Tagged Opinion for Print Publication

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

FORT LAUDERDALE DIVISION

In re:

Case No. 21-13961-PDR

Kishma Reefe,

Chapter 7

Debtor.

/

Nationwide Judgment Recovery, Inc.,

Plaintiff,

v. Adv. Case No. 21-01246-PDR

Kishma Reefe,

Defendant.

/

ORDER GRANTING DEFENDANT’S MOTION

TO DISMISS SECOND AMENDED COMPLAINT

Peter D. Russin, Judge

United States Bankruptcy Court

_____________________________________________________________________________

ORDERED in the Southern District of Florida on April 28, 2022.

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 1 of 19
Page 2 of 19

The Eleventh Circuit has held that § 523(a)(19) is not dependent on debtor 

conduct and, consequently, a debt for a securities law violation by a third party is 

nondischargeable “as long as the securities violation caused the debt.” Lunsford v. 

Process Tech. Servs., LLC (In re Lunsford), 848 F.3d 963, 967–68 (11th Cir. 2017).

But does the Eleventh Circuit’s holding necessarily encompass all debts that have 

been touched at some point by a third party’s securities law violation? That is the 

question posed by Defendant in her Motion to Dismiss. For a debt to be “caused by a 

securities law violation” of a third-party and held non-dischargeable under § 

523(a)(19), Lunsford requires that the debtor be a party to the decision in which the 

court enters the judgment against the third-party for the securities law violation. The 

Defendant is not a party to the applicable judgment here, requiring dismissal of the 

§ 523(a)(19) count.

Background

The Second Amended Complaint tells an all too familiar story of financial 

fraud. Paul Burks, the owner and former top executive of Rex Venture Group, LLC 

(“RVG”), and other management insiders used RVG in their operation of a massive 

Ponzi and pyramid scheme through ZeekRewards from at least January 2011 until 

August 2012.1 Over 700,000 participants lost over $700 million dollars in the scheme.2

Burks and the management insiders used ZeekRewards to promise substantial 

1 (Doc. 20, Ex. 3). Docket entries filed in this adversary proceeding are cited as “(Doc. XX)”; 

docket entries filed in In re Kishma Reefe, No. 21-13961-PDR (Bankr. S.D. Fla.) are cited as “(Main 

Case Doc. XX).”

2 (Doc. 20 at 2).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 2 of 19
Page 3 of 19

payouts and outsize returns to all participants, but few actually benefitted.3 Those 

who did were paid not with profits from a legitimate retail operation, but rather from 

money paid in by later investors in the scheme. The largest “Net Winners”—those 

who received more money from ZeekRewards than they paid in—each received well 

over a million dollars, and many others received hundreds of thousands of dollars.4

On August 17, 2012, the Securities and Exchange Commission filed an action, 

Securities and Exchange Commission v. Rex Venture Group, LLC d/b/a 

ZeekRewards.com and Paul Burks (“SEC Action”),

5 to obtain injunctive and monetary 

relief against Burks, shut down the ZeekRewards Ponzi and pyramid scheme, freeze 

RVG’s assets, and seek appointment of a Receiver for RVG.6 That same day, RVG, 

through Burks, consented to entry of judgment in favor of the SEC. As a result, the 

court entered consent judgments against RVG and Burks enjoining them from 

violating the federal securities statutes or participating in, or facilitating, the 

solicitation of any investment in any security or in the offering of a security. The court

also entered an agreed order appointing Kenneth D. Bell as the Receiver over the 

assets, rights, and all other interests of the estate of RVG d/b/a 

www.ZeekRewards.com and its subsidiaries.7 The agreed order authorized and 

3 (Doc. 20, Ex. 3).

4 (Doc. 20, Ex. 3).

5 See (Doc. 20, Exs. 3, 6); SEC v. Rex Venture Grp. et al., No. 3:12-cv-519 (W.D.N.C. Aug. 17, 

2012). 

6 (Doc. 20, Ex. 3).

7 (Doc. 20, Ex. 3).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 3 of 19
Page 4 of 19

directed the Receiver to institute legal proceedings seeking the avoidance of 

fraudulent transfers and any other legal and equitable relief that the Receiver 

deemed necessary and appropriate to preserve and recover RVG’s assets for the 

benefit of the receivership estate. Defendant was not a party to the SEC Action. 

