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Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.1 Page 1 of 19123456789KATHRYN C. WANNER (Cal. Bar No. 269310)Email: [email protected] JOHNSON (Cal. Bar No. 270960)Email: [email protected] Y. LEUNG (Cal. Bar No. 302928)Email: [email protected] for PlaintiffSecurities and Exchange CommissionMichele Wein Layne, Regional DirectorAlka N. Patel, Associate Regional DirectorAmy J. Longo, Regional Trial Counsel444 S. Flower Street, Suite 900Los Angeles, California 90071Telephone: (323) 965-3998Facsimile: (213) 443-1904UNITED STATES DISTRICT COURT10SOUTHERN DISTRICT OF CALIFORNIA11121314SECURITIES AND EXCHANGECOMMISSION,Plaintiff,1520COMPLAINTGINA CHAMPION-CAIN AND ANIDEVELOPMENT, LLC1819BLMvs.1617Case No. '19CV1628 HDefendants, andAMERICAN NATIONALINVESTMENTS, INC.,Relief Defendant.212223Plaintiff Securities and Exchange Commission (“SEC”) alleges:2425JURISDICTION AND VENUE1.The Court has jurisdiction over this action pursuant to Sections 20(b),2620(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§2777t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27(a) of the281

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.2 Page 2 of 191Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78u(d)(1),278u(d)(3)(A), 78u(e) & 78aa(a).32.Defendants have, directly or indirectly, made use of the means or4instrumentalities of interstate commerce, of the mails, or of the facilities of a national5securities exchange in connection with the transactions, acts, practices and courses of6business alleged in this complaint.73.Venue is proper in this district pursuant to Section 22(a) of the Securities8Act, 15 U.S.C. § 77v(a), and Section 27(a) of the Exchange Act, 15 U.S.C. § 78aa(a),9because certain of the transactions, acts, practices and courses of conduct constituting10violations of the federal securities laws occurred within this district. In addition,11venue is proper in this district because Defendant Gina Champion-Cain resides in this12district, and because Defendant ANI Development, LLC (“ANI Development”) and13Relief Defendant American National Investments, Inc. (“American National14Investments”) have their principal places of business in this district.1516SUMMARY4.Since 2012, Defendant Gina Champion-Cain (“Cain”) and Defendant17ANI Development, the entity she controls, have raised over 300 million, including18over 100 million in the past year, from approximately 50 investors nationwide.19When raising those investor funds, defendants claimed to be offering investors an20opportunity to make short-term, high-interest loans to parties seeking to acquire21California alcohol licenses. In truth, that investment opportunity was a sham.225.Under California state law, liquor license applicants are required to23escrow an amount equal to the license purchase price while their application remains24pending with the State. Cain told investors that this regulatory requirement presented25an investment opportunity. She directed investors to deposit their money into26specified escrow accounts maintained by ANI Development, and represented to them27that their funds were being loaned to liquor license applicants at a high interest rate.28Cain represented that those applicants would in turn use those now-escrowed funds to2

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.3 Page 3 of 191meet California’s escrow requirement. Cain provided investors with a purported list2of pending applications, from which investors selected the license application that3they wished to fund. She also provided investors with escrow agreements, ostensibly4executed between ANI Development and its escrow company, which provided that5investors’ principal would be kept safe in an escrow account, and that once the6underlying liquor license had become final, would then be returned to the investors7with interest. These representations were materially false and misleading, and ANI8Development’s stated business – financing the transfer of liquor licenses with money9it was raising from investors for an investment profit – was wholly illusory.106.First, the lists of pre-selected liquor license applicants contained largely11cancelled or expired liquor licenses, and many of the license applicants whom ANI12Development told investors they were funding had never heard of ANI Development,13much less taken a short-term loan from ANI Development. Second, the escrow14agreements that Cain and ANI Development provided to their investors were15fabricated. The escrow agreements were not executed by the escrow company’s16representatives, had never been seen by its executives, and contained the forged17signatures of its escrow officers. Third, the real escrow agreements governing the18escrow accounts – which defendants concealed from their investors – gave ANI19Development and Cain complete discretion and control over the deposited investor20funds. With that control, defendants transferred significant amounts of investor funds21to Relief Defendant American National Investments, the corporate parent of ANI22Development. The consequences of this misappropriation have been severe: while23ANI Development currently owes its investors over 120 million, just 11 million24remains in ANI Development’s escrow account.257.By engaging in the conduct alleged herein, defendants violated the26antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the27Exchange Act and Rule 10b-5 thereunder, and relief defendant has unjustly retained28investor funds that it has no legitimate entitlement to.3

