Biggest settlement yet in Gina Champion-Cain Ponzi scheme goes to hedge fund that will raise $47 million
In what is the largest settlement yet in the Gina Champion-Cain Ponzi scheme, a Texas-based investment firm that suffered a financial hit of more than $55 million will be able to recoup 85% of its losses from Chicago Title, the company responsible for holding investors’ money in a bogus liquor license lending platform.
While Chicago Title has reached settlements with hundreds of other victims who have sued it, no other deal has approached an 85% return, nor has any other been as high as the $47 million. dollars that the company agrees to pay Austin-based Ovation Partners. .
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The proposed settlement, filed in state court on Wednesday, still needs to be approved by a judge, as is a second settlement that would recover 70% of the nearly $14.2 million in losses suffered by about 80 victims of the scheme. schemes, including a retired teacher. who, according to his lawyer, invested his life savings with Champion-Cain. Attorney’s fees will be deducted from the $9.9 million settlement.
In settling with the victims, Chicago Title admitted no liability. With the last two settlements, plus a few other smaller deals that have already been reached but not officially filed with the court, the number of Champion-Cain investors who have settled with Chicago Title is now 316, with losses claimed. totaling $128 million, according to attorney Megan Donahue, whose firm Cooley LLP represents the company.
A court-appointed receiver who spent more than two years examining Champion-Cain’s numerous company accounts and assets in connection with the 2019 securities fraud case concluded that there were approximately 435 investors in the Ponzi scheme, of which approximately 329 lost $184 million net. Champion-Cain, who has admitted guilt in a related criminal case, is currently serving a 15-year sentence in a federal prison camp in Northern California.
“Chicago Title ensured that more than 300 investors, especially smaller individuals, recovered the majority of their losses resulting from Ms. Cain’s fraud,” Donohue said. “The remaining 13 plaintiffs are primarily financial institutions and a few sophisticated individuals who hope to profit from their foolish investment in a Ponzi scheme by pursuing their claims at trial. While these claims are erroneous, they have the unfortunate effect of prolonging this litigation and the receivership.
Ovation Finance Holdings and Ovation Fund Management, subsidiaries of Ovation Partners, first sued Chicago Title in 2019 for fraud and negligence, shortly after Champion-Cain was accused by the Securities and Exchange Commission of orchestrating the largest Ponzi scheme in San Diego history. The once-high-profile restaurateur, over eight years, raised nearly $400 million for allegedly high-interest loans to cash-strapped liquor license applicants who allegedly couldn’t afford allow a required sum of money to be prepaid while their applications were pending.
The loans, however, were never granted. The investors’ money, which was supposed to be held in individual escrow accounts administered by Chicago Title, was instead funneled to companies owned by Champion-Cain and used in some cases to support his legitimately run businesses, including restaurants and commercial properties.
Ovation claims to have lost $23.4 million it invested with ANI Development, a Champion-Cain company, although catcher Krista Freitag claims the real figure is closer to $20 million. In addition, Ovation says it received $ 35 million in its investment funds after the announcement of the scam of the former businesswoman from San Diego.
“Following the disclosure of the loss the ANI/Chicago Title scheme inflicted on Ovation Holdings, and as a direct, immediate and foreseeable result of Chicago Title’s deception, many investors in these funds chose to withdraw or redeem their investments,” Ovation said. in his trial. “These buyouts have resulted in significant losses in management revenue and success fees for Ovation Management and an impediment to its ability to deploy capital for the foreseeable future.”
In a confidential document obtained by the Union-Tribune, Ovation told its investors in a recent quarterly report that it had settled with Chicago Title and that investors in its alternative income fund would share in the settlement proceeds. Specifically, they would recover 100% of what Ovation said was a write-off of nearly $25 million in losses resulting from the company’s investment in the fraudulent scheme, according to the report. He also noted that Ovation’s general partner would cover $11.8 million in attorney’s fees on the settlement.
“We are pleased to have entered into this agreement on behalf of Ovation, which will return to Ovation investors all of the money they have lost under the liquor license loan program,” said the firm attorney, Alexander Pilmer of Kirkland & Ellis Law. solidify.
The number of investors in the second settlement, known as the Allred case, has grown over time as victims learned in recent weeks that unrepresented individuals could join the deal brokered with Chicago Title in December. . The Allred case was originally filed in 2019 as a class action lawsuit.
“We are very pleased with our excellent settlement, which I believe achieves the greatest recovery for retail investors to date, in the most efficient and cost-effective manner,” said attorney Benjamin Galdston, who represented the victims in the Allred case. “Furthermore, this unique settlement provided a mechanism for other investors who had not separately filed their own litigation to avail themselves of the benefits of our settlement, without waiting for the long, uncertain and costly receivership process. “
Galdston said his clients cover a wide range of investor types, from retirees to young people looking for an alternative to conventional investment vehicles.
“I represent a retired teacher in the ’80s who lost all of her life savings because she trusted Gina, and Gina persuaded her that her money would be safe with Chicago Title,” Galdston said. “For the most part, these are not wealthy, high-income individuals, but mom and pop investors looking for an opportunity to earn more than they could earn in the market. One of my clients is associated with law enforcement, another is a mortgage broker.
San Diego developer Kim Peterson, who helped raise $140 million from various investors for what he believed at the time to be a legitimate liquor license loan program, said Wednesday that he planned to formally oppose Galdston’s settlement with Chicago Title.
Peterson, who has a still active lawsuit against Chicago Title, formed an investment vehicle known as ABC Funding Strategies LLC in 2014 to generate additional loans for Champion-Cain’s loan program. According to settlement documents filed Wednesday by Chicago Title, the 35 members of ABC Funding recently elected to join the class action settlement — a move that Peterson says is illegal. The bulk of the more than $14 million in losses claimed — nearly $9.3 million — came from members of ABC Funding, Chicago Title says in its court filing.
“We definitely oppose this settlement because the entity — ABC Funding Strategies — has the claim against Chicago Title, not the individual members,” Peterson said. “And therefore the members do not have standing to make their own settlements. We also think we would have gotten a much better result.
Chicago Title argued in its legal documents supporting the two settlements that Peterson should bear some liability for losses incurred under the liquor license scheme. The company also filed a motion this week seeking to sanction Peterson, alleging he unlawfully disseminated confidential materials, including information about the Ovation settlement that at the time remained private.
“In response, Peterson embarked on a last desperate attempt to scuttle the binding settlement,” Chicago Title wrote in its brief in support of its sanction request. “On February 4, 2022, he sent ABC Funding members a memorandum urging them to ‘rethink their positions on this settlement’, saying they had ‘made a horrible deal’ and should have” stay with “Peterson and his Lawyers.”
A hearing is scheduled before Superior Court Judge Kenneth Medel to consider approving the two settlements. The sanctions sought for Peterson will also be heard on the same day.