In 2014, the Receiver filed an action to recover money from named and other 

defendants, including the certified Net Winner Class (“Receiver Action”).

8 Defendant 

is a Net Winner Class Member. In 2016, the court in the Receiver Action granted 

summary judgment in favor of the Receiver finding that “transfers from the scheme . 

. . may be avoided” under the North Carolina Uniform Fraudulent Transfer Act 

(NCUFTA) (“Judgment Opinion”).9 The court deemed the defendants, including Net 

Winner Class Members, to be “actual participants and investors” in the scheme in the 

context of addressing the defendants’ “reasonably equivalent value” defense, stating:

. . . [P]articipants and investors in a Ponzi scheme cannot establish that 

they gave “reasonably equivalent value” for their winnings through 

their efforts participating in and recruiting others to the scheme. Nearly 

all the courts that have considered this issue have determined that 

participants and investors may be entitled to a return of their principal 

investment, but must return the amount received beyond that 

investment. See, e.g., Perkins v. Haines, 661 F.3d 623, 627 (11th Cir. 

2011) (“In the case of Ponzi schemes, the general rule is that a defrauded 

investor gives ‘value’ to the Debtor in exchange for a return of the 

principal amount of the investment, but not as to any payments in 

excess of principal.”); see also Wing, 482 F. App’x at 365–66; In re AFI 

Holding, Inc., 525 F.3d at 704; Warfield v. Byron, 436 F.3d 551, 560 (5th 

Cir. 2006); Scholes v. Lehmann, 56 F.3d 750, 757–58 (7th Cir. 1995). The 

Ninth Circuit has explained one rationale for this rule: “The policy 

justification is ratable distribution of remaining assets among all the 

8 See (Doc. 20, Ex. 3); Bell v. Disner, No. 3:14-cv-91 (W.D.N.C. Feb. 28, 2014).

9 (Doc. 20, Ex. 3); Bell v. Disner, No. 3:14-cv-91, 2016 WL 7007522, at *11 (W.D.N.C. Nov. 29, 

2016). 

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 4 of 19
Page 5 of 19

defrauded investors. The ‘winners’ in the Ponzi scheme, even if innocent 

of any fraud themselves, should not be permitted to ‘enjoy an advantage 

over later investors sucked into the Ponzi scheme who were not so 

lucky.’” Donell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008) (quoting In 

re United Energy Corp., 944 F.2d 589, 596 (9th Cir. 1991)). 

(emphasis added).10 The court did not find that the Net Winner Class Members

committed any securities law violation or fraud. In August 2017, the court in the 

Receiver Action entered a final judgment against Defendant as a Net Winner Class 

Member for “$74,062.74 which is comprised of $55,149.26 in net winnings from the 

ZeekRewards scheme and $18,913.48 in prejudgment interest” (“Final Judgment”).11

Defendant filed a Chapter 7 petition on April 25, 2021, listing Plaintiff12 in her 

schedules as holding an unsecured claim of $74,062.74 from the Final Judgment.13

There was no distribution to creditors in the bankruptcy case and Defendant received 

a discharge on August 4, 2021.14

Before Defendant obtained her discharge, Plaintiff filed this adversary 

proceeding seeking a determination that the debt from the Final Judgment is 

nondischargeable under § 523(a)(19) for debts arising from judgments for securities 

law violations, and § 523(a)(2)(A) for money obtained by fraud. Plaintiff alleges that 

the Final Judgment “is a debt owed by the Defendant Debtor for the fraudulent 

10 (Doc. 20, Ex. 3, at 23).

11 (Doc. 20, Exs. 1, 4). 

12 Plaintiff received an assignment of the Final Judgment on December 17, 2019, along with 

the full portfolio of judgments obtained against other Net Winners. (Doc. 20 at 4). 

13 (Main case Doc. 1 at 21).

14 (Main case Doc. 22).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 5 of 19
Page 6 of 19

transfers she received as a result of her participation in the ZeekRewards Ponzi 

scheme.”15 Defendant moved for dismissal of the previous complaint, which the Court 

granted because it failed to satisfy the heightened pleading standard for fraud and 

gave Plaintiff leave to amend.