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.4 Page 4 of 1918.To halt defendants’ unlawful conduct and preserve the status quo, the2SEC seeks a preliminary injunction that, among other relief, appoints a permanent3receiver over ANI Development, American National Investments, and all of their4subsidiaries and affiliates. The SEC also seeks permanent injunctions prohibiting5defendants’ future violations of the federal securities laws, and an order requiring6defendants and relief defendant to disgorge their ill-gotten gains, along with pre-7judgment interest, and imposing civil penalties on defendants.89DEFENDANTS9.Gina Champion-Cain, age 57, is a resident of San Diego, California.10She is the founder and CEO of American National Investments, Inc., a real estate11development company that has over 40 affiliated businesses, including ANI12Development, LLC.1310.ANI Development, LLC, is a California limited liability company14located in San Diego. The entity’s managing member is Cain, and it is an affiliate of15American National Investments, Inc.1617RELIEF DEFENDANT11.American National Investments, Inc. is a California corporation based18in San Diego. American National Investments is the parent company of19approximately 40 other business, including several restaurants, rental properties,20coffee shops and a surfing supply store. Cain is the founder and CEO of American21National Investments.2223FACTUAL ALLEGATIONSA.2425ANI Development’s Purported Liquor License Loan FundingProgram12.Beginning in 2012, Cain, a San Diego businessperson and real estate26investor, began offering investors the opportunity to make high-interest, short-term27loans to applicants seeking California liquor licenses.2813.The state of California requires applicants to escrow the license purchase4

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.5 Page 5 of 191price during the application transfer process, and Cain told investors that they would2be loaning the required escrow funds to these liquor license applicants.314.In exchange for her services, Cain and her company, ANI Development,4told investors that defendants would secure an interest payment for each license5approved by the state of California, which they would then split with investors.678915.Cain’s first investor was a high net-worth real-estate investor with whomCain had previously done business (“First Investor”).16.To ensure that his investment was secure, First Investor drafted a formescrow agreement to be executed by ANI Development and defendants’ escrow10company (“Escrow Company”). That form escrow agreement provided that: (i) his11money could only be used to fund a specified underlying liquor license transfer(s);12(ii) his money would be held in an escrow account for this purpose at Escrow13Company; and (iii) at the conclusion of the license transfer, his money would then be14transferred back to him with interest. According to the form agreement, First15Investor’s escrowed funds could be used for no other purpose, and transferred under16no other circumstances.1717.Cain falsely represented to First Investor that she had worked with18Escrow Company’s lawyers to approve his form escrow agreement, and represented19to him that his agreement would be the operative form escrow agreement governing20his investments.2118.For each license funded going forward, Cain and ANI Development also22claimed to other investors that their investments would be subject to the same form of23escrow agreement.2419.However, Cain and ANI Development maintained complete control over25the funding program, instructing investors never to contact the escrow company to26inquire about their investments.272820.To illustrate, in a July 18, 2017 e-mail to two Escrow Company officers,Cain apologized for an investor who had contacted Escrow Company directly, stating5

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.6 Page 6 of 191“I told them NEVER to call and bother you ladies.” Cain’s email concluded by2saying:3“[I]f they call asking about escrow agreements and alcohol licenses,4blah, blah, blah just say ‘SURE WHATEVER NOW SHOW ME THE5MONEY HAHAHAHA’”6B.Investors in ANI Development’s Purported Liquor License Loan7Funding Program81.921.First Investor GroupFirst Investor estimates that he has personally invested approximately10 250 million in ANI Development’s liquor license loan funding program, which11includes rollovers of principal and interest due him from the alleged liquor license12loans financed by his investment.1322.In 2015, First Investor began bringing other investors to the ANI14Development liquor license funding loan program, who were likewise told by First15Investor, based on defendants representations to him, that their money would be used16to fund short-term, high-interest loans (between 15 to 25 percent) to individuals and17entities seeking to obtain California liquor licenses.1823.In all, First Investor’s additional investors invested approximately 5019million with ANI Development, either by wiring money directly to a pooled escrow20account, or through an LLC First Investor had formed to funnel investor monies to21the pooled escrow accounts, which would then be used to fund the liquor license22transfers.2324.Cain and ANI Development regularly provided First Investor with lists24of applicants for alcoholic beverage licenses in need of financing for a given escrow25period. Cain told First Investor she had obtained those lists from a California26attorney who practiced in that area of law.272825.First Investor then chose, from the list, the applicants that he and hisinvestors wished to fund, and they wired their investments to escrow accounts6

