UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

Transcription

1 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 1 of 9 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. ) ) The Liquidation Plan Michael Fuqua, as Receiver for Zhunrize, Inc. ( Zhunrize ) and Jeff Pan ( Pan ), by and through his undersigned counsel, hereby files his Liquidation Plan, showing the Court as follows: 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 Pan and Zhunrize (collectively the Defendants ), alleging that Zhunrize was an ongoing fraudulent multi-level marketing scheme operated by Pan.

2 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 2 of 9 2. 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 were told they would earn 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 beginning in 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 Zhunrize s e-commerce platform for thirty (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 Mr. Fuqua was appointed Receiver by order of the Court on December 19,

3 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 3 of 9 Defendants Assets 5. The primary asset of the Defendants was deposits in bank accounts. As of the date of this filing, the Receiver has recovered $45.9 million from various accounts. Attached at Exhibit A is a summary of recovered funds. At this time, there is approximately $750,000 remaining in the Agriculture Bank of China in China. The Receiver will be filing a motion to seek approval to engage Chinese counsel to assist with the repatriation of these funds by negotiating with the Chinese government in an effort to overcome Chinese rules preventing transfer of more than $50,000 a year from bank accounts in China outside the country. 6. Zhunrize made a $638,000 tax pre-payment to the IRS, and the Receiver will make efforts to recover this tax payment. 7. Zhunrize had personal property assets limited to miscellaneous office furniture, computers, and several servers. Zhunrize purportedly operated under a Software License and Services Agreement with Vodaware, an IT and business services company. The agreement called for Vodaware to provide Zhunrize with office space, phone system, cubicles, accounting services, sales and marketing assistance, investor hosting services, and the software to execute investor transactions as well as maintain the investor 3

4 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 4 of 9 data. The server vendor has not been paid for the servers, and almost all laptop computers are missing from the premises. There are small amounts of product (such as makeup and vitamin supplements) in the Zhunrize offices. The assets listed in this paragraph have little if any value and will result in a loss of value to the Receivership if the Receiver attempts to recover and liquidate them. The Receiver anticipates filing a motion for the Court s approval to abandon property with little or no value. 8. Jeff Pan s disclosure of his personal assets identify a 1996 Acura MDX and a residence located in Suwanee, GA as his only assets that are material and readily liquidated. The residence is currently occupied by Defendant Pan s ex-wife, his two children and his ex-wife s parents. In lieu of seizing the residence and car, the Receiver is negotiating with Pan to receive a cash payment in an amount that is the difference between the appraised value and outstanding indebtedness. After an agreement is reached, the Receiver will file a motion to approve any such settlement. 9. The Receiver has recovered the funds from Pan s personal accounts at BB&T ($48,869) and MetroCity Bank ($18,617). 10. The Receiver and his counsel are investigating other potential claims. 4

5 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 5 of 9 The Liquidation Plan 11. As noted above, the only assets left to liquidate and collect are the residence, car, IRS prepayment, and funds held in China. Cumulatively, the proceeds of these additional recoveries will be approximately $1.4 million, 1 in addition to any other amounts that the Receiver can recover through other claims. 12. Combined with the funds already recovered, the Receiver expects to have approximately $47 million to return to investors and creditors, less the costs and expenses of the Receivership. 13. The validation of claims and distribution of funds under the liquidation plan will take place in 4 phases: a. Phase I The Receiver will reconcile the Zhunrize books and records to investor data. GlassRatner Advisory & Capital Group, accountants to the Receiver, will reconcile the limited financial records kept by Zhunrize, store owner data and records kept on the Zhunrize website, bank statements and other third-party financial records to build a database of investor transactions and their net investment at the time of the Receivership. The Receiver will use this data to develop an 1 Assumes full recovery of the $638,000 from the IRS and $750,000 from China. 5

6 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 6 of 9 online claims form that will capture self-reported information in a format that can be matched to the recovered data. The Receiver anticipates completing Phase I within the next sixty (60) days. b. Phase II When the claims form is ready, 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. The Receiver will request a bar date that will expire ninety (90) days after the distribution of the claims forms. After approval, the Receiver will post the online claims form on the Receivership website. ( and send out an blast to victims alerting them that the claims form is ready and the claims process is ready to begin. The online claims form data will be received online from victims/investors and the information archived in a database. At the end of the claims period the claims data will be compared to the data prepared in Phase I. Investors and creditors will be offered the option to file a paper claim form as well. c. Phase III The Receiver anticipates that he will need approximately sixty (60) days following the bar date to conduct the claims analysis and calculate the pro-rata recoveries. After the analysis is complete, 6

7 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 7 of 9 the Receiver will notify all victim investors of the approved amount of their claims, and each will be given sixty (60) days following the date of notice to object to the Receiver s determination. The Receiver anticipates needing thirty (30) to sixty (60) days to reconcile any objections and to determine a final proposed recovery amount for approved claims. At the expiration of the objection period described above, the Receiver will file a motion to approve the proposed recovery amount and the distribution of funds. d. Phase IV Distribution of funds. After the Court has approved the proposed recovery amount and the distribution of funds, the Receiver will disburse the funds to the victims within thirty (30) days. The Receiver will within thirty (30) to sixty (60) days thereafter file final reports, petitions and a motion to close the receivership. This 17th 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 Danielle C. Parrington Georgia Bar No danielle.parrington@bryancave.com 7

8 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 8 of 9 BRYAN CAVE LLP One Atlantic Center Fourteenth Floor 1201 West Peachtree Street Atlanta, Georgia Tel: (404) Fax: (404) Attorneys for the Receiver 8

9 Case 1:14-cv RWS Document 59 Filed 04/17/15 Page 9 of 9 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 LIQUIDATION PLAN with the Clerk of Court using the CM/ECF system which will automatically send notification of such filing to the attorneys of record. This 17th day of April, /s/ Ann W. Ferebee Ann W. Ferebee Georgia Bar No