RECEIVER IN CHAMPION-CAIN CASE TO FACE INVESTORS
Krista Freitag thinks Chicago Title is complicit in scheme
The receiver in the Gina ChampionCain securities fraud case wants permission to go after investors and other insiders who may have profited from the San Diego restaurateur’s Ponzi scheme, a move aimed at recovering additional funds for hundreds of investors whose losses total more than $180 million.
Court-appointed receiver Krista Freitag, in a federal court hearing later this month, will renew her request to sue Chicago Title, who she claims was complicit in the fraudulent liquor license lending gambit that raised nearly $400 million from investors. Chicago Title was the escrow company that Champion-Cain used for holding investor money she
raised for the liquor license loans.
Freitag also is asking the court’s approval of a plan she conceived for recovering funds from investors and insiders she believes profited from the yearslong program orchestrated by ChampionCain, a once-prominent San Diego restaurateur known for her chain of Patio restaurants.
“In order to recover and return as much as possible to the losing investors, it is necessary to pursue recovery of not only profits paid to profiting investors (which may include referral fees or commissions), but also other amounts paid to aggregators, insiders and other third parties,” Freitag wrote in legal papers filed in federal court. “Accordingly, the Receiver seeks authority to pursue claims for recovery of these Wrongful Transfers (‘Clawback Claims’).”
U.S. District Judge Larry Burns, who is overseeing both the civil and criminal cases against ChampionCain, had initially rebuffed Freitag ’s effort in August to sue Chicago Title, saying he first wanted to see how planned mediation sessions with aggrieved investors in a number of already existing suits worked out before authorizing further litigation. At the time, the company had reached a settlement that allowed more than four dozen investors to recoup 65 percent of their nearly $23 million in losses.
In the months since that hearing, the company, which is the target of 10 investor lawsuits, has engaged in more mediation talks but so far has reached settlements with only a handful of investors for a total amount of more than $1.6 million. None of those settlements involved investors who had already sued Chicago Title.
According to Freitag ’s status report, roughly 200 investors claiming losses of $157 million have filed suits against Chicago Title.
“CTC’s (Chicago Title) approach appears to have been to hold piecemeal, separate negotiations with discrete investors and investor groups,” Freitag wrote in a status report submitted to Burns. “This approach is not only incredibly inefficient, but it will drag out proceedings. Moreover, these settlements with individuals ref lect relatively low settlement amounts (sev
eral in the range of 50-57.5 percent of claimed losses).”
Chicago Title, which so far has denied any wrongdoing in the Champion-Cain Ponzi scheme, counters in its status report that the company continues to pursue mediation talks in stillpending lawsuits, although they have yet to yield settlements. Champion-Cain pleaded guilty in federal court earlier this year to criminal charges of conspiracy, securities fraud and obstruction of justice. She is due to be sentenced Jan. 19.
Champion-Cain was first accused more than a year ago by the Securities and Exchange Commission of bilking dozens of investors whom she enticed to make high-interest loans to individuals seeking liquor licenses. But instead of using their funds for that purpose, she directed the bulk of the money to companies she controlled — American National Investments and its subsidiary ANI Development.
The receiver has alleged in a previous legal filing that Chicago Title had knowl
edge of the fraudulent scheme and that two of its escrow officers were aware that Champion-Cain was forging escrow forms and operating the accounts in such a way that led investors to believe they were depositing millions of dollars into separate escrow accounts when instead “Chicago Title was transferring money to Cain at her request and within her sole discretion.”
“Despite (Chicago Title’s) strong belief that it bears no liability for the ANI Ponzi scheme or investors’ dubious investment choices, CTC has made clear from the outset that it is open to a reasonable settlement of investor claims,” the company wrote in its legal f iling Wednesday. “All parties would be better served by an early resolution rather than prolonged litigations that will squander the resources of everyone involved. The substantial costs of litigation are reducing CTC’s resources available for settlement. Continued squabbling over which of the duplicative lawsuits should
proceed therefore diminishes the ‘pot’ for potential recovery by investors.”
As part of her effort to boost recovery of losses for investors, Freitag is proposing to send demand letters to profiting investors, aggregators, insiders and other third parties in which she will identify the total sum of their profits that she intends to go after. The sooner such individuals and institutions would agree to settle without having to resort to litigation, the less they would owe under Freitag ’s proposed settlement plan. For larger sums she would seek from such investors, her plan would yield more than 80 percent of profits.
Freitag does not identify by name anyone she intends to go after, although Chicago Title, in its court filing, suggests that Kim Peterson, who the insurance company characterizes as a Champion-Cain business partner helping “Cain operate the scheme,” would be among those the receiver would likely pursue. Peterson sued Chicago Title a year ago for
fraud in hopes of recovering more than $250 million in losses and damages.
Freitag, in an emailed response to a question from the Union-Tribune about her references to Peterson in her status report, said, “Peterson is discussed specifically in the report because a material amount of the total funds into and out of the scheme went through accounts he controlled.”
After combing through 125 different bank and escrow accounts encompassing 200,000 transactions not all related to the liquor license lending activity, Freitag deduced that more than 30 of the accounts she has reviewed include more than 4,300 investor deposits and disbursements.
In all, she calculates there were 491 investors in the Ponzi scheme, of which an estimated 349 lost a net $183 million. The balance — 142 — were deemed to have profited from the alcohol license lending program, Freitag estimates.