Issuance of Forms 1099 Was Based on Sound Legal Advice—and Was Anything But Evidence of “Lulling”
Next, we have a list of the proposed “Experts” expected to be called by Burks:
- Jose L. Valasquez, Jr. – explaining the contents of the RVG SQL database and flow of money in and out, Director of Forensic Accounting at Thatcher and Assoc.
- John White – expert in accounting and fraud investigation
- Morris Aaron – will testify that RVG maintained a sufficient accounting system to calculate daily profits
- Curtis Elliot- expert in tax law and litigating federal tax controversies.
Included in the brief is a paragraph stating that “Evidence Regarding “Follow Me 1×2” Should Be Excluded”, as “Mr. Burks was not in favor of it and thought the concept was a “straight pyramid”. OK, so he knows what a pyramid scam looks like.
Additionally, they want to exclude any evidence related to ASD, and want any reference to be barred. In essence they want virtually anything that shows the Burks knew all along what he was doing barred from the case.
Good luck with that.
I have uploaded this filing onto the Files website, Doc 86.
Zeek Rewards: USA Gets Ready for Criminal Trial
Yesterday, United States Attorney Jill Westmoreland Rose filed a Motion in Limine regarding the authenticity of certain records.
The parties executed an exhibit exchange agreement, subject to which the Government provided the defense with their draft exhibit list and exhibits four weeks before trial on June 6, 2016; in exchange, the defense agreed to provide “written notice of any objection to the admission of any exhibit, and a detailed statement of any and all bases for any such objection” by June 17, 2016. Further, per the agreement, “Absent such specific written notice by Defendant, the exhibits may be admitted, without objection, at the start of trial.” Defendant subsequently notified the Government of its specific objections to the exhibits on the draft exhibit list.
A large volume of emails were obtained by subpoena issued to Rex Venture Group with Burks as the custodian of records and was prepared with Burks’ current counsel and Burks appeared before the Grand Jury as custodian of records and authenticated the documents.
However, the Defendant strangely makes a Rule 901 objection to numerous other exhibits that were obtained from the exact same source: the Defendant, as custodian of records for Rex Venture Group. Defendant makes this objection despite the fact that all of these exhibits – just like those to which he interposes no authenticity objection – were authenticated by the Defendant and his current counsel who assisted with the subpoena production.
“In the interest of judicial economy and to save time for all the parties involved, the government will move to admit all of these exhibits at the beginning of the trial”
Sounds like Burks has sour grapes and some of this stuff will come back to bite him.
And filed today, we have a 49 page document entitled Government’s Trail Brief, “to aid the Court in presiding over the upcoming trial of United States v. Paul Burks.” The first 3 pages contain the Table of Contents, wherein they lay out most of their case against Burks.
The foregoing is a summary of some of the points that the Government anticipates are likely to arise at trial. Should any legal issues arise that are not covered in this trial brief, the Government respectfully requests leave to submit further memoranda as necessary to assist the Court.
You can find all filings in the USA v Burks criminal case on the Files Website, click here.
Zeek Rewards: Burks 2 Motions in Criminal Case Are Denied!
Paul Burks had filed two Motions, one to Dismiss Count Four of the indictment and another for a Hearing.
Here’s what the Judge said about the Dismissal Motion:
Review of Count Four reveals that the United States has alleged each element of the offense. Further, whether or not the government’s evidence will prove those elements is a matter for resolution at trial. Finally, defendant’s theory of constructive receipt is a defense and not a bar to the government bringing such charge. While of little moment at this point inasmuch as the Grand Jury has found probable cause, the government has forecast evidence which, if proved at trial, could support a finding by a jury that defendant conspired to impede the IRS by providing false FORMS 1099 for tax year 2011. The government’s responsive proffer indicates that as part of the scheme to defraud affiliates, defendant and others encouraged affiliates not to draw out “earnings” that they believed they had earned, but which earnings did not in fact exist. The government contends that defendant and others issued 1099s to affiliates in 2011 of approximately $96 million, when in fact the company earnings were only $37 million. Thus, the government appears to contend that the scheme’s use and issuance of the 1099s not only perpetuated the fraud on the affiliates, it also impeded the operations of the IRS. The government further argues that defendant’s constructive receipt theory is defective as not only can defendant not show that the money was “set apart” for each affiliate, as defendant could not set apart funds that were never received.
A motion to dismiss is governed by Rule 12(b)(3)(B), Federal Rules of Criminal Procedure. That rule provides that the court may dismiss a count where the indictment “fails to invoke the court’s jurisdiction or to state an offense.” Fed.R.Crim.P. 12(b)(3)(B). An indictment is defective if it alleges a violation of an unconstitutional statute, or if the “allegations therein, even if true, would not state an offense.” United States v. Thomas, 367 F.3d 194, 197 (4th Cir. 2004). Here, the court finds no reason to dismiss Count Four. The motion will be denied and defendant may renew the motion at the conclusion of the government’s evidence.
