UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

Transcription

1 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 1 of 14 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION SECURITIES AND EXCHANGE COMMISSION, CIVIL ACTION FILE Plaintiff, NO. 1:14-CV-3030-RWS v. ZHUNRIZE, INC. and, JEFF PAN, Defendants. NOTICE OF FILING Michael Fuqua, as Receiver for the assets of Zhunrize, Inc. and Jeff Pan, and any entities owned by Pan who have received investor funds, including but not limited to D&A Capital Partners, by and through his undersigned counsel, hereby files the attached First Status Report for the First Quarter of This 30th day of April, /s/ Ann W. Ferebee Jennifer D. Odom Georgia Bar No jennifer.odom@bryancave.com Ann W. Ferebee Georgia Bar No ann.ferebee@bryancave.com

2 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 2 of 14 BRYAN CAVE LLP One Atlantic Center Fourteenth Floor 1201 West Peachtree Street Atlanta, Georgia Tel: ( Fax: ( Attorneys for the Receiver Danielle C. Parrington Georgia Bar No danielle.parrington@bryancave.com 2

3 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 3 of 14 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION SECURITIES AND EXCHANGE COMMISSION, CIVIL ACTION FILE Plaintiff, NO. 1:14-CV-3030-RWS v. ZHUNRIZE, INC. and, JEFF PAN, Defendants. RECEIVER S FIRST STATUS REPORT FOR THE FIRST QUARTER OF 2015 Michael Fuqua, as receiver for Zhunrize, Inc. and Jeff Pan, and any entities owned by Pan who have received investor funds, including but not limited to D&A Capital Partners (the Receiver, hereby files his First Status Report for the First Quarter of INTRODUCTION AND BACKGROUND 1. On September 22, 2014, the Securities and Exchange Commission ( SEC filed a Complaint for Injunctive and Other Relief in the United States District Court for the Northern District of Georgia against Jeff Pan ( Pan and Zhunrize, Inc. ( Zhunrize (collectively the Defendants, alleging that Zhunrize was an ongoing fraudulent multi-level marketing scheme operated by Pan.

4 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 4 of The SEC s Complaint alleged that the Defendants raised over $100 million from investors from 2012 through September Zhunrize purported to be a legitimate multi-level marketing business whereby investors purchased online stores to earn commissions by selling products at below retail prices as a result of Zhunrize s E-commerce Business Owner platform. Investors also earned commissions on the recruitment of new store owners and commissions on products sold through their stores. The SEC alleged that there were approximately 77,000 stores purchased during the period from 2012 through September Subsequent to the filing of the Complaint, the Court issued a Temporary Restraining Order Freezing Assets and for an Accounting, Order Prohibiting Destruction of Documents and Order Expediting Discovery ( TRO on September 22, The TRO was subsequently modified on October 9, 2014, to allow the Defendants to continue to operate the e-commerce platform for 30 days subject to a $2 million budget with spending constraints and with the understanding that Zhunrize would not solicit new investors nor collect hosting fees. 4. On December 18, 2014, the Defendants settled with the SEC, and Michael Fuqua was appointed Receiver by Court Order dated December 19,

5 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 5 of Pursuant to the terms of his appointment, the Receiver employed the following professionals: (a As expressly authorized in the December 19, 2014 Order, the Receiver employed Bryan Cave LLP as his counsel; (b The Receiver employed GlassRatner Advisory and Capital Group LLC, a firm of certified public accountants and finance professionals with experience in both forensic accounting and receivership accounting, as accountants for the Receivership; (c With the Court s approval, the Receiver retained employees from Vodaware, the company that created Zhunrize s website, to assist in pulling electronic data for use in the claims analysis; (d With the Court s approval, the Receiver has engaged BMC Group to assist with the claims process. BMC Group provides administration services for bankruptcy, mass tort settlements, and other matters involving a large number of claims. BMC Group has set up the Zhunrize Receivership website and system for s between the Receiver and investors. 3