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.7 Page 7 of 191identified by Cain and ANI Development. That money was then supposed to be used2to make the short-term loans to the alcohol license applicants, after which the escrow3company would file the proper transfer forms with the state alcohol licensing board.426.Cain provided First Investor with escrow agreements for every license5that his group agreed to fund. These escrow agreements were purportedly6countersigned by an escrow officer at Escrow Company, and the agreement7represented that the investors’ escrowed money was secure as it could only be8transferred out of the escrow account once the associated liquor license had been9acquired, and in that event, only transferred back to the investor. At the conclusion of10the license transfer, investors were told they would then receive their principal and11interest.121327.that he and his investor group had funded over 2000 alleged licenses.1415Based on these representations from defendants, First Investor believed2.28.Second Investor GroupIn addition to raising funds from First Investor and his investors, ANI16Development and Cain raised another several million dollars from a group of at least17ten investors affiliated with a second individual (the “Second Investor Group”).1829.Investors in the Second Investor Group funded the same pooled escrow19accounts as the First Investor’s investors and understood they were investing in the20same liquor license loan funding program, from which they were to receive interest21payments of between 15 to 25 percent depending on the loan.2230.Unlike the First Investor Group, the Second Investor Group investors23received promissory notes from both Cain and ANI Development. These notes24identified the investors pooling their funds, listed the liquor licenses the investors25were supposedly funding, and specified the interest to be paid to the investors for26each license, with interest being paid no later than 364 days from the receipt of the27investors’ funds.2831.Under the terms of the notes, ANI Development and Cain personally7

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.8 Page 8 of 1912guaranteed the principal and interest due to the investors.C.3Defendants’ Fraudulent Scheme1.456789Defendants used the forged signatures of Escrow Company’sescrow officers in fabricated escrow agreements32.ANI Development and Cain fabricated the escrow agreements that theyprovided to their investors.33.Among other things, defendants used forged escrow officercountersignatures on each bogus escrow agreement.34.The type of escrow accounts that defendants actually maintained at10Escrow Company cannot be used for liquor license transfer transactions (which11require a special kind of escrow), and the escrow agents at Escrow Company who12interacted with Cain do not act as escrow agents in that area. Defendants never13opened escrow accounts at Escrow Company that were appropriate for their claim14that investor funds would be used to finance the transfer of liquor licenses.1535.Defendants provided their investors with forged and fabricated escrow16agreements in order to lead them to believe that their investment was secure, and that17ANI Development was using their funds – as represented to them – to finance the18transfer of a liquor license. By falsifying documents that established a veneer of19legitimacy, defendants sought to conceal their fraud.20212.36.Defendants misappropriated investor fundsIn contrast to the bogus escrow agreements provided by defendants to22their investors, the actual agreements governing the escrow accounts maintained by23ANI Development at Escrow Company gave Cain unfettered access to and control24over the funds deposited by investors in those accounts.2537.With that authority, Cain routinely misappropriated investor funds by26directing their transfer from the ANI Development escrow accounts to other bank27accounts controlled by her, including those held in the name of Relief Defendant28American National Investment.8

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.9 Page 9 of 1912338.For example, in 2017, ANI Development investors deposited anapproximate total of 87.7 million into a pooled ANI Development escrow account.39.Defendants, however, did not escrow a single dollar of that 87.7 million4in order to facilitate, as represented to investors, the transfer of any of the alcohol5licenses identified by the bogus escrow agreements that corresponded to the 87.76million in investments.740.Rather, Cain – who controlled ANI Development and American8National Investment’s financial accounts – diverted investor funds from the ANI9Development escrow account to: (i) transfer 22 million to American National10Investments; and (ii) pay existing investors the principal and interest that ANI11Development owed to them.1241.Cain’s transfers to American National Investments, which played no role13in ANI Development’s claimed liquor license lending program, were14misappropriations of investors’ funds.153.16171819Defendants engaged in lulling when forwarding fakeelectronic mail correspondence to First Investor42.Cain recently forwarded to First Investor email correspondence, datedJuly 16, 2019, purportedly authored by an escrow officer at Escrow Company.43.In that email, the escrow officer reported that as of June 5, First Investor20and his investors currently had 140 million in funds deposited with 554 open21escrows at Escrow Company.22232444.Thereafter, First Investor and his group invested another 2.2 millionwith ANI Development.45.The July 16, 2019 email that Cain sent First Investor, however, was not25authored or sent by the escrow company, or any of its representatives. Among other26things, the bogus email was sent from an email domain that is not owned by or27connected to Escrow Company.2846.Significantly, as of late August 2019, the ANI Development escrow9