Next, comes the “Motion for an Evidentiary Hearing and Appropriate Relief Related to the Government’s Seizure and Handling of Confidential and Privileged Communications.” The Judge responded:
Defendant, in reviewing the discovery, discovered that 148 privileged emails were in the government’s possession. The government contends that it did not know such were in its production and that no member of the prosecution team, including attorneys and agents, has reviewed any of those emails.
In essence, Burks was asking for a Kastigar Hearing, tthe definition of which is:
In Kastigar v. United States, 406 U.S. 441 (1972), the Supreme Court held that, where a witness who has invoked the Fifth Amendment is nevertheless compelled to testify by court order, the protection to insure that the prosecutors do not improperly benefit from the compelled testimony is a hearing in which the prosecutors must prove that its case will not be based on that evidence.
It looks like Burks did not provide sufficient grounds for such a hearing:
Here, defendant has made no showing that any member of the prosecution team has reviewed any of 148 emails at issue. Further, the government has stated that no member of the prosecution team ever reviewed the emails stating as follows: “the United States took careful steps to have the computer filter out all potentially privileged emails, went further to ensure all reviewing agents did the same in case the computer missed anything, and then put all such emails aside without anyone reviewing them.”
Absent some suggestion that the government prosecution team actually reviewed any of the emails, defendant has not made the threshold showing necessary to order a Kastigar hearing.
Based upon this, the Judge denied the Motion.
Zeek Rewards: US Attorney Files Opposition to Motion to Dismiss Count Four
This government Opposition comes a little sooner than I had thought; apparently, they thought the Motion to Dismiss was specious, here’s their opening salvo: (emphasis added)
Count Four charges Defendant Burks with conspiracy to impede the Internal Revenue Service (IRS) in part by providing affiliates with false Forms 1099 for tax year 2011. Defendant Burks argues that count four should be dismissed because: (1) the doctrine of constructive receipt of income – upon which these Forms 1099 were based – is valid and that (2) Zeek affiliates believed that they had a right to receive the payment of the funds appearing as their earnings, whether they had actually took out those earnings as cash or not. The United States agrees with both of these propositions; however, rather than support Defendant’s argument for dismissal they actually buttress the Government’s position that the Defendant and his co-conspirators engaged in a conspiracy to defraud the IRS.
Defendant Burks and Rex Venture Group issued Forms 1099 reporting miscellaneous income, mostly to affiliates, for the 2011 tax year totaling $96 million. 1 Burks led affiliates to believe this was their actual earnings (whether they had taken them out in cash or not). In truth and in fact, the total revenue of Defendant Burks’s businesses for 2011 was only $37 million. Therefore, it is impossible that the affiliates received, actually or constructively 2, the income reported to the IRS on their Forms 1099. The affiliates certainly did not have control over the receipt of the money not subject to substantial limitations or restrictions as required for constructive receipt of income; their ability to receive the funds was limited and restricted by the facts that the funds did not exist.
This difference goes to the very heart of the case: Defendant Burks told affiliates that they were making substantial income from their participation in ZeekRewards. In order to keep the flow of monies going, and to keep the scheme alive, he encouraged the affiliates to not take out their earnings as cash so that they could allow their theoretical balances to grow and to compound. He represented to the affiliates that they were earning huge amounts of money and that his penny auction business was incredibly successful. The affiliates believed that their account balances represented their actual earnings. However, their account balances were “Monopoly money” (a term used by one of Defendant’s co-conspirators during the conspiracy) not tied to any real value.
The Opposition filed mentions that the Defendant’s own expert and tax attorney Howard Kaplan, reviewed Zeek’s promotional materials so they could provide advice.
“Because these tax experts relied on the Defendant’s advertising pieces, and did not actually conduct any sort of financial audits, they believed that the earnings reflected in each affiliates account, whether taken out in cash or left to grow, represented real income. This is the same lie Defendant Burks wanted the affiliates to believe.
I have uploaded the entire document onto the Files website (Doc 76, 14-cr-208)
Zeek Rewards: Judge Denies Burks’ Motion for Juror Questionnaire
This was highly predictable, based on the Motion Burks put through his attorney, wanting to screen the jurors that will hear the criminal case against him. In the initial motion, this sort of sticks out,
A written questionnaire would aid the parties by more efficiently identifying jurors who would not be fair or impartial jurors for this high-profile case marked by extensive and largely inflammatory media coverage and would enable the Court and the parties to more quickly identify individuals who must be struck for cause.
Judge Cogburn had this response:
THIS MATTER is before the court on defendant’s Motion for a Juror Questionnaire. Defendant seeks publication of a 26-page questionnaire to the jury venire, which is likely to be longer as blanks have been inserted for lists of witnesses and attorneys. The court does not find the proposed questionnaire helpful as the undersigned will ask initial questions and counsel will have an opportunity to ask their own questions, subject to oversight by the court. Having considered defendant’s motion and reviewed the pleadings, the court enters the following Order.
IT IS, THEREFORE, ORDERED that defendant’s Motion for a Juror Questionnaire (#71) is DENIED.
