IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. REX VENTURE GROUP, LLC d/b/a ZEEKREWARDS.COM, and PAUL BURKS, Defendants.

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No. 3:12-CV-519

RECEIVERS REPLY IN OPPOSITION TO BELSOME, ET AL.S OBJECTION TO THE RECEIVERS MOTION FOR ORDER APPROVING DISTRIBUTION PROCEURES AND CERTAIN OTHER RELATED RELIEF The Receiver, through counsel, files the following reply in opposition to non-party Johnny Belsome, et al.s (Movants) Objection to the Receivers Motion for Order Approving Distribution Procedures and Certain Other Related Relief (Doc. No. 177). For the reasons set forth below, the Court should dismiss each of these objections and grant the Receivers motion. This Court has broad powers and wide discretion to determine relief in an equity receivership. CFTC v. Barki, LLC, 2009 U.S. Dist. LEXIS 112998, *3-4 (W.D.N.C. Nov. 12, 2009) (Mullen, J.); SEC v. Wealth Mgmt. LLC, 628 F.3d 323, 332-33 (7th Cir. 2010). Similarly, the Receiver, as an equitable appointee of this Court, is duty bound to locate the victims of the ZeekRewards scheme and pay each victim the amount determined by the Receiver to be fair and proper. Accordingly, in compensating these victims, the Receiver wishes to pay them directly, rather than paying third parties, including lawyers, who claim a right to some portion of the

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victims recovery. The Receiver is not a party to such agreements nor should the Receiver or this Court be required to be in effect the agreements arbiter or enforcer, as requested by Movants counsel. This is particularly true for the Movants attorney fee agreements, which are governed by Louisiana law and were entered into in connection with a case that should not have been filed and has been stayed. The attorneys fee agreements sought to be enforced were procured as part of the Movants purported class action, Belsome et al., v. Rex Venture Group LLC, 3:12-cv-00800GCM (W.D.N.C).1 That lawsuit has been stayed and, as recently noted by this Court in its Order denying Movants motion to lift the stay, was filed in violation of the initial stay ordered by this Court. Louisiana law expressly governs these fee agreements, which include a mandatory agreement to submit any disputes to binding arbitration. Also, whether or not the fee agreement would permit Movants counsel to claim a large contingent fee (as much as 25%) for simply providing administrative assistance in filing a claim through the Receivers claim portal is uncertain.2 In any event, neither the Receiver nor this Court has or should undertake the obligation to determine the scope of and enforce ambiguous third party reimbursement agreements governed by Louisiana law, particularly where the agreements enforceability and conscionability are plainly at issue and purportedly subject to binding arbitration.

A copy of a representative fee agreement attached to the Movants claims is attached as Exhibit 1. The name of the claimant has been redacted to protect the claimants privacy.

These fee agreements refer only to compensation for legal services, yet also state that counsel is to be paid 25% of the claim if it gets processed through the Receiver . . . . Whether or not the victims who agreed to participate in the putative class action intended to (or lawfully could) compensate their counsel in that amount for non-legal assistance in filing an administrative claim (a task successfully completed by over 150,000 other victims without counsel) is at least questionable. 2 Case 3:12-cv-00519-GCM Document 183 Filed 01/06/14 Page 2 of 6

Accordingly, contrary to Movants counsels desire, the Receiver does not intend to send victims distribution checks directly to their attorneys. Rather, the Receiver intends to send distributions to the addresses of individual claimants. Where a law firms address is listed to receive the distribution, the Receiver will not issue the distribution check until the actual claimants address is provided. Movants argument that the Receiver is somehow infringing on their right to counsel is meritless. The Receiver has no objection to claimants using counsel. Claimants were obviously free to allow others to act on their behalf in filing claims through the portal, and a relative few apparently did so. The Receiver has considered or will soon consider every completed claim that was received through the claims portal by the bar date, regardless of whether the claimant has counsel.3 Further, Movants acknowledge that the Court has authorized the Receiver to contact claimants directly, even if they are represented. (Doc. No. 177 at 34). In its May 8, 2013 order, the Court approved the Claims Process, overruling Movants objections and allowing the Receiver to contact all claimants directly. (Doc. No. 144 at 18, 20 & Ex. C). Moreover, Movants counsel admit that they have received a copy of the Receivers claims communications with their clients, so Movants counsel should have no objection that they have been uninformed regarding these communications or that they will somehow not know when their clients receive their claim determinations. (Doc. No. 177 at 67). Indeed, Movants counsel has not been

Movants counsel suggests that the Receiver may seek to limit their correspondence with the Receivers claims counsel (Doc. No. 177 at 16), while at the same time admitting that the Receivership Team worked diligently and amicably with the undersigned to procure all available information and supporting documents requested by the Receiver for each Claim filed by [Movants counsel]. (Id. at 7). Such contradiction undermines any claim that the Receiver Team will be anything but diligent and responsive in its continued communications with claimants, whether or not they are represented by counsel. 3 Case 3:12-cv-00519-GCM Document 183 Filed 01/06/14 Page 3 of 6

shy about injecting themselves into these proceedings, and this motion itself amply demonstrates Movants counsels ability to timely participate. In sum, the Receiver intends to treat each claimant who engages counsel in the claims process no better or worse than claimants who do not have counsel. However, as discussed above, the Receiver believes that is outside the scope of and inconsistent with his duties to facilitate or enforce any attorneys fee agreements between claimants and their counsel. Finally, Movants suggest that the Receiver should place a unique identifier or claim number on claims-related communications so that third-party claims processors may distinguish one claim from another. The Receiver is not opposed to this suggestion in principle, but he will need to assess the cost and practicality of implementing such a change to the current system. As a result, while the Receiver will explore using unique identifiers on claims communications and will implement their use if it is in the best interests of the Receivership Estate in terms of cost and practicality, this objection should be denied because of the current undetermined feasibility of such a measure. Conclusion The Receiver and this Court have no obligation to determine whether or not to honor the terms and conditions of Movants Retainer Agreements. (Doc. No. 177 at 5). This is the crux of the Movants objection. Rather than seeking to protect any right to counsel (which all the claimants clearly have been allowed to exercise), this motion is ultimately about Movants counsels desire to control the flow of funds from the Receiver to their victim-clients to facilitate their own compensation. Considering the equitable nature of this proceeding and the uncertainty of the enforceability of the proffered fee agreements under Louisiana law, the Receiver opposes the Court and Receiver being entangled in the fee arrangement between Movants and their

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counsel. The Receiver thus intends to pay allowed claims to victims of the scheme directly, allowing those victims to determine for themselves what they should do with the distributions they receive. For the foregoing reasons, the Court should dismiss each of the Movants Objections and approve the Receivers Motion for an Order Approving Distribution Procedures and Certain other Related Relief.

Dated: January 6, 2014

Respectfully submitted,

/s/ Irving M. Brenner Irving M. Brenner (NC Bar No. 15483) Matthew E. Orso (NC Bar No. 42409) McGuireWoods LLP 201 North Tryon Street, Suite 3000 Charlotte, North Carolina 28202 (704) 373-4629 (704) 343-2300 (fax) ibrenner@mcguirewoods.com morso@mcguirewoods.com Attorneys for Kenneth D. Bell, Esq., Receiver

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CERTIFICATE OF SERVICE I HEREBY CERTIFY that I have electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send electronic copies to counsel of record registered to receive electronic service.

This the 6th day of January, 2014.

/s/ Irving M. Brenner Irving M. Brenner

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