6 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 6 of 14 31, SUMMARY OF OPERATIONS FOR QUARTER ENDING MARCH 31, 2015 This First Report covers the period from December 19, 2014 through March A. Securing the Books and Records of the Receivership. 6. The Receiver, the Receiver s counsel, and the Receiver s accountants have secured the books and records found at the Zhunrize office. The information recovered from the premises was limited, at best. From the premises the Receiver recovered: (a (b (c (d (e (f (g Miscellaneous bank statements; Copies of deposits; Check stubs with some supporting documentation; Limited employee records; Miscellaneous vendor invoices; Miscellaneous marketing material; The Quickbooks file from the Zhunrize server. Additionally, the Receiver and his team have obtained bank statements directly from institutions where various accounts were held and subsequently frozen by the SEC. 4

7 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 7 of Zhunrize outsourced its back office functions to Vodaware, an IT and business services company. The Receiver and his team has interviewed the Vodaware contractor who entered information into Quickbooks and paid bills as directed by Jeff Pan or Zhunrize employee Todd Spencer. This employee left Vodaware in September of The Receiver and his team are currently working with Vodaware to reconcile investor data with financial records obtained from QuickBooks, bank statements, and the investor data on the Zhunrize website hosted by Vodaware. B. Recovered Cash from Frozen Accounts and Liquidation of Assets 9. The Receiver and his team have recovered $45,695, from 17 Defendant accounts that were identified and frozen by the SEC. At this time, the Receiver believes that there is approximately $1.4 million remaining to be recovered: approximately $750,000 held at the Agriculture Bank of China in China, and a $638,000 prepaid tax to the IRS. The Receiver plans to file a motion for Court approval to engage counsel to assist in the repatriation of the Chinese funds. 10. There are only 2 material assets to be liquidated in this matter, Jeff Pan s residence located in Suwanee, GA, and a 1996 Acura MDX. [The residence has been appraised, and it has little to no equity.] The estimated value of the 5

8 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 8 of 14 vehicle is approximately $2,500. The Receiver is negotiating with Pan regarding a payment in lieu of turnover and will file a motion for Court approval once an agreement is reached. C. Interviews of Employees and Contractors 11. The Receiver and his team have interviewed Zhunrize employees/independent contractors with responsibilities for operations, human resources, marketing, IT, accounting, and the website. 12. The Receiver and his team have communicated with Jeff Pan through his attorney, and the Receiver has communicated with Pan directly via regarding questions about assets, location of documents, and repatriating funds from foreign banks. 13. None of the Zhunrize employees had knowledge of the location of Receivership Assets not already identified by the SEC and the Receiver. D. Establishment of the Receivership Website 14. The Receiver has set up a Receivership website, for communication with investors and creditors. Currently, a history of the case and court documents are posted on the website. The Receiver and his team are working to prepare an online claims form that will capture victim data in a database which can be reconciled to investor data collected 6

9 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 9 of 14 and maintained by Vodaware. An blast has been sent to approximately 85,000 addresses notifying them of the Receivership and the status of the claims process. E. Filing of Liquidation Plan 15. The Receiver filed his Liquidation Plan on April 17, [Dkt. No. 59.] The Liquidation Plan sets forth a 4-phase plan for the validation of claims and distribution of funds: (a During Phase I, the Receiver will reconcile the Zhunrize books and records to investor data. The Receiver anticipates completing Phase I within the next forty-five (45 days. (b During Phase II, the Receiver will file a motion to approve the claims form and process and to request the Court to set a bar date for all claims that will expire ninety (90 days after distribution of the claims forms. (c During Phase III, the Receiver will conduct the claims analysis and calculate the pro-rata recoveries. The Receiver anticipates that he will need approximately sixty (60 days following the bar date to conduct the analysis, at which time the Receiver will notify victim 7