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.10 Page 10 of 191account referenced in the falsified July 16, 2019 email that Cain forwarded to First2Investor, actually contained little more than 11 million, far less than the 1403million represented in the fraudulent email.47.4Through these lulling efforts – a doctored email intended to allay any5concerns about the safety of investors’ transferred funds – Cain and ANI6Development sought to conceal their fraud.7D.Defendants’ Materially Misleading Statements and Omissions848.The escrow agreements ANI and Cain provided investors were phony91011and contained false and misleading statements about how investors’ funds would beused.49.Cain falsely told investors that their money would be used to fund the12transfer of liquor licenses, and represented that their proceeds would be kept safe in13the escrow account until they were transferred back to the investor.1450.For example, a representative escrow agreement stated that ANI15Development and Escrow Company “understand that this is a limited escrow only16and is being opened for the benefit of” a specified liquor license applicant, “who is17applying for approval of a transfer to Applicant of a license issued by the California18Department of Alcoholic Beverage Control.” The escrow agreement then identified19the license to be transferred by license number.2051.With respect to the escrowed funds, ANI Development’s form escrow21agreement stated that they would be placed “into an interest-bearing account,” and22would only be released upon written instructions by ANI Development, and in that23event, could only be transferred to a financial account maintained by ANI24Development’s investors.2526272852.Defendants made related representations in a funding agreementexecuted between Cain and First Investor.53.In that funding agreement, defendants represented to First Investor,among other things, that:10

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.11 Page 11 of 191 Cain had entered into an agreement with a law firm which anticipated that2Cain would provide funding for the firm’s liquor license applicants3 Investor funds would be placed in escrow at Escrow Company for thebenefit of the firm’s liquor license applicants45 Pursuant to her agreement with the law firm, Cain would be paid a fee forescrowing funds in connection with firm clients’ liquor license applications67Based on the foregoing recitals, First Investor agreed to participate in ANI8Development’s liquor license funding program by providing Cain and ANI9Development with the funds they needed to perform on their putative agreement with1011the law firm.54.But in reality, ANI Development and Cain had unfettered access to12escrow funds, and, at least in part, used that access to fund American National13Investment’s unrelated business operations.1455.For example, in 2017, investors cumulatively deposited approximately15 87.7 million into a pooled escrow account, yet no money was ever escrowed to16actually facilitate, as represented to investors, the transfer of the alcohol licenses17identified in the false investor escrow agreements.1856.At no point did Escrow Company ever notify California liquor licensing19authorities that these funds had been placed in escrow for the transfer of a liquor20license, as required under state regulations.2157.Instead, Cain, who controlled ANI Development’s and American22National Investment’s bank accounts, primarily used these investor funds to pay back23investors the principal and interest they were owed, as well as to transfer24approximately 22 million to Relief Defendant American National Investments.2558.A reasonable investor would have wanted to know that ANI26Development’s investment strategy was wholly fictitious; that the real escrow27agreements allowed Cain to withdraw investor funds at any time; that ANI does not28appear to have made a single loan to alcohol-license applicants; that the escrow11

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.12 Page 12 of 191company accounts were not suitable for the transfer of alcohol licenses; and that the2escrow officers involved did not handle these types of transactions.359.Cain acted knowingly, recklessly, and negligently in making material4misstatements and omissions concerning ANI Development’s investment strategy and5use of funds, and she failed to exercise reasonable care to ensure that investors were6not deceived as to this information. Because she is ANI Development’s controlling7principal, Cain’s scienter and negligence are imputed to ANI Development.8E.910The Investments Offered and Sold by ANI Development and Cainare Securities60.As directed by defendants, investors’ funds were pooled in a common11escrow account, which defendants claimed was being used to fund the transfer of12California state liquor licenses.13141561.Whether investors would profit from their investment was dependent onthe success of defendants’ represented liquor license funding program.62.Cain and ANI Development’s efforts in identifying liquor license escrow16participants who were appropriate for investment, executing the loans to those17entities, and collecting the purported interest payments from those participants, were18critical to the enterprise’s success, as investors were not allowed to play an active role19in managing ANI Development’s investment decisions under the claimed liquor20license funding program.2163.Moreover, the promissory notes that defendants distributed to the22Second Investor Group were issued to raise money for ANI Development’s supposed23funding program, and in exchange, those notes provided noteholders with interest24returns of 15 to 25 percent. Investors in the Second Investor Group intended to profit25from the high interest rates promised, and ANI Development allegedly used the26monies raised to fund its operations.272864.Defendants distributed these promissory notes to at least ten investors;the notes were unsecured and uninsured.12

