The Zeek Rewards Receivership filed a request yesterday in North Carolina District Court, seeking permission to sue two of Zeek's attorneys. The Receiver stated that after reviewing RVG's records, documents, and witness interviews, it concluded the two attorneys caused significant damages to RVG through negligent and wrongful conduct. The court granted the order the same day.
Attorneys Kevin Grimes and Howard Kaplan, along with their law firms, are named as defendants. Howard Kaplan, a tax attorney, operates from Nebraska and advertises his firm on the Kaptax website. There, he states, "Taxes are a necessary evil. Paying too much in taxes is avoidable with good counsel. My mission is to provide the best counsel possible to solve your tax problems."
Kaplan served as legal counsel to RVG from January to August 2012. The SEC shut down Zeek Rewards, an $850 million Ponzi scheme, in August 2012, at which point RVG entered receivership.
The Zeek Rewards Receiver claims in his lawsuit against Kaplan that his knowledge of RVG and ZeekRewards, combined with his legal expertise, meant he knew or should have known the scheme was unlawful. It involved a pyramid scheme, an unregistered investment contract, or a Ponzi scheme. Despite this, Kaplan encouraged investors. He promoted ZeekRewards by giving tax advice to current and prospective participants. He also knowingly let his name be used to promote the scheme.
Kaplan played an indispensable role in the scheme, as did other MLM professionals hired by Zeek Rewards to counter Ponzi concerns. Many potential investors doubted the legality and legitimacy of RVG and ZeekRewards due to lucrative, "too good to be true" claims. So RVG enlisted Kaplan and other legal counsel to help promote and legitimize the scheme.
Kaplan provided help in several ways. Early in his work for RVG, he knew or should have known ZeekRewards was unlawful. He knew the program advertised average returns of 1.4% per day, a rate no legitimate investment could achieve. Kaplan nonetheless appeared on two Affiliate "Leadership Calls" with Dawn Wright-Olivares to promote ZeekRewards. He also provided a "frequently asked questions" (FAQ) document for the ZeekRewards website. He made himself available for affiliate tax questions via email.
Email communications between Kaplan and Dawn Wright-Olivares, Zeek's Chief Operating Officer, show Kaplan's awareness of potential compliance issues with Zeek Rewards' compensation plan. In February 2012, Wright-Olivares wrote to Kaplan about potential securities issues in the compensation plan. Kaplan replied, "I concur that because of the way your plan is structured, there is constructive receipt [of affiliate income] because of the choice your affiliates have. Perhaps it can be compared to dividend reinvestment, where one chooses to buy more stock rather than cash out the dividends."
Kaplan worked with Wright-Olivares to maintain Zeek Rewards' pseudo-compliance. He quickly understood Wright-Olivares prohibited calling Zeek an "investment." That word raised securities and SEC implications. As a result, Kaplan avoided mentioning on leadership calls or in his FAQ the tax implications if the IRS treated affiliate payments as an "investment." Kaplan failed to inform affiliates that payments should be investment income for tax reporting. He did not properly explain the different tax implications if Zeek payments came from an