The $400 Million Ponzi Scheme That Suckered San Diego

As a result of lies and deception that went on for eight years, lenders transferred almost $400

million

in loans to ANI during that period, correct? That's the number they told me, yes. A high-profile businesswoman has been charged in an alleged fraud

scheme

. An established leader in the San Diego business community, Gina Champion-Cain. Local business leader Gina Champion-Cain was sentenced today to 15 years in prison. Gina Champion-Cain was well known to people who worked in real estate in San Diego, leasing and marketing, developers, property managers, she always had a great personality. She was incredibly charismatic, very magnetic, very outgoing, and in a world that in many ways was really a macho boys' club, she could really hang out.

She liked sports. She liked to hang out at the bar. She liked to play poker and smoke cigars. She liked to go to Las Vegas. I thought she was very personable, knowledgeable in the area of ​​real estate for sure, definitely a tough person, qualified in the field she was working in. Why didn't she stop herself? How can you go on knowing that you are deceiving people and think that you will be able to pay them back? It's like he treats me like a daughter or a niece. And it was very disappointing to see this woman that I respected so much do this.

Despite its sunny reputation, San Diego has been home to more than its share of financial scandals. In the early 1970s, the mayor and much of the city council were accused of fixing prices in the taxi industry. Also in the 1970s, a local businessman named Conrad Smith, known as Mr. San Diego, presided over what was then the largest bank failure in history. Since at least the 1990s, the city has underfunded pensions and used leftover money to subsidize projects such as a new downtown baseball park; the same money was used to help finance the 1996 Republican National Convention. Our Republican hearts and minds are in the hospitable city of San Diego.

Poor pension management was actually what earned San Diego the title "Enron by the sea." This rapidly developing world of downtown is the backdrop where Gina made her real estate career. San Diego, the most attractive point for investment and speculation on the Pacific Coast. I came here in the mid-80s, San Diego was still a relatively small military town. There were some bigger players, but it was actually very easy to be a big fish in a small pond at the time. There weren't many institutional investors. Gina knew where to be to rub shoulders with the people she needed.

I met her, I think shortly after I got here, in the late '80s. And she was actually advising on some real estate projects in the Gaslamp neighborhood. The Gaslamp itself was designated a national historic district. So there were some rumors and there were still a lot of undesirable uses in terms of porn shops and tattoo parlors. Our paths never crossed. We never made a deal together. We were very socially friendly. She had founded her own company, called American National Investments, whose name suggests something of her ambition, I think. After she got into hospitality after the recession, ANI grew very quickly, they went from having just a handful of employees, actually in 2011 and 2012, to having hundreds, say, in 2015, 2016.

She had an office above a nightclub downtown. San Diego in what was then a kind of border neighborhood called Gaslamp. She had actually used that as a calling card for many years afterward to suggest her status as a major developer in the city. She started appearing on all kinds of lists, 50 People to Follow, 40 Under 40, I think at one point she even appeared on the cover of San Diego Pets Magazine. In 2003, San Diego Magazine published a cover with the headline "Who Owns Downtown?" And on the cover was Gina Champion-Cain standing next to a much older man named Bud Fisher.

My partner, Bud Fisher, who had been active in the real estate business since the mid-70s, was finally recognized in San Diego magazine in that issue, saw that right next to him was Gina Champion, in all her public relations glory her. on the Monopoly board with Bud. At that time he was not aware of any property that Gina owned. She had at most maybe a couple of small stakes in relatively small properties downtown at the time. To those who were just casually reading San Diego magazine, it most likely seemed like she really was a major figure in downtown real estate.

It wasn't real estate that really bothered me. I thought she was in her lane, so to speak, that's when she started diversifying into these patio restaurants and patio ancillary businesses. Step onto the patio at Gold Finch, just minutes from downtown San Diego, and you'll instantly feel at home. It's really a reflection of when you come to my house to eat, this is the atmosphere you would experience. According to the people I spoke and worked with, they couldn't put two and two together to figure out how his restaurant empire was staying afloat. So for me it was always like, when am I going to wake up one day and the newspaper is going to give me the answer to that question?

Gina transitioned from corporate real estate development to focusing more on hospitality. At the same time, she was into short-term vacation rentals. She bought several beachfront mansions in San Diego's Mission Beach neighborhood and created a sort of pet-friendly Airbnb model. I mean, you could have gotten an operator. You could have gotten someone to run the business. I'm curious why you decided to run the business where the busboy is late and where the napkins are and all that kind of nonsense. Well, Jim, you and I have known each other for a long time and I have a little problem and I'm a control freak.

And I don't like to just give up on things. She also opened a couple of boutiques, at least one of which was also in Mission Beach. They were called Love Surf. I met her my first week here. I pretty much started in the boutique right away. I was the administrator and buyer. I think she just came in and met me at the store. And I thought she was amazing, very charismatic, very welcoming. I felt at home. I always thought that these investments that she was making were, I don't know how anyone can get this percentage of return, but I trusted it because a lot of people who were very high up and very respected trusted her.

Every six months, she was supposed to earn a 15% return. And then you get an IOU once you agree to do this. And she says how much are you investing. She agrees to repay him in full if he decides to withdraw from her. And she had inherited some money and I thought, okay, she should probably take the opportunity to do this. I invested 20,000. I invested pretty close to the time this whole

scheme

blew up. So I never had a chance to turn around. In general, her businesses tended to lose money. As expected, Gina had an assistant, but apparently at some point Gina's assistant was able to hire an assistant of her own.

