Receiver Sues Chicago Title, Calling It ‘Willfully Blind’ To Acts Of Fraud
San Diego Union-Tribune (CA)
In a lawsuit filed this month against Chicago Title, the receiver in the Gina Champion-Cain Ponzi scheme case accused the insurance company of helping carry out "brazen acts of fraud" that ultimately cost investors more than $180 million.
Receiver Krista Freitag's lawsuit was filed in state court after U.S. District Court Judge Larry Burns last month granted her longstanding request to go after Chicago Title in hopes of recovering losses for the more than 300 individuals and entities who invested in a fraudulent liquor license lending scheme conceived by Champion-Cain. The former San Diego businesswoman is now serving a 15-year sentence in federal prison for criminal securities fraud and conspiracy.
The latest lawsuit is among nine others also targeting Chicago Title, which was the escrow company Champion-Cain used for holding investor money.
Champion-Cain, known for her once high-profile portfolio of Patio restaurants, enticed investors who thought they were making high-interest loans to license applicants unable to pay up front a required sum of money while their applications were pending before the state Department of Alcoholic Beverage Control. The bulk of the funds she received from investors was instead funneled to companies she controlled, in some instances to prop up Champion-Cain's business ventures, as well as pay off earlier investors and fund what the receiver said was her "lavish lifestyle."
The receiver argues that investors were led to believe that their money was protected because it was held in individual escrow accounts but in truth, those were "phony" accounts, which in some instances were "signed by Chicago Title escrow officers who knew that Cain was perpetrating a fraud on investors."
The suit, which alleges aiding and abetting fraud, negligence and breach of fiduciary duty, further states that Chicago Title, as an institution, "was reckless, if not willfully blind, in preventing its officers and employees from using the instrumentalities of its business to facilitate and engage in brazen acts of fraud."
Chicago Title attorney Steve Strauss did not comment on the specific allegations of the suit, saying only that "the receiver's complaint was expected following the court's ruling and is cumulative of the complaints against Chicago Title which are already on file."
In a court order earlier this month, Magistrate Judge Allison H. Goddard, who is assisting Burns in the civil securities fraud case, noted that Chicago Title and the receiver will be participating in a private mediation session Monday related to the lawsuit. Attorney Megan Donohue, who is also representing Chicago Title, said that other parties suing the company will also participate in mediation talks that same day.
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, Donohue said. The company has also 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.
Attorney Benjamin Galdston, who is representing investors in that settlement, would not divulge how many individuals would benefit from the agreement but said that the claimed losses are well over $4 million. The proposed settlement of the suit, originally filed as a class action complaint, allows for others who have not yet settled to participate. Galdston said anyone interested in joining the suit must respond to his office by Saturday.
The receiver's lawsuit, he noted, does not raise any new issues or evidence of culpability that have not already been cited in the other lawsuits against Chicago Title. Freitag is seeking an unspecified amount in damages that she says would be decided during a trial.
"I think the receiver faces significant challenges from Chicago Title to its claims at the pleading and proof level," Galdston said. "However, investors should be encouraged that the receiver appears to be pursuing from Chicago Title as part of its damages and recovery the entire cost of administering the receivership, which would be a big benefit for the investors."
The suit cites costs of administering the receivership since Freitag was appointed by the court in 2019 of close to $5 million, which also includes attorney fees.
In making her case that Chicago Title should be held accountable, Freitag's suit references various emails from Champion-Cain to now-former escrow officers in which she informed them that she was using fake Chicago Title email addresses to impersonate them. In one such email with the subject line, "for your eyes only," Champion-Cain told one of the escrow officers that she was doing this "so folks wouldn't hound you ladies all the damn time."
No one at Chicago Title "did anything to stop this deceitful conduct or to notify the innocent investors who were the recipients of the false communications," the lawsuit asserts.
Besides going after Chicago Title to recoup investor losses, Freitag also has been filing clawback motions against those investors who came away with a net gain from their investments with Champion-Cain. Earlier this month, she said she had so far settled about 60 claims yielding $4.3 million. Also still ongoing is a formal claims process in which investors in the Ponzi scheme can file requests for losses.
This story originally appeared in San Diego Union-Tribune.