Victims of Champion-Cain scam to recoup $58M of losses in court-approved settlements6 min read
More than 80 of the roughly 330 victims in Gina Champion-Cain’s $400 million Ponzi scheme will recover 70 to 85 percent of their losses under a trio of settlement agreements approved Friday by a San Diego Superior Court judge.
Chicago Title, the company responsible for holding investors’ money in what turned out to be a bogus liquor license-lending platform that lasted eight years, is agreeing to pay Ovation Partners, a Texas hedge fund, $47 million — about 85 percent of its losses — in what is the largest settlement to date.
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It also has pledged to cover 70 percent of the losses of more than 80 other victims, among them retirees who invested much of their savings in the Ponzi scheme. Their payout totals $9.9 million — before attorney fees. A third settlement, for $775,000, will go to two other investors who will be able to recoup about 70 percent of their net losses.
Superior Court Judge Kenneth Medel, in a hearing Friday, converted his tentative rulings a day earlier to final approval.
For the victims, it brings to an end nearly three years of litigation.
“This settlement allows for Ovation to return 100 percent of lost principal to its investors on a net basis after all legal expenses,” said attorney Alex Pilmer. “Ovation is pleased that Judge Medel’s order approving this settlement will put an end to more than 2 1/2 years of litigation over the Champion-Cain Ponzi scheme.”
Ovation claimed a net loss of $20 million that it invested, plus an additional $35 million loss to its investment funds after news broke that it had been defrauded.
Not before Medel was another sizable settlement — for nearly $40 million — that was consummated last month but does not need court approval. Orange County-based Banc of California, which claimed $35.1 million in losses stemming from loans it made to Champion-Cain’s company, ANI, will be paid $39.9 million by Chicago Title, according to a report it filed last month with the Securities and Exchange Commission. That sum includes accrued interest since 2019 when its lawsuit against Chicago Title was first filed. The SEC report notes that $8.6 million will be deducted for attorney’s fees.
The settlements are among a string of similar deals Chicago Title has been making with the hundreds of individuals and financial institutions ensnared in Champion-Cain’s Ponzi scheme, beginning in 2011. The title insurance company has been sued by most of the victims who alleged that Chicago Title was partly culpable. In each of the settlements to date, the company has admitted no liability.
Medel, in his individual rulings, noted the far-reaching fallout from what became the single largest Ponzi scheme in San Diego history. In all, there have been at least 16 different cases filed “based upon the fallout from this scheme,” he said.
“This is one of the many cases to arise in the aftermath of the collapse of a hundreds- of-million-dollar Ponzi scheme masterminded by Gina Champion-Cain, after the SEC exposed it as a fraud in September 2019,” Medel wrote in his ruling approving the Ovation settlement.
With these latest deals, the number of Champion-Cain investors who have settled with Chicago Title has reached 317, who claimed losses totaling $160 million, according to attorney Megan Donahue, whose firm Cooley LLP is representing the company. The range of recovery for nearly all those settling is between 50 and 85 percent, she said.
According to a court-appointed receiver who spent more than two years reviewing Champion-Cain’s numerous accounts and company assets in connection with her 2019 securities fraud case, there were roughly 435 investors in the Ponzi scheme, of which nearly 330 lost a net $184 million. Champion-Cain, who admitted her guilt in a related criminal case, is now serving a 15-year sentence in a federal prison camp in Northern California.
“We are very pleased with Judge Medel’s rulings today,” said attorney Benjamin Galdston, who represented individuals in what is known as the Allred case, originally filed as a class action in 2019. “This settlement provides immediate and meaningful relief to our clients, many of whom are elderly, retired and invested significant resources and in some instances their retirement savings, in what they believed to be a legitimate investment.”
One of those investors was Sean DeMerritt, a self-employed builder who says he made a six-figure investment in Champion-Cain’s lending scheme, believing that Chicago Title’s role in overseeing escrow accounts lent credibility to the investment vehicle.
Champion-Cain solicited investment funds for what she described as high-interest loans that would be made to cash-strapped liquor license applicants who were required to pay upfront a required sum of money while their applications were pending.
The loans, though, were never made. Investors’ money was instead funneled to companies owned by Champion-Cain and used in some instances to prop up her legitimately run businesses, including restaurants and commercial properties. She also used some of the funds to purchase second homes in Carmel and Rancho Mirage.
“I had done a fair amount of due diligence and thought it was entirely safe,” said DeMerritt, who is in his mid-50s. “This was my retirement fund and my son’s college fund that I put into this so I was pretty horrified when it was all lost. With the settlement, it means my son will go to college, but it also means I still have to work a few more years to fund my retirement account. I’m just happy to be getting back greater than half of my original investment.”
Among Galdston’s clients are 35 investors who placed their money with Champion-Cain via an investment vehicle known as ABC Funding Strategies LLC, formed in 2014 by San Diego developer Kim Peterson to generate additional capital for the lending program. Peterson, who still has an active suit against Chicago Title, had formally opposed the Allred settlement, arguing that the ABC Funding members did not have legal standing to enter into their own settlements. Chicago Title in turn has sued Peterson, alleging he was complicit in the fraud and realized $13 million from the scheme.
At Friday’s hearing, Peterson’s attorney dropped the objections in light of Medel’s tentative ruling approving the settlement. Chicago Title attorneys said they were gratified with the outcome of the hearing.
“Chicago Title is pleased that the court found that the recent investor settlements were entered into in good faith, which clears the way for payment to these investors,” said attorney Steven Strauss of Cooley LLP. “Chicago Title intends to vigorously pursue the parties who were directly responsible for this fraud, including Gina Champion-Cain, her partner Kim Peterson, their affiliated companies, and Mr. Peterson’s former legal counsel, Marco Costales.”
Peterson also was the target of a motion filed by Chicago Title seeking to formally sanction — and fine — Peterson for previously circulating confidential documents to members of his investment group. Among them were internal documents Chicago Title had submitted last year to the U.S. Attorney’s Southern District of California office in San Diego, which was “examining the conduct” of Chicago Title in the Champion-Cain scam.
Medel agreed that the sanctions were warranted, concluding that Peterson had been forbidden under a court order from sharing the documents and that he should pay a penalty of $47,500, the amount of money Chicago Title attorneys said they spent as a result of the improper disclosure.
Peterson must also “tender to his counsel all Chicago Title documents in his possession that have been marked confidential” and also write a letter to every person with whom he shared the materials and tell them “that the Court has indicated that disclosure of the documents were improper and request that the materials be returned or destroyed.”
Peterson’s attorney, Philip Tencer, argued that when Peterson received the documents, they did not have confidentiality markings on them, nor did they when he sent them out.