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CHARLOTTE, N.C. - Time is running out for people who profited from a $600 million Ponzi scheme to contact a federal court-appointed receiver to negotiate a settlement in the case.
Receiver Kenneth Bell sent emails earlier this year to 16,000 investors who made money from the Lexington, N.C.-based online company ZeekRewards. He also posted a letter on the ZeekRewards receivership website, saying the investors, or net winners, had until May 31 to contact his office to negotiate a settlement or face possible legal action.
Bell, a Charlotte attorney, said he didn't know how many had responded ahead of Friday's deadline. But he said he wouldn't take immediate legal action.
"It's a deadline to contact us. That doesn't mean we're going to start suing people on Monday," he said. "If somebody contacts us in the next week and says, 'Will you still talk to me?', we will of course talk to them. We probably will be a little firmer in our negotiations than we would have been if they had contacted us more timely. But we will still talk to folks who want to settle without litigation."
The deadline is the latest development in one of the largest Ponzi schemes in U.S. history.
Authorities say ZeekRewards owner Paul Burks, 66, of Lexington, was the mastermind of the scam, which attracted 1 million investors, including nearly 50,000 in North Carolina.
Burks owned Rex Venture Group, a company that operated several online ventures, including Zeekster.com, a penny auction site, and ZeekRewards, a business designed to drive traffic to the penny auction.
The Securities and Exchange Commission, which closed the operation Aug. 17, accused Burks in a civil complaint of fraud and selling unregistered securities. The SEC said the scheme used money from new investors to pay the earlier ones.
Investigators also say Burks siphoned millions for his personal use. But he has not been charged with a crime. He has agreed to pay a $4 million penalty and co-operate with the receiver.
Burks has told The Associated Press he couldn't discuss details of the case, but that he never told anyone to invest more money than they could afford.
Of the hundreds of millions that were paid out to investors, Bell said he's recovered about $320 million — money that will be used to help pay victims.
The deadline for victims to file claims is Sept. 5. Bell said about 61,000 people have filed claims thus far totalling $208 million. The median claim is about $4,600.
It is not unusual for court-appointed receivers and regulators to go after big net winners in investments scams, said Stacie Bosley, an economics professor at Hamline University in St. Paul, Minn.
The question is will the receiver actually go after everyone who made money, said Bosley, who has studied investment scams.
"Obviously for the more moderate amounts, they want to give them the opportunity to voluntarily offer back those winnings. But I haven't seen them actually go after the small net winners in the past," she said.
She said taking legal action against every investor who profited in the ZeekRewards case would be time consuming, and the receiver would have to weigh the cost versus the benefit.
Bell said his office has set a threshold for net winners. He declined to elaborate, but said the 16,000 emails were sent to people "above the threshold."
"We save money by settling as opposed to suing and going all the way through the process and then a collections process. Every time you have to sue rather than settle, it costs something. And it costs pretty much the same thing to sue somebody who won $10,000 as it does somebody who won $500,000," he said.
He said his office is taking a harder line in negotiations with people who made a lot of money in ZeekRewards.
"As people are bigger net winners, not only do they have more money, in our minds they played a more prominent role in advancing the scheme," Bell said. "You get more money by bringing in more people. We have held for a higher percentage of settlement for those folks."
He said they have negotiated settlements with 120 people and collected $1.1 million from them. Investigators and forensic accountants are continuing to unravel the finances of the complicated Ponzi scheme.
Meanwhile, Bell said he hopes to start settling victims' claims by the end of the year. But he said there could be delays as victims examine proposed court settlements.