The receiver in the $400 million Ponzi scheme case involving former restaurateur Gina Champion-Cain has been granted permission by a federal judge to go after a title insurance company it believes was complicit in defrauding investors.

The decision last month by U.S. District Court Judge Larry Burns comes 1 1/2 years after receiver Krista Freitag first requested permission to sue Chicago Title. In a draft complaint she wrote at the time, Freitag asserted that the company was “reckless in preventing its employees from using the instrumentalities of its business to facilitate and engage in brazen acts of fraud.”

While Champion-Cain is already serving time in federal prison after pleading guilty last year to criminal fraud and conspiracy charges, the original civil case dating back to August of 2019 remains active as the receiver continues to sort through the assets and debts of Champion-Cain’s former companies, ANI Development and American National Investments.

The former high-profile businesswoman admitted to having orchestrated a years-long liquor license-lending scheme in which she enticed investors who thought they were making high-interest loans to license applicants unable to pay upfront a required sum of money while their applications were pending before the state Department of Alcoholic Beverage Control.

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The bulk of the funds she received from investors, however, was instead funneled to companies she controlled, in some instances used to prop up Champion-Cain’s business ventures, including her restaurants. In hopes of recovering their losses, numerous individuals and entities have filed suit against Chicago Title, which was the escrow company Champion-Cain used for holding investor money. There are currently nine such suits filed in state court.

In past court hearings, the judge had been reluctant to give Freitag authority to file a suit of her own because he wanted to see if more progress could be made in ongoing settlement talks. In his ruling last month, though, Burns said that by allowing the receiver to move forward with a legal claim, investors could potentially recover more of their losses.

He acknowledged that the litigation can be costly but less so if the receiver’s law firm works on a contingency basis, which he required in his ruling.

“On the other side of the ledger are substantial benefits to creditors,” Burns wrote in his order. “The Receivership Entities may be able to recover and then distribute damages not available under the creditors’ own claims. For example, only the Receiver can recover fees that ANI paid to CTC (Chicago Title).”

Another remedy available to the receiver and not the investors, Burns said, are “exemplary damages,” which are similar to punitive damages and go beyond directly compensating victims for their losses.

To date, individual settlements between Chicago Title and some 200 victims have been approved, with investors having recovered about $65 million of their claimed losses of $90 million, said attorney Megan Donohue, one of the lawyers representing Chicago Title. She noted that the company has recently reached a settlement with another group of investors, which, if approved in state court, would bring the total number of investors who have resolved claims to more than 240, Donohue said.

In all, the receiver estimates there were 491 investors in the Ponzi scheme, of which about 325 lost a net $184 million.

Chicago Title has consistently opposed Freitag’s efforts to sue the company, arguing that it would be a waste of receivership funds and only replicate already existing cases.

“Chicago Title believes the motion is duplicative, will delay investor recovery and intends to challenge the Receiver’s complaint,” said attorney Steve Strauss, one of the lawyers representing the company.

Chicago Title had requested that Burns stay the other cases should he decide to allow Freitag to move forward with her suit. Burns denied that request.

“The investor suits are consolidated in state court before a single judge,” Burns wrote. “Because the Receiver asks to file the Proposed Complaint as a related case to those investor suits, the Receiver’s action will most likely be heard by the same judge. That court, not this one, is best positioned to determine whether staying the investor actions is necessary for efficient resolution of all actions.”

In addition to pursuing Chicago Title, Freitag is also hoping to recover still more funds from clawback motions she is filing against those investors who came away with a net gain from their investments with Champion-Cain. She so far has filed about a dozen such claims accounting for nearly $16 million, although none have been formally approved.

Also still pending is a hearing to determine restitution owed the victims in the federal criminal case. The hearing date has been postponed a number of times and continued yet again last month. It had been scheduled for next week but Burns has rescheduled it to June 21 in response to a joint request from the U.S. Attorney’s office and Champion-Cain’s attorney.

Because a formal claims process, which only recently got underway, is still ongoing, the U.S. Attorney’s office argued it is premature to hold a restitution hearing.

“Until the claims process is complete, the United States will be challenged in developing a high level of confidence in a restitution calculation,” stated the motion for a continuance.

Source: This post first appeared on sandiegouniontribune.com

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