16 Plaintiff amended the complaint (“Second Amended 

Complaint”), and Defendant filed the Motion to Dismiss. For the following reasons, 

the Motion is granted.

Jurisdiction

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b). The 

Court has statutory authority to hear and determine this case under 28 U.S.C. 

§157(b)(2)(I) and the general order of reference from the United States District Court 

for the Southern District of Florida. S.D. Fla. Local Rule 87.2(a). Venue is proper 

under 28 U.S.C. § 1409.

Legal Standard

Fed. R. Bankr. P. 7012 applies Fed. R. Civ. P. 12 to adversary proceedings. 

Motions under Rule 12(b)(6) are designed to test the legal sufficiency of the complaint.

See GSW, Inc. v. Long Cty., 999 F.2d 1508, 1510 (11th Cir. 1993). When deciding a 

motion under Rule 12(b)(6), the Court must treat all well-pleaded facts as true and 

interpret all facts in the light most favorable to the plaintiff. See Ortiz v. Deutsche 

Bank AG (In re Estrategias en Valores, S.A.), 628 B.R. 722, 726 n.1 (Bankr. S.D. Fla. 

2021) (citing Resnick v. AvMed, Inc., 693 F.3d 1317, 1321–22 (11th Cir. 2012)). “To 

15 (Doc. 20).

16 (Doc. 17). 

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 6 of 19
Page 7 of 19

survive a motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. 

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 

(2007)).

In general, to state a claim, an adversary complaint must satisfy Fed. R. 

Bankr. P. 7008, which applies Fed. R. Civ. P. 8. Under Rule 8(a)(2), a claim for relief 

must include “a short and plain statement of the claim showing that the pleader is 

entitled to relief.” Where the adversary complaint asserts a claim for fraud or 

mistake, however, the allegations must satisfy the heightened pleading standard 

under Fed. R. Bankr. P. 7009, which applies Fed. R. Civ. P. 9.17 Under Rule 9(b),

allegations must “state with particularity the circumstances constituting fraud or 

mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be 

alleged generally.” Fed. R. Civ. P. 9(b). To satisfy the heightened pleading standard 

of Rule 9, the complaint must provide at least “some indicia of reliability” to support 

the fraud allegations, which may be accomplished by pleading “facts as to time, place, 

and substance of the defendant’s alleged fraud, specifically the details of the 

defendants’ allegedly fraudulent acts, when they occurred, and who engaged in 

them.” United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1310–11 

(11th Cir. 2002); see also FindWhat Inv. Grp. v. FindWhat.com, 658 F.3d 1282, 1296 

17 The requirements of Rule 9(b) serve “an important purpose in fraud actions by alerting 

defendants to the precise misconduct with which they are charged and protecting defendants against 

spurious charges of immoral and fraudulent behavior.” Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194, 

1202 (11th Cir. 2001) (cleaned up).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 7 of 19
Page 8 of 19

(11th Cir. 2011). In short, “to survive a motion to dismiss, Plaintiffs must assert the 

who, what, when, and where of the purported fraud.” Cox-Tanner v. Taylor, Bean, & 

Whitaker Mortg. Corp. (In re Taylor, Bean, & Whitaker Mortg. Corp.), No. 3:09-BK7047-JAF, 2011 WL 5245420, at *5 (Bankr. M.D. Fla. 2011). 

Analysis

Plaintiff seeks relief under two possible theories. Count I seeks relief under 11 

U.S.C. § 523(a)(19), which excepts from discharge certain debts resulting from 

securities law violations or fraud in the sale or purchase of securities. Count II seeks 

relief under 11 U.S.C. § 523(a)(2)(A), which excepts from discharge debts “for money, 

property, services, or an extension, renewal, or refinancing of credit, to the extent 

obtained by . . . false pretenses, a false representation, or actual fraud.” Defendant 

contends that the Second Amended Complaint should be dismissed because Plaintiff 

fails to allege that Defendant violated any securities laws or committed common law 

fraud and Count II is a shotgun pleading.

