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,

No. 3:12-CV-519

MEMORANDUM IN SUPPORT OF RECEIVER'S MOTION TO APPROVE THE SALE OF CERTAIN REAL PROPERTY Kenneth D. Bell, Esq., the Court-appointed Temporary Receiver (the “Receiver”) for and over the estate of Rex Venture Group, LLC d/b/a ZeekRewards.com, any of its subsidiaries, whether incorporated or unincorporated, and any businesses or business names under which it does business (the “Receivership Defendant”), by and through his undersigned counsel, respectfully submits this Motion seeking approval of the sale of two parcels of real property. In support of this Motion, the Receiver says as a follows: I. BACKGROUND The Receivership Defendant is a group of interrelated entities and websites, all of which were either controlled or owned directly or indirectly by Defendants Rex Venture Group, LLC (“RVG”) and Paul Burks (“Burks” and with the Receivership Defendant, the “Defendants”). RVG and Burks operated a penny auction website, www.zeekler.com (“Zeekler”), and a selfdescribed “private, invitation-only, affiliate advertising division” for Zeekler at

1 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 1 of 10

www.zeekrewards.com (“ZeekRewards” or the “ZeekRewards Program”). The ZeekRewards Program had its physical operations in Lexington, North Carolina and had internet-based affiliates and contacts throughout the United States and internationally. The Zeekler participants were required to pay a non-refundable fee to purchase and place each incremental bid (typically one cent) on merchandise sold via auction. Bidders could acquire those bids by purchasing them directly on Zeekler.com, but ZeekRewards and its affiliates purchased the vast majority of the bids that they sold or gave away for free to be used in the penny auctions. On August 17, 2012, the Securities and Exchange Commission (“SEC”) commenced a civil enforcement action (the “Enforcement Action”) against Burks and the Receivership Defendant. See (Doc. No. 2, Complaint filed Aug. 17, 2012) (the “SEC Complaint”). The SEC Complaint alleges that the Defendants engaged in (1) the unregistered offer and sale of securities in violation of Sections 5(a) and 5(c) of the Securities Act; (2) fraud in the offer or sale of securities in violation of Section 17(a) of the Securities Act; and (3) fraud in connection with the purchase or sale of securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC sought equitable relief, including injunctions against future violations of the securities laws, disgorgement, prejudgment interest, and civil monetary penalties. Simultaneous with the filing of the SEC Complaint, the SEC, the Receivership Defendant and Burks agreed to an order granting emergency relief, including a preliminary injunction, in the form of an order freezing the assets of the Receivership Defendant and appointing a Temporary Receiver over the estate of the Receivership Defendant. See (Doc. No. 4, Agreed Order Appointing Temporary Receiver And Freezing Assets of Defendant Rex Venture Group, LLC, filed Aug. 17, 2012), (“Initial Receiver Order”). 1 An Amended Order Appointing

Temporary Receiver was entered on August 30, 2012, expanding the definition of the
1

Capitalized terms used but not defined herein shall have the meanings ascribed them in the Initial Receiver Order.

2 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 2 of 10

Receivership Estate. See (Doc. No. 21, Order Granting in part and Denying in part Motion to Amend/Correct Order) (“Amended Receiver Order”) (collectively with the Initial Receiver Order the “Receiver Orders”). Pursuant to Paragraph 19 of the Initial Receiver Order, the Receiver took possession of two parcels of real estate owned by the Receivership Defendant: the main office and attached laundromat, located at 801 and 803 West Center Street, Lexington, NC (the “Main Office”), and a warehouse, located at 4095 Old Salisbury Rd, Lexington, NC (the “Warehouse”). The Receivership Defendant was also a tenant under leases for an office building, three storage units, and two apartments in Davidson County, NC, and a lease for a virtual corporate office in Las Vegas, Nevada. The Receiver terminated the lease on the Davidson County office building in the fourth quarter of 2012. The corporate apartments in Davidson County were prepaid by the Receivership Defendant through April 2013 prior to the Receiver’s appointment. The leases on these corporate apartments were not renewed. The Receiver terminated the lease on the storage units in the second quarter of 2013. The virtual office in Las Vegas, Nevada, was prepaid by the Receivership Defendant through April 25, 2015. The Receiver will not renew the lease on this virtual office. The Receiver is also in possession of personal property 2 that was located in the Main Office, the Warehouse, the leased apartments and three climate-controlled storage units (See Catalog, attached as Ex. B). All personal property from the corporate apartments and storage units has been transferred to the Warehouse in preparation for auction. Based upon its

Paragraph 37 of the Initial Receiver Order empowers the Receiver to dispose of the Receivership Defendant’s personal property “on terms and in the manner the Receiver deems most beneficial to the Receivership Estate.” The auction of personal property is therefore not the subject of this Motion. However, the Receiver believes that a combined auction of both personal and real property will be most cost-effective and beneficial to the Receivership Estate. The liquidation of personal property will therefore be discussed in this Motion to the extent that it is relevant to the auction process generally.