10 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 10 of 14 investors, and each victim investor will be given sixty (60 days from the date of notice to object. (d During Phase IV, the Receiver will disburse the funds to victims within thirty (30 days following the Court s approval of the Receiver s proposed recovery amount and pro-rata distribution plan. F. Responding to Investor Inquires 16. The Receiver has responded to inquiries submitted to the SEC, the Receivership website, and directly to the Receiver. G. Preparing Reconciliation of Investor and Vendor Data for Claims Process 17. The Receiver is working with Vodaware to extract investor information from the investor databases to reconcile it with the financial data recovered in QuickBooks, outside merchant processors, and the bank statements. While the Receiver and his team are hopeful that reconciliation is achievable, the data recovery efforts are challenging because Zhunrize was Vodaware s only customer. As a result of the closing of Zhunrize, Vodaware was effectively closed as well, and it laid off its programmers that were developing and maintaining the Zuhnrize software. Consequently, the Receiver is reliant on Vodaware to coordinate former Vodaware employees to assist during their spare time. The 8

11 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 11 of 14 Court approved the Receiver s motion to retain Vodaware employees to assist with the reconciliation project. 18. This activity is critical to the success of the Receivership because it will allow victims to submit claims data online that should be able to be verified by the Receivership data and financial records. Additionally, the reconciliation will allow the Receivership to pursue and defend any potential claw-back actions. H. Receivership Assets Cash on Hand 19. The Receivership currently has $45,672, of cash on deposit in a Receivership account with Wells Fargo Bank. Schedule of Receipts and Deposits 20. See the attached exhibits: (a (b (c Exhibit A SFAR Exhibit B Detail of recovered funds Exhibit C Detail of expense payments Inventory 21. There is a small amount of inventory of 2 products located in the Glenridge office: a powdered drink, and beauty product. The Receiver anticipates filing a motion for Court approval to abandon or dispose of these products. 9

12 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 12 of 14 Servers 22. There are 2 servers at the Glenridge office. These servers have not been paid for and are subject to a claim. The Receiver has recovered the information from the servers and proposes to return them to the vendor in return for the release of the vendor s claim. Pan s Residence and Car 23. As referenced above, the Receiver and his team are negotiating with Pan for a cash payment in lieu of foreclosing and selling his house on the open market and taking possession of the car. Miscellaneous Office Furniture 24. There is miscellaneous office furniture at the Glenridge office location. The Receiver anticipates filing a motion for Court approval to abandon it to the landlord, as it has little to no cash value and the cost to liquidate it would exceed any revenues generated from the sale. I. Vendor/Employee Claims and Receivership Claims 25. Through March 31, 2015, approximately $525,000 of potential vendor and employee claims have been identified. 26. The Receiver and his team continue to research and evaluate potential claims against third parties. 10

13 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 13 of 14 CONCLUSION All information stated above is based on the knowledge of the Receiver at this point in time, and later developments and discoveries may cause the information reported herein to be outdated or incorrect. The Receiver will continue to provide the Court with updates on a quarterly basis, as provided in the December 19, 2014 Order. Respectfully submitted this 30th day of April, /s/ Michael Fuqua Michael Fuqua, Receiver 11

14 Case 1:14-cv RWS Document 60 Filed 04/30/15 Page 14 of 14 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION SECURITIES AND EXCHANGE COMMISSION, CIVIL ACTION FILE Plaintiff, NO. 1:14-CV-3030-RWS v. ZHUNRIZE, INC. and JEFF PAN, Defendants. CERTIFICATE OF SERVICE I hereby certify that I electronically filed the foregoing RECEIVER S FIRST STATUS REPORT FOR THE FIRST QUARTER OF 2015 with the Clerk of Court using the CM/ECF system which will automatically send notification of such filing to the attorneys of record. This 30th day of April, /s/ Ann W. Ferebee Ann W. Ferebee Georgia Bar No