It is also of note that Kevin grimes wasn't the only attorney to get sued by Ken Bell yesterday, tax attorney Howard Kaplan got his own hundred million dollar Eff You note as well. Kaplan is a tax attorney who was hired by Zeek to provide tax advice and legal fig leaves to Zeek affiliates.
[Links Again courtesy of Don Ryan's ASD Updates blog.]
In an email from Kaplan to Dawn Wright Olivares (quoted in the complaint) Kaplan acknowledges that:
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.
44. And Kaplan quickly came to understand that Wright-Olivares prohibited
the characterization of Zeek as an “investment,” since that word raised securities and
SEC implications. As a result, Kaplan refrained from mentioning on the leadership calls
or in his FAQ the tax implications that would arise if Affiliate payments were treated by
the IRS as an “investment.”
45. Instead of properly informing Affiliates of the different tax implications
they would face if their Zeek payments were properly characterized as coming from an
“investment” rather than a “trade or business,” Kaplan failed to inform Affiliates, either on the calls or in his FAQs, of the material fact that payments to Affiliates should be
characterized as investment income for tax reporting purposes.
46. For example, in the FAQs that he drafted and allowed ZeekRewards to post
to its website, Kaplan advised that Affiliates should use IRS Schedule C (“Profit or Loss
from Business”) to record their income, making no mention of the fact that they should
use IRS Schedule D (“Capital Gains and Losses”).
47. If Kaplan had candidly disclosed the material fact that Affiliate income
would be properly characterized by the IRS as capital gains, the obvious negative tax
implications would have caused many Zeek Affiliates to remove their cash earnings from
the program rather than reinvesting them, short-circuiting the scheme much earlier. Since
he did not, Affiliates were placated in their misguided belief that ZeekRewards was a
I have to say, I am LOVING this Legal Malpractice / Negligence / Breach of Fiduciary Duty approach that Mr. Bell is taking. I'm not an attorney so don't claim to assess the legal merit of his arguments but I have seen far to many ponzi games hire someone with no excuse not to know any better and then claim they were not responsible for the impression that their involvement created.
Kaplan went beyond even that, he knew Zeek was an "investment" but got paid to lie about it and in the process a lot of people got ripped off. Today I am sure he very much regrets taking Zeek's money to lie to Zeek's affiliates. Lord, let this be a lesson.
Quick side question. Ken Bell is exercising his authority as the appointed receiver for Rex ventures Group in bringing these suits. It's looking very much like the bankruptcy trustee for TelexFree is moving from a chapter 11 process to chapter 7. I know a receivership is in many ways similar to a bankruptcy trustee but not identical. Will the TelexFree Trustee have similar authority to bring civil actions against someone like Gerry Nehra who so very richly deserves Grimes/Kaplan like treatment?