I. Count I: 11 U.S.C. § 523(a)(19). 

A discharge does not discharge an individual debtor from any debt:

(19) that –

(A) is for –

(i) the violation of any of the Federal securities laws (as that 

term is defined in section 3(a)(47) of the Securities 

Exchange Act of 1934), any of the State securities laws, or 

any regulation or order issued under such Federal or State 

securities laws; or

(ii) common law fraud, deceit, or manipulation in connection 

with the purchase or sale of any security; and

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 8 of 19
Page 9 of 19

(B) results, before, on, or after the date on which the petition was 

filed, from –

(i) any judgment, order, consent order, or decree entered in 

any Federal or State judicial or administrative proceeding;

(ii) any settlement agreement entered into by the debtor; or

(iii) any court or administrative order for any damages, fine, 

penalty, citation, restitutionary payment, disgorgement 

payment, attorney fee, cost, or other payment owed by the 

debtor.

11 U.S.C. § 523(a)(19); see Allen v. Loughery (In re Loughery), 457 B.R. 904, 907 

(Bankr. N.D. Ga. 2011). Defendant argues the Second Amended Complaint fails to 

state a claim under § 523(a)(19) because the judgment that Plaintiff relies on to 

satisfy § 523(a)(19)(B) does not satisfy either provision of § 523(a)(19)(A) because it

makes no finding that Defendant violated securities laws or committed common law 

fraud in connection with the purchase or sale of securities. 

Although the Second Amended Complaint alleges that Defendant’s 

participation in the scheme facilitated the violation of securities laws by third parties 

and the Final Judgment resulted from the violation of securities laws, it does not 

allege that Defendant herself violated any securities laws.18 Neither did the 

Judgment Opinion in the Receiver Action find that Defendant, individually, violated 

any securities laws. The Final Judgment is instead for the avoidance of fraudulent 

transfers to Defendant. The determinations of securities law violations were made in 

the SEC Action in which the Defendant was not a party and was wholly uninvolved. 

18 (Doc. 20 at 79–80). 

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 9 of 19
Page 10 of 19

So, the Second Amended Complaint relies on the fact that the Final Judgment 

resulted from a violation of securities laws by a third party and that Defendant is 

said to have “participated” in the scheme that facilitated those violations. However, 

the Judgment Opinion noted this participation solely in the context of the discussion 

of whether there was a “reasonably equivalent value” defense to the finding of 

fraudulent transfers, not in finding that Defendant had also committed securities law

violations or fraud. In fact, the discussion surrounding the issue suggests that 

Defendant could be “innocent of any fraud.”

19

Plaintiff cites Lunsford for the proposition that § 523(a)(19) does not require 

Defendant herself to have violated securities laws because a debt for a securities law 

violation by a third party is nondischargeable “as long as the securities violation 

caused the debt.”20 Thus, Plaintiff argues, the Second Amended Complaint 

sufficiently alleges that “Defendant’s debt arose from the securities violations or 

securities fraud of another.”21 While the Eleventh Circuit’s alternative holding in

Lunsford indeed opined that § 523(a)(19)(A) may apply to debts resulting from 

securities law violations of a third party, it is inapplicable to the facts of this case.22

19 (Doc. 20, Ex. 3, at 24).

20 (Doc. 28 at 6–7 (quoting Lunsford, 848 F.3d at 967–68.)). 

21 (Doc. 28 at 6–7).

22 In Lunsford, the state court confirmed an arbitration award and entered a final judgment 

against the debtor and two other parties. 848 F.3d at 965–69. The creditor then commenced an 

adversary proceeding in the debtor’s bankruptcy case to avoid discharge of the judgment under § 

523(a)(19). The bankruptcy court and district court agreed that the arbitrator had found that the 

debtor violated securities laws and the debt would not be discharged, and the debtor appealed. The 

Eleventh Circuit affirmed the decision excepting the debt from discharge, concluding that the 

bankruptcy court had sufficient reason to determine that the arbitrator made a specific finding that 

the debtor violated securities laws. The court alternatively held that § 523(a)(19)(A) applies regardless 

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 10 of 19
Page 11 of 19

In Lunsford, the Eleventh Circuit held that § 523(a)(19)(A) makes no 

distinction between the debtor committing the securities law violation and 

circumstances “when the debtor’s liability arises from securities violations committed 

by a third party.” 848 F.3d at 967.23 The court concluded that the “text and structure

of section 523(a)(19)(A) unambiguously prevent discharge of debts ‘for the violation’

of securities laws irrespective of debtor conduct.” Id. at 967–68. The Eleventh Circuit

explained that the term “for” denotes causation so the phrase ‘debt for’ “refers to debt 

caused by a violation of securities laws” without restriction to “subsets of causation.”

