Prominent San Diego businesswoman Gina Champion-Cain pleaded guilty Wednesday to securities fraud, conspiracy and obstruction of justice for defrauding investors out of $400 million through a liquor-license loan funding program.
"Champion-Cain admitted under oath in court that she was the mastermind of a massive $400 million Ponzi scheme involving hundreds of victims from California and across the nation," U.S. Attorney Robert Brewer said at a news conference at the federal building on Front Street in downtown San Diego on Wednesday, adding that "this is the largest scheme of its kind ever investigated by this office.”
Following her guilty plea, Champion-Cain walked out of the U.S. District Courthouse in San Diego with her attorney. NBC 7 Reporter Artie Ojeda asked Champion-Cain if she had a comment on her admission to conducting what U.S. Attorney Robert Brewer called "the largest Ponzi scheme discovered in this district."
"No, but thanks for asking," she responded.
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The ex-operator of The Patio Group restaurants misled investors into believing they had an opportunity to fund high-interest, short-term loans to people seeking California liquor licenses, according to the Securities and Exchange Commission.
The SEC said Champion-Cain would tell investors of American National Investment's development business they could make a return on each license that was approved. She fabricated documents and then allegedly used the money from investors to support her lifestyle or to fund her other businesses like The Patio chain restaurants, Saska’s, coffee shops, lifestyle brands and rental properties, according to a complaint filed in August 2019.
There was a very real human cost to the scheme, Brewer said, which cheated many older investors out of all of their retirement funds, including one who was forced into bankruptcy after losing millions. He said that, in addition to scamming individual investors, Champion-Cain, 55, defrauded banks and investment funds.
"A Ponzi scheme occurs when the criminal promises investors they will invest money in a certain way and then breaks those promises," Brewer said on Wednesday. "Instead of investing the money, they use new investor money for primarily three things: One, to pay back other investors who are either redeeming or cashing in their investment. Two: to pay promised interest payments on previous investments, and, three, to divert money into her own pocket.”
Hundreds of people nationwide were victims of Champion-Cain's alleged fraud scheme from 2012-19. In all, about $400 million "flowed into the scheme based on [Champion-Cain's] false statements," the plea agreement said.
"At least one of the victims was a financial institution that invested, and lost, over $1 million in the lending program," prosecutors said in the plea agreement.
Champion-Cain used some of those funds to purchase homes in Rancho Mirage and in Mission Beach and about $2 million went to pay her own salary, prosecutors said. A combined $840,000 was spent on San Diego Padres and Chargers tickets, about $200,000 was spent on jewelry, three-quarters of a million paid off credit cards and hundreds of thousands more went to miscellaneous expenses, including the purchase of a golf cart.
Prosecutors allege that Champion-Cain and her co-conspirators made multiple attempts to obstruct their efforts -- after learning in May about the SEC's probe and, in August, the FBI's parallel investigation -- including changing American National Investments e-mail retention policy for herself and two other employees to just 24 hours, in effect "deleting a significant volume of emails that were responsive to the SEC's subpoena, many of which the defendant knew to be incriminating." In addition, Champion-Cain ordered accountants in August to alter records of her personal expenditures, and, two days later, instructed other workers to shred large amounts of hard copies related to the lending program, knowing those documents were also incriminating.
Brewer said on Wednesday that Champion-Cain also fabricated documents, forged signatures and sent fake e-mails to investors.
"An investor who became suspicious of Champion-Cain contacted the Securities and Exchange Commission, which launched an investigation that discovered the fraud, filed a civil case and contacted our office,” Brewer said.
Shockingly, with investigators closing in -- between the days Champion-Cain ordered the email purge and the shredders were turned on -- she tried to get an additional $150 million of investments in the lending program in an effort to pad its bank accounts, which needed an infusion of cash to "hide the size and scope of the Ponzi scheme."
Read the plea agreement below:
The Liquor License Lending Program Scheme
The fraud scheme began in about 2012, when Champion-Cain first found an investor for a "lending program" to help new business owners obtain liquor licenses.
In California, an escrow account must be created in order to purchase a liquor license from an existing licensee. The money will be held until the license is approved or denied, a process that Champion-Cain convinced investors was lengthy and costly for new business owners.
