Zeek Rewards: Government Rests Its Case
I checked the docket a little while ago and saw this entry for July 13th:
Full docket text: (emphasis added)
Minute Entry: JURY TRIAL as to Paul Burks held before District Judge Max O. Cogburn, Jr.. Evidence continued. Government rested. Oral Rule 29 Motion by defendant is denied by court. Jury Trial set for 7/14/2016 09:00 AM in Courtroom 2-1, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.Government attorney: Jenny Sugar, Corey Ellis. Defendant attorney: Jacob Sussman, Isham Reavis, Melissa Owen, Noell Tin. Court Reporter: Cheryl Nuccio/Laura Andersen. (chh)
Here is the definition of Rule 29 from the Cornell Law website:
Rule 29. Motion for a Judgment of Acquittal
(a) Before Submission to the Jury. After the government closes its evidence or after the close of all the evidence, the court on the defendant’s motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction. The court may on its own consider whether the evidence is insufficient to sustain a conviction. If the court denies a motion for a judgment of acquittal at the close of the government’s evidence, the defendant may offer evidence without having reserved the right to do so.
Judge Cogburn didn’t find that there was insufficient evidence to sustain a conviction; I like this guy.
So far, Judge Cogburn has not ruled on a few defense motions and there is no entry for the government’s motion to preclude Burks’ expert witnesses.
I wish we had someone in the courtroom for all of this. The docket entries are minimal at best.
Zeek Rewards: Prosecution Seeks to Limit or Preclude Reliance Witnesses
Jill Westmoreland Rose, United States Attorney, has filed a motion in limine to preclude Paul Burks from introducing “irrelevant testimony” through Nehra & Waak, Keith Laggos, Kevin Grimes, Howard Kaplan, Gregory Caldwell, and Greer & Walker.
A motion in limine is a motion made at the start of a trial requesting that the judge rule that certain evidence may not be introduced in trial.
The Motion goes on to say:
On or about April 11, 2016, Defendant notified the United States that he may assert a reliance defense in his response (Doc. 52) to the Government’s Motion in Limine regarding the reliance defense (Doc. 47), though no specific individuals upon whose advice the Defendant relied were named. On or about June 26, 2016, the defense again repeated that he may assert a reliance defense in its trial brief. (Doc. 86, page 6.) Again, no specific individuals were named. Moreover, Defendant’s trial brief asserts that his purported reliance defense is based upon the assertion that he made changes to the (already existing and implemented) program in good faith based on the advice of experts. That is, by his own admission Defendant did not seek advice about potential future conduct, but instead about his ongoing conduct.
Burks also appears to net be able to keep his dates straight:
In particular, Defendant has asserted that he first sought advice from the following individuals during the following months:
• Nehra & Waak – April 2011 (though this appears to be an error and should be June 2011)
• Keith Laggos – June 2011
• Kevin Grimes – December 2011
• Howard Kaplan – January 2012
• Gregory Caldwell – January 2012
• Greer & Walker – March 2012
The prosecution contends that at trial, they will establish that Zeek Rewards launched in January 2011 and promised a 125% return. Additional evidence will show that Burks and his co-conspirators “were aware that compounding bids purchased by affiliates in Zeek rewards were ‘debt bids’ creating exponential debt to the company well beyond 125% and driving away retail customers.”
Though cosmetic changes were later made to the program, it continued to essentially function in the exact same manner as it had before any consultants or attorneys were employed: money came in largely from affiliates (who were supposed to be the “advertising” force for Zeekler.com the penny auction); those affiliates received a purported “profit-share” equivalent to approximately a 125% return on their bid purchases in a 90 day period (later as a Retail Profit Pool percent averaging 1.43% per day); and Defendant Burks promoted the program as sharing the profits from the penny auctions.
Next, they establish how the testimony would be irrelevant:
Even if Defendant can establish “that he disclosed all material facts to [the counsel or expert] and that he acted strictly in accordance with [the counsel or expert’s] advice,” to establish a reliance defense, he must establish that he obtained that advice prior to and with regard to future conduct.
Simply, “a defendant who takes ‘significant steps’ toward the completion of his criminal action cannot avail himself of later-received advice of counsel respecting the lawfulness of that action.” Id.
Put another way, “[t]he party must also consult the attorney as to the lawfulness of his possible future conduct and may not consult an attorney after he has already manifested an intent to act unlawfully in an attempt to retroactively protect himself from the consequences of his illegal conduct.”
Defendant Burks had formed intent and taken significant steps in the scheme prior to the time he sought counsel.
The Conclusion says it all:
Without evidence presented that Defendant (1) obtained the advice of counsel or expert (1) prior to engaging in the conduct and then (2) relied upon the instructions or advice of a particular “expert,” there can be no reliance defense. See Pearrell, 1996 WL 10284 at *2; Polytarides, 584 F.2d at 1352. Here the evidence already establishes that Defendant did not seek advice until after he had manifested the intent to commit his crimes and taken significant steps in furtherance of his scheme. Thus, there can be no reliance defense, and the testimony of Defendant’s “Advice of Counsel/Expert” witnesses should be precluded as irrelevant, as their testimony would not make any fact of consequence more or less probable.