Id. In support of its statutory interpretation, the court noted that Congress did not 

limit § 523(a)(19) based on debtor conduct as it has with other provisions in the 

statute and the same section of the Bankruptcy Code. Id.

However, the Eleventh Circuit also distinguished its holding from a Tenth 

Circuit case. Id. at 968–69 (distinguishing Okla. Dep’t of Sec. v. Wilcox, 691 F.3d 1171, 

1176 (10th Cir. 2012)). In Wilcox, the Tenth Circuit concluded that a state court 

of whether the debtor or a third party violated securities laws so long as the judgment is “for” a 

violation of securities law. See Alvarez Perez v. Sanford–Orlando Kennel Club, Inc., 515 F.3d 1150, 

1164 (11th Cir. 2008) (“[A]lternative holdings are binding precedent”). However, Lunsford is careful to 

distinguish at least one situation in which a third-party violation of securities laws did not fall within 

§ 523(a)(19), as discussed herein.

23 The Eleventh Circuit disagreed with the Tenth and Ninth Circuits on whether a debt 

resulting from a third-party’s violation of securities laws may be excepted from discharge under § 

523(a)(19). See Oklahoma Dep’t of Sec. v. Wilcox, 691 F.3d 1171, 1176-77 (10th Cir. 2012); Sherman v. 

Sec. and Exch. Comm’n (In Re Sherman), 658 F.3d 1009, 1012 (9th Cir. 2011). Courts in other circuits 

dealing with judgments against ZeekRewards participants and the same set of facts as in this case 

have agreed with the Tenth and Ninth Circuits that § 523(a)(19) only excepts debts for the debtor’s 

own securities violations. See Nationwide Judgment Recovery, Inc. v. Holtz (In re Holtz), No. 20-01043, 

2021 WL 5596413, at *5 (Bankr. S.D. Ohio Nov. 17, 2021) (citing Uren v. Schuholz (In re Schuholz), 

No. 18-13108, 2019 WL 11639553, at *7 (Bankr. S.D. Ohio Oct. 18, 2019) (discussing circuit split)); 

National Judgment Recovery Inc. v. Simons (In re Simons), No. 21-04027, 2021 WL 5225940, at *5

(Bankr. D. Minn. Nov. 9, 2021); Nationwide Judgment Recovery, Inc. v. Geredine (In re Geredine), 632 

B.R. 502, 505 (Bankr. E.D. Mich. 2021). 

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 11 of 19
Page 12 of 19

judgment for unjust enrichment against investors in a Ponzi scheme could be 

discharged 

because “[t]he judgments at issue [we]re not ‘for a violation’ of securities 

laws but for unjust enrichment resulting from someone else’s violation 

of those statutes.” In contrast, Lunsford’s debt d[id] not arise from a 

judgment against him for unjust enrichment. Lunsford was a party to 

the same decision in which the state court entered a judgment against 

[the third-party] for a violation of securities laws.

Id. (quoting Wilcox, 691 F.3d at 1173, 1175). The Eleventh Circuit therefore concluded 

that the Wilcox “decision involved circumstances inapplicable” to Lunsford. Id. Based 

on that distinction, for a debt to be “caused by a securities law violation” of a thirdparty and be held non-dischargeable under § 523(a)(19), Lunsford requires that the 

debtor be a party to the decision in which the court enters the judgment against the 

third-party for the securities law violation.