Champion-Cain provided interested lenders a list of businesses "seeking loans for their liquor license." In actuality, the list was fake and filled with businesses she found listed on the Alcoholic Beverage Control (ABC) website with expired or canceled licenses.
Those business owners were willing to pay high interest rates on short-term loans in order to obtain their license, Champion-Cain told investors. The mogul would handle "negotiations" for investors and place the fictitious loan into an escrow account, to be returned to business owners once the liquor license process was completed.
The first lender she unwittingly convinced to participate invested tens of millions of dollars into the program. A "significant number of individuals and entities" put tens of millions into the scheme, according to prosecutors.
The fraud involved other unnamed employees of ANI -- at the direction of Champion-Cain -- who would forge signatures using a stamp imprinted with the signatures of employees of an escrow company. At least once, Champion-Cain convinced an actual escrow employee to sign more than 20 fake escrow agreements in order to convince investors of the scheme's validity, prosecutors said.
In order to cover up her scheme, Champion-Cain would prevent the escrow company from interacting with investors. In one email to the escrow company, Champion-Cain wrote, "I have always promised you I would shelter you from my crazy investors... If any one of them bug you as they are too stupid to understand the program, they are 'fired' as an investor. I have plenty of dudes dying to give me money, honey!!! Ahahahahahahahaha. :-D Love you ladies!," according to the plea agreement.
Lenders were willing to participate in the lending program for the promise of securities. They were told their funds would be pooled into an escrow account, which means their profits depended on the success of the program.
In order to give investors the appearance of its success, about $200 million was paid to investors.
The former mogul, who once had a day dedicated to her by the city of San Diego, faces up to 15 years in prison.
That recommendation by prosecutors is actually made up of three consecutive five-year sentences -- for securities fraud, obstruction of justice and conspiracy -- and a three-year period of supervised release. Her sentencing range from federal guidelines is from 188 to 235 months in prison, Brewer said. She also faces fines and the forfeiture of property, as well as an order to make restitution to the victims.
While prosecutors said in the plea agreement that Champion-Cain "has expressed a desire to provide substantial assistance to the government in the investigation and prosecution of others," they also said they have not yet assessed the value of that offer of cooperation. However, if they do determine any information about co-conspirators is valuable to them, she may "merit a downward departure from the sentencing guidelines."
Champion-Cain did not operate the massive fraud alone, prosecutors said. One of her co-conspirators, Crispin Torres Jr., has pled guilty in connection to the case. Torres, who was an accountant and, later, the chief financial officer of American National Investments, used his position to determine when Champion-Cain's businesses needed more money from investor funds.
“The plea agreement has the word ‘co-conspirators’ In it at least 10 times ...," Assistant U.S. Attorney Aaron P. Arnzen said on Wednesday. "That leaves other co-conspirators out there.”
Both Champion-Cain and Torres are scheduled to appear for sentencing on Oct. 13.
What Happened to the Patio Group Restaurants?
In light of the scandal, the Cohn Restaurant Group (CRG) took over operations of some of The Patio Group's businesses, including The Patio on Lamont in Pacific Beach, Surf Rider Pizza in La Mesa and Ocean Beach, and Saska’s in Mission Beach.
The Patio on Goldfinch in Mission Hills and Fireside by the Patio in Liberty Station have been closed. The Mission Hills site was recently taken over by the operators of La Puerta, in San Diego's Gaslamp District, which hopes to open a satellite location sometime between October and February.
Long a well-respected member of the San Diego business community, Champion-Cain won numerous awards for her work and still "owns, manages, and/or controls a significant number" of San Diego small businesses, according to federal prosecutors.
These other San Diego-based ANI businesses were also shuttered in the wake of the case against Champion-Cain:
- Bao Beach, Mission Beach
- Himmelberg's, East Village
- Mission Beach Surf Co., Mission Beach
- Patio Express, Mission Beach
- Patio Express Mission Hills
- Swell Coffee Co., Del Mar
- Swell Coffee Co., Mission Beach
- The Patio Marketplace, La Jolla
- The Patio Marketplace, UTC
- The Surf Life, Mission Beach
This is a developing story and will be updated as details are released.