Zeek Rewards: USA Files “Notice of Intent to Introduce Evidence” in Burks’ Criminal Trial
As the Criminal trial of Paul Burks approaches, the Government has filed a Notice today that says Zeek was not Burks’ first attempt at Ponzi scams. In this Notice, they ask the Court to allow the admission of evidence and argument that was not part of the Bill of Indictment, as they believe it to be “intrinsic evidence” and includes evidence of (1) Failure to File Taxes, and (2) a scam called “FollowMe1x2”.
In the Notice they lay out what they call a “Pertinent Factual Background” regarding Burks and his activities:
Defendant Burks established numerous multi-level marketing companies between 1997 and 2010, with various products, including signed and numbered art; phone cards; and “fireshakers,” and various names, including New Net Mail; FreeStoreClub; and GoGoHub. Each of these companies ultimately fizzled out.
In 2010, Defendant Burks launched two penny auction websites: Zeekler.com and MyBidShack.
The financial condition of RVG in 2010, the year the penny auctions launched, was dire. Defendant Burks was in a desperate financial condition. His co-defendants, Dawn Wright-Olivares and Dan Olivares, were looking for other work. RVG’s launch of the penny auctions (MyBidShack and Zeekler) with multi-level marketing compensation plans had not generated substantial income, and Defendant Burks needed cash. In approximately September 2010, Defendant Burks and his co-conspirators launched yet another MLM website: FollowMe1x2.
And then, they make a connection to the slimy slide into Zeek Rewards:
However, in reality FollowMe1x2 was a “chain letter company” that did not generate any product. FollowMe1x2, of course, failed to obtain the money necessary to continue to pay out funds to its new participants. Rather than dissipate FollowMe1x2 entirely, participants were given positions in the next iteration of the scheme: ZeekRewards. Participants in all of Defendant Burks’s prior businesses started in the ZeekReward’s compounder with $500 in compounding credits.
The document lays out a lot of things that do not bode well for Burks,and if allowed, could put another nail in the USA’s case against him. We’ll see if the Court allows this new evidence, which I bet they will.
I have uploaded the documents onto the Files website.
Zeek: Burks Seeks to Dismiss Count 4 in Criminal Case
Paul Burks, chief architect in the Zeek Rewards scam, has filed a Motion asking the Court to dismiss Count 4 of the Indictment “on the grounds that the interpretation of the laws governing taxability of commissions paid to Zeek affiliates is vague and/or highly debatable such that it is a legal impossibility for any individual to “willfully” violate the law in this circumstance.”
Count 4 of the indictment alleges that Burks and others conspired to impede the lawful functions of the IRS by falsely attributing income to Zeek affiliates.
Specifically, Count Four alleges that Mr. Burks and his alleged co-conspirators “unlawfully, voluntarily, intentionally and knowingly” caused to be filed false IRS Forms 1099 in the names of ZeekRewards affiliates which reported fictional income. [Doc. 1 ¶ 50] The income was fictional, the indictment alleges, because the Forms 1099 issued that year reflected a total of $108 million paid to affiliates, while the actual amount paid out was allegedly less than $13 million. [Doc. 1 ¶ 37]
It goes on to say:
The explanation for the apparent discrepancy is that, as the indictment also acknowledges, the Forms 1099 issued to ZeekRewards’ affiliates were based on “all constructive income received.” [Doc. 1 ¶ 28] Under this doctrine, affiliates were subject to tax for all income they were entitled to claim, whether or not they actually claimed and received it. See 26 C.F.R. § 1.451–2 (income not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time). Further, affiliates were also subject to tax for the value of bids they chose to repurchase in lieu of a cash payment. See Treas. Reg. § 1.61-1(a) (“gross income means all income from whatever source derived”); Treas. Reg. § 1.61-1(d) (gross income includes income realized in any form, whether in money, property or services, and that income can be realized “in the form of property, as well as in cash”).
The Memorandum of Law in support of this motion proffer this:
As the authorities cited below make clear, the legal premise underlying Count Four—that constructive receipt should be equated to or treate as synonymous with tax fraud—is highly debatable or simply wrong. Where the law is vague or highly debatable, a defendant actually or imputedly lacks the requisite intent to violate it as a matter of law. See United States v. Mallas, 762 F.2d 361 (4th Cir. 1985). Accordingly, Mr. Burks moves to dismiss Count Four on the grounds that it is a legal impossibility to willfully violate the law in this area.
This Memorandum also has 2 Exhibits, one from a W. Curtis Elliott, Jr, of the law firm of Culp, Elliott and Carpenter wherein he states his “Expert Report Regarding Constructive Receipt of RPP Awards Used for Bid Repurchase”. His report states:
TelexFree: Notice of Deadline for Filing Claims in Bankruptcy Case
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Notice of Deadline for Filing Electronic Proofs of Claim and Claims Procedures (English)
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Aviso de Prazo Para Protocolar Habilitações Electrônicas de Creditos e Procedimentos de Crédito (Portuguesa)