The facts and circumstances of this adversary resemble those in Wilcox. See

Wilcox, 691 F.3d at 1173. In Wilcox, the debtors were investors in the Ponzi scheme 

but never prosecuted for securities law violations. Instead, separate actions were filed 

against the Ponzi scheme investors that had profited, to recoup funds on the grounds 

of unjust enrichment, fraudulent transfer, and equitable lien. After the state court in 

the action against the debtors granted summary judgment requiring the debtors to 

repay their profits from the scheme, they filed for bankruptcy. The adverse party then 

initiated a proceeding to avoid discharge of the judgment debt arguing that “the state 

court judgment [was] ‘for the violation’ of securities laws because the disgorgement 

was a direct result of [another]’s violation of securities laws and because the Debtors 

materially aided in the violation.” Id. at 1174.

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 12 of 19
Page 13 of 19

Like in Lunsford, the debt in Wilcox to some extent arose out of or was touched 

by someone else’s securities law violations. The critical distinction however is that

the Eleventh Circuit found causation in Lunsford because the third party was 

adjudged to have violated securities laws in litigation involving the debtor. In Wilcox, 

the third party was adjudged to have violated securities laws in litigation not 

involving the debtor. While the judgment in Wilcox may have led to related but 

separate litigation against the debtor for claims other than securities law violations,

unlike the facts in Lunsford, the debtor was not a party to the securities law violation 

judgment—a distinction the Eleventh Circuit found made Wilcox inapplicable.

24

In striking similarity to the facts in Wilcox, the Defendant here was not a party 

in the SEC Action in which the court entered the judgment against the third parties

for the securities law violations. The Eleventh Circuit’s determination that Wilcox is 

inapplicable to its holding in Lunsford leads the Court to the inescapable conclusion

24 The Lunsford concurrence points out the possible confusion that this distinction creates:

[U]nder the Majority’s reasoning, though the judgments that were the cause of the 

debts at issue in Wilcox were for unjust enrichment, they nonetheless also seem to be 

“debt as a result of” a securities-fraud violation and therefore non-dischargeable under 

§ 523(a)(19)(A). Yet the panel suggests that § 523(a)(19)(A)’s preclusion did not apply 

to the Wilcox investors’ situation because “‘[t]he judgments at issue [in Wilcox] [we]re 

not “for a violation” of securities laws but for unjust enrichment resulting from 

someone else’s violation of those statutes.’” This internal inconsistency in the panel’s 

reasoning will no doubt create confusion about how courts and litigants in this Circuit 

are to construe and apply our alternative holding.

848 F.3d at 970. As the concurrence notes, it is possible that the Lunsford holding’s distinction of

Wilcox ultimately rests on the fact that the judgment against the debtor for unjust enrichment in 

Wilcox “was not, in name, a judgment for securities violations” and the debtor was not a party to the 

litigation resulting in the judgment against third parties for securities law violations. Id.

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 13 of 19
Page 14 of 19

that the Eleventh Circuit would similarly find Lunsford inapplicable to this case,

therefore rendering § 523(a)(19) inapplicable.

Plaintiff also alleges that Defendant “committed common law fraud, deceit and 

manipulation in connection with the purchase and sale of any security by managing 

a portfolio of fake ZeekRewards accounts that she collected funds from.”

25 However, 

even if the Second Amended complaint sufficiently alleged that the debt is for fraud 

under § 523(19)(A)(ii), the debt would still need to result from a judgment for fraud 

in the sale or purchase of securities. Although the court in the Receiver Action found 

that the transfers from which Defendant received her winnings from the Ponzi 

scheme were fraudulent transfers under the NCUFTA and deemed Defendant and 

other Net Winners to be actual participants and investors in the scheme in the 

context of their “reasonably equivalent value” defense, it did not attribute any 

fraudulent intent or conduct to them much less in relation to the sale and purchase 

of securities. See In re Simons, 2021 WL 5225940, at *8 (finding in a case also dealing 

with a SeekRewards Net Winner that “[t]he Summary Judgment Order and Final 

Judgment are based on fraudulent transfers under the NCUFTA and do not indicate 

that the transfers involved a security or were in connection with the buying or selling 

of securities” so § 523(a)(19)(A)(ii) did not apply). Plaintiff’s argument therefore fails 

in this regard.

The Court would note that there may be circumstances in which an honest

debtor invests unwittingly in what turns out to be a Ponzi scheme and is a “net 

25 (Doc. 20 ¶ 63). 