And that person, Gina's assistant, got two assistants. Therefore, it was unclear to many in the corporate office what all these people were doing with their time. In the process of opening her first restaurant, Gina learned a little about how liquor licenses work in California. California liquor licenses can be quite expensive, up to hundreds of thousands of dollars in some cases. Many aspiring restaurant owners, or even current restaurant owners, might have trouble raising that amount of capital in such a short amount of time. It occurred to Gina that there might be a viable service in providing short-term, high-interest loans to people who needed to deposit these funds into escrow accounts.

She approached a friend of hers named Kim Peterson, who was a prominent real estate investor and developer in San Diego, and explained her idea to him. And Peterson was the first to come on board as an investor and it seemed to him that the loans he was making were working as advertised and paying off. Peterson proposed taking a more active role to attract additional investors himself. And from there, the platform really took off as Peterson was able to interest a number of institutional investors, banks and hedge funds, etc., to really increase the amount of capital going into Gina's platform.

A very substantial amount of capital came from institutional investors, notably an Austin-based hedge fund called Ovation, as well as the Bank of California. The problem with this premise is that, in fact, the Liquor Licensing Board only requires them to deposit five or 10%, say, and they only have to pay the full amount when they actually purchase the full license or the restaurant they The license comes with. There is not strong demand for short-term, high-interest loans to cover these escrow costs. As far as we know, loans have never been made through this platform. Just under $400

million

is believed to have flowed through the account.

No doubt the early investors were making money. I don't think it was about not going to prison. I think it was to continue making people a lot of money, which I was doing. At the beginning of 2019, there was a private equity fund and a very large real estate developer that was considering investing around $100 million in the fund. But before they pulled the trigger, they wanted an expert read. And so they hired a guy named Michael Brewer, one of the leading California liquor licensing experts in the state, to design a sort of due diligence process for them.

And in the course of that due diligence, Brewer and his client concluded that Gina's loan program did not actually fund any liquor license escrows and that the most likely explanation for its success was that it was a Ponzi scheme. Suddenly we received an email from our human resources department. I don't remember the exact verbiage, but it was something like this story was published. The SEC is investigating this, but don't talk to the press. The Securities and Exchange Commission says the company defrauded dozens of retail investors out of hundreds of millions of dollars. I completely thought it was a misunderstanding.

I thought, there's no way this could be happening. I thought I was going to have my job forever. I loved that company. And it's kind of like the denial phase. You think it can't be true. Someone I love and respect can't do this to the people they're supposed to love. I think part of the fund's success was Gina's very good reputation in the San Diego business community. Part of it was also because of Kim Peterson's very good reputation, people really respected Kim Peterson. They considered him an honest guy and a very careful investor. Gina had very close relationships with a handful of employees at Chicago Title, which was the company that oversaw escrow accounts for her.

And she maintained those relationships in part by giving very nice gifts. Free baseball tickets, Chargers suite tickets, when the Chargers were still in San Diego, Petco Park, we had corporate suites there. I gave away many bottles of alcohol, champagne, jewelry, cash, and lots of free food at my restaurants. In a message that was cited in several lawsuits, Gina told two Chicago employees: "If anyone calls asking about escrow accounts and liquor licenses, blah, blah, blah, just tell them to show me the money, ha, ha ha. " In fact, we should point out that many investors trust Chicago Title more, at least that's what they would say now, than Gina Champion-Cain.

Chicago Title is one of the largest title insurance companies in the country. Chicago Title, as custodian of escrow, was not supposed to allow money into or out of any account for any purpose other than that specified by the account holder. In retrospect, Gina's Ponzi scheme could have been pretty easy to uncover. All it might have taken was a phone call to one or two people who were supposedly funding their liquor license escrow accounts with her fund to discover that in fact that was not the case. When we think of the biggest scammers in history, men's names come to mind, most notably Bernie Madoff, but Gina is believed to be the most prolific female Ponzi Schemer in history.

A very substantial amount of capital came from institutional investors, but there were many people that Gina knew personally who also contributed money. She reached out to me via text and asked if she wanted to go. She said that she wanted to explain the whole situation. And then I thought, okay, I'm going to give him the benefit of the doubt because it's like, okay, I don't have all the facts yet. And then she sat me down. We shared some wine and she told me the storyfrom when she started until she was caught. And she said she started legitimately.

And then she just liked that feeling of getting money and being able to hire people and build this empire. And she said she got too carried away and it slipped out of her hands. She was promising me that she would give me all my money back. She promised me it would be part of a Netflix documentary. And she was still asking me, how is she going to have a deal with Netflix? She will be in prison. Gina lived a very nice lifestyle. She had property in Carmel, California. She had property in Palm Desert. She had a very nice house in Mission Hills, but most of her money seems to have gone into business.

Well, she really believed that she was going to take a couple of these companies public and pay everyone back. It's not that what she was doing was right, because she wasn't. Her businesses went bankrupt and were gradually liquidated, sold, broken up and sold in pieces. I still can't believe she made it, I guess, as long as she could, but it's disappointing. Sorry, it's disappointing to see someone you loved and truly admired do this. And I don't want to associate other people with liars and cheating on me. And it was very difficult for me to trust anyone when she was applying for jobs, again because every company I looked at I thought, well, how do you get your money?

How does this business operate? We know that the Department of Justice is actively investigating several former Chicago Title employees. There are also a number of civil lawsuits underway against Chicago Title. She pleaded guilty and was ultimately sentenced to 15 years in federal prison. She is currently in a minimum security institution in Northern California called FCI Dublin. I live my life as a very good prisoner here in Dublin. I teach, I mentor people, and I'm a very strong member of this community here.