NxPay, a payment processor, is holding nearly $9 million in funds linked to the Zeek Rewards Ponzi scheme, refusing to return the money to victims for over a decade. The Securities and Exchange Commission (SEC) shut down Zeek Rewards, an $850 million fraud, in August 2012. At that time, NxPay held $31.9 million in assets connected to the scheme.
NxPay returned $21.2 million of the frozen funds without issue. However, the company has since stonewalled efforts by the Zeek Receivership to recover the remaining $10.7 million in affiliate accounts. The Receivership now seeks court intervention to compel NxPay to release the $9 million it has demonstrably withheld.
Following the SEC's asset freeze, NxPay moved all Zeek Rewards-related funds into a master Settlement Account. The company employed an accounting method to distinguish between Zeek's illicit profits and funds legitimately deposited by affiliates. This process aimed to refund affiliates up to their initial investment. Any remaining balances were to be considered proceeds of the fraud.
An NxPay employee, Gabriela Phillips, provided the Receiver with a document in January 2014. This document indicated $16.1 million entered the Settlement Account and $6.7 million was returned to affiliates. This calculation left $9.395 million, which NxPay claimed constituted Zeek's stolen money.
But subsequent forensic accounting revealed significant errors in NxPay's calculations. The investigation found that NxPay improperly returned $1.351 million to affiliates. This money should have remained frozen as part of the receivership's assets. These accounting missteps account for the discrepancy between NxPay's reported balance and the actual amount owed to the Receivership, which stands at $10.738 million.
NxPay possesses the financial records and the forensic accounting reports detailing the error. The company is aware of the exact amount it should release. Despite this clarity, NxPay continues to withhold the funds, prolonging the financial distress of Zeek Rewards victims.
The prolonged delay in returning these funds has had a direct impact on victims who lost money in the Zeek Rewards scheme. Each month NxPay obstructs the recovery process means further hardship for those seeking restitution. The Receivership's court filing underscores the lack of any legitimate defense for NxPay's continued refusal to disburse the nearly $9 million in stolen proceeds.
NxPay's business model centers on facilitating financial transactions. In this instance, the company is being asked to complete a transaction: transferring funds rightfully belonging to fraud victims. The filing with the U.S. District Court for the Western District of North Carolina requests the court order NxPay to release the $10.738 million, plus interest and legal costs.