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 14 of 19
Page 15 of 19

winner” resulting in a debt for unjust enrichment, fraudulent conveyance, or some 

other theory to some extent touched by a securities law violation. The Eleventh 

Circuit’s holding in Lunsford may result in § 523(a)(19) casting a wide net that may 

snare such an honest debtor. Whether Congress intended such a result is not before 

the Court as the alternative holding in Lunsford found the statute unambiguous and 

is binding. 26 That is not to say the Defendant in this case is such an honest debtor—

that is yet to be determined. But as discussed, § 523(a)(19) is not the mechanism by 

which to make that determination under the facts alleged in the Second Amended 

Complaint.

The fact that Defendant was not a party to the SEC Action and the findings of 

the court in the Receiver Action are unalterable. Therefore, the defects in Count I of

the Second Amended Complaint are incurable, and the Plaintiff is unable to state a 

claim under § 523(a)(19). Where “a more carefully drafted complaint could not state 

a claim,” dismissal with prejudice is appropriate. Ziemba, 256 F.3d at 1213; see, e.g., 

Durango Ga. Paper Co. v. Pension Benefit Guar. Corp. (In re Durango Ga. Paper Co.), 

26 In Lunsford, the Eleventh Circuit addressed its split from the Ninth Circuit’s decision in 

Sherman. In Sherman, the Ninth Circuit held that 523(a)(19)(A) discharged debts resulting from the 

debtor’s own securities violation. 658 F.3d at 1012. The Eleventh Circuit found unpersuasive the Ninth 

Circuit’s reasoning of “further[ing] the supposed ‘purpose’ of the Bankruptcy Code to allow a ‘fresh 

start’ and to protect ‘the honest but unfortunate debtor,’” noting the Ninth Circuit “followed 

prescriptions of general statutory purpose over the text.” Lunsford, 848 F.3d at 969. 

Although this Court is supportive of the general notions expressed in Sherman and by other 

courts, including the Eleventh Circuit, which agree with the general view that the Code intends to 

provide a fresh start to the “honest but unfortunate debtor” and interpreting the § 523(a) exceptions 

to discharge narrowly in favor of the debtor’s discharge, this Court, as it must, follows the binding 

precedent of Lunsford in its construction of § 523(a)(19)(A). In doing so, the Court’s decision is 

congruent with the Eleventh Circuit’s construction and declines to expand Lunsford in a way that 

reads it to impose no limitation on the debtors that can be swept up by the discharge exception because 

their debt was at some point touched by a violation of securities laws.

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 15 of 19
Page 16 of 19

539 B.R. 896, 905 (Bankr. S.D. Ga. 2015). Count I is therefore dismissed with 

prejudice.

II. Count II: 11 U.S.C. § 523(a)(2)(A).

Section 523(a)(2)(A) excepts from discharge any debt “for money, property, 

services . . . obtained by false pretenses, a false representation, or actual fraud.” 11 

U.S.C. § 523(a)(2)(A). To state a claim under § 523(a)(2)(A), Plaintiff must plead that 

Defendant “made a false statement with the purpose and intention of deceiving the 

creditor; the creditor relied on such false statement; the creditor’s reliance on the 

false statement was justifiably founded; and the creditor sustained damage as a 

result of the false statement.” Fuller v. Johannessen (In re Johannessen), 76 F.3d 347, 

350 (11th Cir. 1996). 

Plaintiff alleges that Defendant committed actual fraud through her active 

participation in the ZeekRewards scheme, such as by “managing a portfolio of fake 

ZeekRewards accounts that she collected the funds from.”27 Plaintiff argues Count II 

therefore states a cause of action and relies on Husky Intern. Elecs., Inc. v. Ritz, 578 

U.S. 356 (2016), in which the Supreme Court held that “[t]he term ‘actual fraud’ in 

§523(a)(2)(A) encompasses forms of fraud, like fraudulent conveyance schemes, that 

can be effected without a false representation.” Id. at 359. The Supreme Court also 

ruled that the recipient of a fraudulent transfer can, with the requisite intent, also 

commit fraud. Id. at 365. When that recipient obtains assets by his or her 

participation in the fraud and later files for bankruptcy, “any debts ‘traceable to’ the 

27 (Doc. 20 ¶ 92).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 16 of 19
Page 17 of 19

fraudulent conveyance will be nondischargable under § 523(a)(2)(A).” Id. (internal 

citations omitted). Plaintiff alleges that based on the findings in the Judgment 

Opinion, Defendant received fraudulent transfers and participated in the scheme so 

under Husky the debt from the Final Judgment should be nondischargeable under § 

523(a)(2)(A).