2

3 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 3 of 10

investigation to date, the Receiver has determined that all such personal property is owned by the Receivership Estate. The Receiver anticipates that certain third parties will claim an interest in some portion or all of this property. Based upon the evidence he has collected to date, the Receiver anticipates disputing any such interest asserted by such third parties. Notice of this Motion and the auction will be provided by first class mail to all former employees of the Receivership Defendant and any parties that are known to the Receiver that have asserted an interest in the real or personal property. Pursuant to Paragraphs 38 and 39 of the Receiver Order, the Receiver has retained auctioneers and appraisers to determine the value of the real and personal property of the Receivership Estate in order to assist with the liquidation of those assets. The Receiver has been working with its auctioneers and appraisers to establish a cost-effective means of disposing of these assets that will also secure the greatest possible recovery for the Receivership Estate. The Receiver believes that an auction to complete a public sale of the subject real and personal property is the best means of achieving these objectives. II. THE SUBJECT PROPERTIES A. The Main Office: 801 and 803 West Center Street, Lexington, Davidson County, NC; Tax PIN: 6725-02-59-4801; Deed Book 2041, Page 2402. The Main Office was the primary place of business of the Receivership Defendant. The office and attached laundromat were owned free and clear of all liens, claims and encumbrances by the Receivership Defendant. The laundromat is currently occupied by a lessee who is maintaining the business as a functioning laundromat. The lessee has communicated to the Receiver an intent to bid on the Main Office property at auction. Should the lessee fail to prevail

4 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 4 of 10

as the winning bidder at auction, the lessee has agreed to vacate the Main Office premises within 30 days of closing, at the request of the successful buyer. B. The Warehouse: 4095 Old Salisbury Road, Lexington, Davidson County, NC; Tax PIN: 6714-01-05-4777; Deed Book 2055, Page 1992. The Warehouse was owned free and clear of any liens, claims or encumbrances by the Receivership Defendant. Following the auction, the Receiver will have no further use for the property. III. THE AUCTION The proposed auction detailed herein is consistent with the requirements of 28 U.S.C. § 2001 and has been developed in accordance with the express recognition that the Court has discretion to determine how and whether those requirements have been met. See 28 U.S.C. § 2001. Approval of this auction process will ensure the cost-effective and efficient sale of the properties and will conserve the resources of both the Court and the Receivership Estate. Consistent with 28 U.S.C. § 2001, the proposed auction provides a framework that will allow the Receiver to efficiently liquidate the properties without burdening the Court. Paragraph 39 of the Receiver Order authorizes the Receiver to “take all necessary and reasonable actions to cause the sale or lease of all real property in the Receivership Estates, either at public or private sale, on terms and in the manner the Receiver deems most beneficial to the Receivership Estate, and with due regard to the realization of the true and proper value of such property.” The Receiver believes that the most efficient and beneficial way to liquidate these properties is by public auction to be conducted within 60 days of the Court’s issuance of an Order approving the Receiver’s proposed auction.

5 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 5 of 10

The Receiver has retained Iron Horse Auction Company, Inc. (“Iron Horse”), of Rockingham, North Carolina, to act as primary auctioneer to conduct the auction on the following terms: 1. Iron Horse will conduct the auction within 60 days of the issuance of the Court’s order approving the sale. The auction will be conducted at the Warehouse, and will be broadcast live in the manner described below. Due to the volume of personal property items, it may be necessary for Iron Horse to conduct the auction over a two-day period. If an extra day is needed, it will be fully advertised and identified as to which items are auctioned each day. 2. Iron Horse has transported, cataloged and photographed all personal property from the leased corporate apartments and storage units, and the smaller, non-furniture items from the Main Office to the Warehouse. The larger Main Office furniture pieces will remain at the Main Office and will be sold via power point presentation from the Warehouse. 3. At least Thirty days prior to auction, Iron Horse will market and advertise the auction of real and personal property by notice (See “Proposed Notice,” attached as Ex. A) sent via first class mail, using: a. A direct-mailing which advertises the auction and includes the Proposed Notice and a sales brochure created by Iron Horse, via U.S. Postal Service First Class Mail, to certain buyers of the types of property to be sold at the auction. Those parties will be largely drawn from a database maintained by Iron Horse (an estimated 2,500 potential buyers).; b. Preparation and distribution of a press release that includes the Proposed Notice to local and regional media outlets, including the Lexington Dispatch, Winston-