The prosecution believes that is these “expert witnesses” are allowed to testify, the “minimal relevance will be outweighed by the risk of confusing the issues and misleading the jury.”
Zeek Rewards: Latest Docket Entries
It seems no reporters from the Charlotte area are covering the Burks Criminal trial every day, so we will have to rely on what appears on the PACER docket.
On Sunday, this was filed; the document is on the Files website:
||REPLY TO RESPONSE to Motion by USA as to Paul Burks re 90 MOTION to Exclude Expert testimony of John White and to exclude and/or limit expert testimony of Morris Aaron (Sugar, Jenny) (Entered: 07/10/2016)
Here’s what we have for today:
Full docket text:
Minute Entry: JURY TRIAL as to Paul Burks held before District Judge Max O. Cogburn, Jr.. Evidence continued. Jury Trial set for 7/12/2016 09:00 AM in Courtroom 2-1, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.Government attorney: Jenny Sugar, Corey Ellis. Defendant attorney: Melissa Owen, Noell Tin, Jacob Sussman, Isham Reavis. Court Reporter: Cheryl Nucio/Laura Andersen. (chh)
Full docket text:
TEXT-ONLY ORDER denying  Motion to Continue Docket Call/Trial as to Paul Burks (1) Text of Order: denied for reasons discussed in court So Ordered. Entered by District Judge Max O. Cogburn, Jr on 7/11/2016. (Davis, David)
Zeek Rewards: Opening Statements in Burks Criminal Trial
Thanks to Julia Hudgins, a reporter from Lexington’s “The Dispatch”, we have some information (albeit brief from Twitter) of the opening statements in the long-awaited trial of Paul Burks, alleged mastermind of RVG and Zeek Rewards.
Corey Ellis for prosecution: “This case is about the defendant telling lies in order to get money. It is as simple as that”
Of course, the defense paints Burks as wanting to help his fellow man, the problem is Burks helped himself to millions. I wonder when they will trot out his health issues, like they did with Andy Bowdoin in the ASD criminal trial. There are a lot of parallels between ASD and Zeek, even the top people in Zeek recognized it.
Noell Tin for the defense: “Paul Burks’ dream was that everyone wins…Everyone had things clearly explained and were not lied to”
The ones who “won” were the top promoters, not the regular folks; that’s how Ponzi scams work, after all. Even Burks didn’t understand how the scam worked, he has admitted as much in court filings.
Wow, this is gonna be a good trial, folks.
Zeek Rewards: Jury Selected, Opening Arguments Today
According to an article yesterday from The-Dispatch, Davidson County:
A jury was selected Tuesday to determine the guilt or innocence of the creator of what prosecutors allege was one of the largest Ponzi schemes in U.S. history.
Paul Burks, 69, is the founder of ZeekRewards, a company created in Lexington five years ago. His company is accused of being a Ponzi scheme that, according to court documents, took $939 million from investors who were promised a 125 percent return on their investments. Over 1,500 of these supposed victims were from the Charlotte area.
In the article by Julia Hudgins, she noted that:
The court made a substantial effort to eliminate any juror with preconceived notions about Burks and ZeekRewards. Many jurors were excused because they had already established either the guilt or innocence of Burks because of what they had learned from media outlets.
Before adjourning, both the defense and prosecution teams discussed witnesses set to speak in the trial. The defense argued that the prosecution presented eight or nine new witnesses without giving the defense ample time to prepare. The prosecution’s Jenny Sugar explained that these “new affiliates” were in the discovery process.
In the end, Tin and Sussman said they would still be prepared for opening statements but requested to wait and bring the new affiliates into court later in the trial in order give them enough “breathing space” to prepare meaningful questions.
Opening statements will begin Wednesday morning, and the trial is estimated to last three weeks.
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)
Profitable Sunrise: Judge Grants Default Judgment
Judge Thomas Thrash issued an Order on February 26th, that is short and sweet:
This is an SEC enforcement action. It is before the Court on the Plaintiff’s Motion for Default Judgment [Doc. 37] which is GRANTED. Counsel for the Plaintiff are directed to present a proposed Order and Final Judgment to the Court in chambers.
This case has dragged on for almost 3 years, and it looks like it might just be winding down. What this means for those victimized by this scam is somewhat nebulous. While monies have been repatriated from the scheme, there is more to be gathered.
Robert Craddock: Sentencing Rescheduled
As some of you may recall, Robert Craddock, was criminally charged on two counts of wire fraud for defrauding British Petroleum (BP) following the oil spill in the Gulf of Mexico. Craddock was a well-known figure in Zeek Rewards and other scams, who possessed a largely self-inflated importance of his opinions and didn’t mind threatening anyone who disagreed with his opinions.
Craddock recently tried to copyright/trademark the word “Scam”, as another indication of his inability to grasp reality.
Craddock submitted falsified documents in a scheme to get money from the Deep Horizon Oil Spill Trust for oil clean up that he never, ever did. A motion made by the government for forfeiture of the ill-gotten moneys resulted in the Court ordering the forfeiture of $117,700.00
Craddock pleaded Guilty to two counts of wire fraud and this guilty plea was accepted by the Court on July 29, 2015. The sentencing hearing previously scheduled for September 14, 2015, has been rescheduled to Monday, October 26, 2015, at 11:00 a.m.