Defendant was found in the Judgment Opinion to have received fraudulent 

transfers. The court determined that “the intent to defraud can be presumed when 

transfers are in furtherance of a Ponzi scheme” so “the law considers transfers from 

the scheme to be fraudulent transfers that may be avoided under the NCUFTA.”28

The fact that Plaintiff was a recipient of the fraudulent transfers, though, is not 

enough under Husky—Defendant must also have committed fraud with the requisite 

fraudulent intent. Although noting actual investment and participation in the 

scheme, the Judgment Opinion did not find Defendant committed fraud nor acted 

with fraudulent intent, so Plaintiff cannot rely on the Judgment Opinion alone to 

establish the Husky elements. Plaintiff must also allege that Defendant committed 

fraud and acted with fraudulent intent in her participation in the Ponzi scheme. See

In re Holtz, 2021 WL 5596413, at *8 (“Unlike § 523(a)(19), § 523(a)(2)(A) does not 

carry a requirement that the judgment be based on a ‘memorialized order’ from 

another court, so the [Judgment] Opinion’s deficiency is not lethal to the Plaintiff’s 

claim under that section.”); In re Schuholz, 2019 WL 11639553, at *1 (“[W]hile the 

State court did not make specific findings that would establish certain elements 

28 (Doc. 20, Ex. 3, at 22).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 17 of 19
Page 18 of 19

required to find the debt nondischargeable under § 523(a)(2)(A) . . . the lack of such 

findings does not preclude this Court from making its own determination of those 

issues at trial.”).

The Second Amended Complaint makes additional allegations supporting 

fraud beyond the findings of the Judgment Opinion. For instance, Plaintiff alleges

that between 2008 and 2012, Defendant opened ZeekRewards accounts for her infant 

children and “created puppet accounts and recruited unsuspecting victims into the

scheme” to increase her own payout, and then “collected the commission payments by 

forging signatures on the checks.”29 Because these allegations meet the heightened 

pleading requirements under Rule 9, Count II sufficiently states a claim under § 

523(a)(2)(A). 

Defendant argues that this count is a “shotgun pleading” because it 

“incorporates by reference the entirety of the preceding 82 paragraphs” of the Second 

Amended Complaint.30 Although the first paragraph under Count II does incorporate 

all preceding paragraphs, the Second Amended Complaint specifically points to 

paragraphs 29 through 69 as support for Count II after that first paragraph. It also 

makes specific factual allegations throughout Count II that make clear the 

allegations it is relying on to support Count II. As Plaintiff argued when Defendant 

raised this issue at the hearing, it is clear what allegations apply to Count II, which 

is therefore answerable even if it is arguably a shotgun pleading that mistakenly 

29 (Doc. 20 ¶¶ 49–53, 64–67, 95–98, 109). 

30 (Doc. 21 ¶ 1).

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 18 of 19
Page 19 of 19

incorporates the previous count. Therefore, the Court will allow Plaintiff one final 

opportunity to amend Count II to remove any style of shotgun pleading. 

Accordingly, the Court ORDERS:

1. The Motion to Dismiss (Doc. 21) is GRANTED.

2. Count I of the Second Amended Complaint (Doc. 20) is DISMISSED

with prejudice.

3. Count II is DISMISSED without prejudice.

4. Plaintiff has 14 days from the date of this order to amend Count II as 

directed. 

5. Defendant shall have 14 days thereafter to respond to the third amended 

complaint.

# # #

Copies To:

Kevin C. Gleason

Attorney Kevin C. Gleason is directed to serve a copy of this Order on all interested 

parties.

Case 21-01246-PDR Doc 43 Filed 04/29/22 Page 19 of 19