6 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 6 of 10

Salem Journal, Charlotte Observer, Greensboro News & Record, and Raleigh News & Observer. c. Distribution of the same press release and Proposed Notice to a national newswire service; d. Appropriate signage for the auction event and site; e. Display ads containing the Proposed Notice in local newspapers, including the Lexington Dispatch, Winston-Salem Journal, Charlotte Observer, Greensboro News & Record, and Raleigh News & Observer listing Internet websites that will host catalogs of the assets to be sold at auction; and f. The Receivership website, where the Proposed Notice and Internet websites that will host catalogs of the assets to be sold will be posted. 4. Iron Horse will broadcast the auction live over the Internet via a third-party Internet bidding platform in order to obtain bidders’ interest from outside the immediate geographical area surrounding Lexington. 5. Iron Horse will also accept absentee bids from pre-approved bidders in certain circumstances. 6. Each property will be sold “AS IS” WHERE IS” to the highest bidder. 7. Consistent with 28 U.S.C. § 2001, all of the auctioned property will be sold free and clear of all liens, claim and encumbrances. 8. Bids are firm offers and binding contractual agreements when submitted. 9. A 10 percent “buyer’s premium” will be charged to the buyers of the real and personal property over and above their last and highest auction bid, which will be the property of Iron Horse.

7 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 7 of 10

10. Any bidder who buys over the Internet will be charged a buyer’s premium of 15 percent to cover the additional cost of the Internet broadcast, currency transfer, and platform expense. 11. The successful bidder for the parcels of real property will be required to submit a deposit of 20 percent of the final contract purchase price within 24 hours of the auction either by cashier’s check, company or personal check accompanied by a bank letter of guarantee, or electronic funds transfer, with the balance due within 30 days after the approval by the Receiver. The party who submits the second highest bid shall agree that their bid will be irrevocable until the earlier of: (a) 60 days after the auction; and (b) closing of the sale to the successful bidder. 12. Iron Horse will provide its own security for the event, but the Receiver requests that a United States Marshal be present at the auction, pursuant to Paragraph 22 of the Receiver Order, in the event that there are any challenges to the Receiver’s authority to auction the real and personal property. 13. Iron Horse will charge a 15 percent commission to the Receivership Estate on the sale of the personal property, but will not charge a commission on the real property. 14. The Receiver, in conjunction with Iron Horse, will establish more detailed auction procedures, such as bidder qualifications, that are consistent with the terms outlined here. The procedures and qualifications will be published to prospective bidders prior to commencement of the auction. IV. BENEFIT TO THE RECEIVERSHIP ESTATE The proposed auction of the Lexington real property will serve the best interests of the Receivership Estate. The primary goal of a receivership is to provide a conduit through which

8 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 8 of 10

assets can be held, liquidated and distributed to the particular beneficiaries of the Receivership. SEC v. Wencke (Wencke II), 783 F.2d 829, 837 n.9 (9th Cir. 1986). Allowing the Receiver to liquidate the Lexington properties through public auction will most expeditiously further the goals of the Receivership. The proposed sale at auction will result in additional cash being deposited into the Receivership Estate’s accounts and will increase the overall recovery for claimants. The proposed sale will also allow the Receiver to avoid future maintenance and insurance costs, as well as taxes and utilities. This Court has discretion to allow the proposed public auction of the Main Office and Warehouse, as outlined above, under 28 U.S.C. § 2001(a). The Receiver believes that the auction as outlined above is the most expeditious and beneficial means of liquidating the properties. V. CONCLUSION Wherefore, the Receiver hereby respectfully requests that the Court approve (i) the proposed public auction, (ii) authorize the sale and transfer of title to the successful bidders , (iii) the notice procedures provided herein, and (iv) approve the notice attached hereto as Ex. A.

Dated: September 30, 2013

By:

/s/ Kenneth D. Bell Kenneth D. Bell, Esq., Receiver and MCGUIREWOODS LLP 201 North Tryon Street Suite 3000 Charlotte, NC 28202 Telephone: 704-343-2000 Facsimile: 704-343-2300 Attorneys for Receiver

9 Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 9 of 10

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 copies to counsel of record registered to receive electronic service in this action.

This the 30th day of September, 2013. /s/ Kenneth D. Bell Kenneth D. Bell

Case 3:12-cv-00519-GCM Document 159 Filed 09/30/13 Page 10 of 10

Sign up to vote on this title
UsefulNot useful