Major milestone reached in litigation surrounding San Diego’s $400M Ponzi scheme

A milestone settlement has been reached that will bring to an end nearly three years of litigation brought by the hundreds of victims who lost nearly $200 million in a San Diego Ponzi scheme orchestrated by the now-imprisoned Gina Champion-Cain.

Chicago Title, which has been sued by nearly all the investors in what was a fraudulent liquor license-lending gambit, has settled the last of the legal claims against it, agreeing to pay out 100 percent of the net losses suffered by close to a dozen investors, whose claims ranged from $79,000 to $9.5 million. Their net payment would total nearly $22.3 million, before deductions for attorney fees.

An additional four victims with losses totaling $69,400 would get a 70 percent payout under the proposed deal.

The investors covered by the proposed settlement have until May 10 to take advantage of the deal worked out with the help of a mediator, said Chicago Title attorneys.

Chicago Title, which has never admitted any liability in the scheme, had been responsible for holding investors’ money in what turned out to be bogus escrow accounts.

If approved by a federal district court judge, the deal would be a remarkable turning point in a case that began almost three years ago when hundreds of individual and financial institutions were horrified to learn they had lost huge sums of money in what turned out to be a fraudulent, long-running lending scheme engineered by a prominent San Diego restaurateur.

While the scheme ultimately attracted $400 million in investments over a 12-year period, net losses to victims were closer to $200 million.

“It’s been a long and very hard-fought litigation, and it’s extraordinary, here we are three years later, and there’s meaningful recovery for all the victims, whereas in most Ponzi schemes, there’s very little,” said attorney Benjamin Galdston, who represented more than 80 clients in a different settlement agreement that was approved earlier this month by a San Diego Superior Court judge. “Normally, you’re picking over the ruins when a Ponzi scheme collapses.”

Now serving a 15-year sentence in a federal prison camp, 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 ANI Development and American National Investments, companies owned by Champion-Cain.

The latest settlement is among a string of deals Chicago Title has consummated with the Ponzi scheme victims, most of whom filed suit, beginning in late 2019, alleging that the insurance company was partly culpable. The level of recovery has varied greatly, ranging from 50 to 85 percent, excluding the current deal. In addition to paying the victims, this latest settlement also includes a payment of more than $2 million to cover costs incurred by the court-appointed receiver overseeing the assets of Champion-Cain’s companies.

More significantly, for Chicago Title, is a provision that will bar any future litigation against the company in connection with the Champion-Cain Ponzi scheme.

“Chicago Title and the Receiver agreed to this settlement because it resolves all legal claims against the company and provides the remaining plaintiffs with 100% recovery of their net losses in the ANI Ponzi scheme,” Chicago Title attorney Steve Strauss of Cooley LLP said in an emailed statement. “The Receivership will receive an additional payment from Chicago Title and a release of Chicago Title’s equitable indemnity claims against ANI, which benefits all investors in the scheme ... In short, Chicago Title obtains global peace and a bar order against further litigation related to the ANI Ponzi scheme.”

Including the distribution amount in this newest settlement, Chicago Title will have agreed to total payouts of $187 million to more than 300 victims, Strauss said. The receiver has estimated that more than 300 investors lost about $184 million. There are a few different reasons as to why the payout exceeds total losses, even though Chicago Title has not covered 100 percent of victims’ losses.

For instance, in a recent settlement involving a Texas hedge fund, the company received a payment of $47 million — $27 million over and above the $20 million net loss it suffered from investing in the Ponzi scheme. The additional money it got from Chicago Title was to settle its claim that it took an additional $35 million hit to its investment funds after news broke that it had been defrauded.

The current settlement, which was reached following mediation with a retired Superior Court judge, includes a key provision requiring Chicago Title to drop its litigation against San Diego real estate developer Kim Peterson, who it claimed not only profited from the liquor license-lending scam but was also responsible for perpetuating the fraud. Peterson, who helped recruit investors for what he believed was a legitimate lending platform, has always maintained that he, too, was a victim. He has never been charged criminally or civilly.

If the settlement goes through, Peterson would be free of the Chicago Title litigation but would still be subject to legal claims filed by Receiver Krista Freitag who is already going after him for what she says was nearly $13 million in profits. She also has authority from the court to sue him for “aiding and abetting” the fraudulent scheme.

“Mr. Peterson is barred from suing Chicago Title but benefits by getting a release from Chicago Title,” Stauss said, “while the Receiver is free to pursue her claims against Mr. Peterson for fraudulent transfer and aiding and abetting on behalf of all ANI investors.”

In addition to the settlement money, Champion-Cain’s victims are hoping for eventual recovery from the receivership assets, which include money that Freitag has recouped through the sale of properties, businesses and leaseholds. In her most recent update filed with the court, she reported a total bank balance of more than $26 million.

She also has been filing numerous “clawback claims” to recover money from those investors who made money on the Ponzi scheme. She so far has recouped $5.4 million, with additional recoveries anticipated in the near future.