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.13 Page 13 of 19165.A reasonable investor would believe that the promissory notes were2investments based on the high interest rates promised to be paid to ANI Development3from the licensees it identified.4FIRST CLAIM FOR RELIEF5Fraud in the Connection with the Purchase and Sale of Securities6Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder7(against Defendants Cain and ANI Development)866.965 above.1067.The SEC realleges and incorporates by reference paragraphs 1 throughDefendants Cain and ANI Development each made false and misleading11statements and omissions and engaged in deceptive conduct towards the investors in12ANI Development’s liquor license loan funding program. Both through the phony13escrow agreements and in information provided to the First Investor which he14provided to subsequent investors, Cain and ANI Development provided false and15misleading information that investor money would be used to fund the transfer of16liquor licenses, and represented that investor proceeds would be kept safe in the17escrow account until they were transferred back to the investor. In reality, ANI and18Cain had unfettered access to escrow funds and used that access to fund American19National Investment’s unrelated business operations such that the entire ANI20Development investment strategy was fictitious.2168.The misrepresentations and omissions made by Cain and ANI22Development were material because investors in the liquor license loan funding23program would have wanted to know: that ANI Development’s investment strategy24was wholly fictitious; that the real escrow agreements allowed Cain to withdraw25investor funds at any time; that ANI Development does not appear to have made a26single loan to alcohol-license applicants; that the escrow company accounts were not27suitable for the transfer of alcohol licenses; that the escrow officers involved did not28handle these types of transactions; and that the real escrow agreements allowed Cain13

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.14 Page 14 of 1912to withdraw investor funds at any time.69.Defendant Cain knew, or was reckless in not knowing, that the following3representations she made to investors were false: ANI Development would make4loans to alcohol license applicants; an escrow account would be opened to facilitate5those loans; and investor money would be held securely in an escrow account and6would only be released when the license transferred and the funds were repaid with7interest. Cain controlled the flow of money out of the escrow accounts, and8knowingly transferred a portion of them to American National Investments, for9purposes unrelated to the original investments. Cain’s scienter can be imputed to1011ANI Development.70.Cain, ANI Development’s managing member, knowingly engaged in a12multi-year scheme to defraud investors. Cain committed acts in furtherance of the13scheme by using the forged signatures of escrow officers to make investors believe14that the agreements they received were legitimate and by directing that funds be15transferred from escrow accounts set up for ANI Development to American National16Investment bank accounts controlled by her. These transfers to American National17Investments, which played no role in the alleged lending program, violated the terms18of the phony escrow agreements that Cain provided investors. Moreover, when First19Investor sought assurances from Cain about the loans, she used a false email address20with a phony domain name to deceive him as to the status of his investments.2171.By engaging in the conduct described above, Defendants Cain and ANI22Development with scienter, and each of them, directly or indirectly, in connection23with the purchase or sale of a security, by the use of means or instrumentalities of24interstate commerce, of the mails, or of the facilities of a national securities25exchange: (a) employed devices, schemes, or artifices to defraud; (b) made untrue26statements of a material fact or omitted to state a material fact necessary in order to27make the statements made, in the light of the circumstances under which they were28made, not misleading; and (c) engaged in acts, practices, or courses of business which14

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.15 Page 15 of 1912operated or would operate as a fraud or deceit upon other persons.72.By engaging in the conduct described above, Defendants Cain and ANI3Development violated, and unless restrained and enjoined will continue to violate,4Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 175C.F.R. § 240.10b-5.6SECOND CLAIM FOR RELIEF7Fraud in the Offer or Sale of Securities8Violations of Section 17(a) of the Securities Act9(against Defendants Cain and ANI Development)1073.1165 above.1274.The SEC realleges and incorporates by reference paragraphs 1 throughDefendants Cain and ANI Development each engaged in deceptive13conduct and obtained money by means of false and misleading statements and14omissions in connection with ANI Development’s liquor license loan funding15program. Both through the phony escrow agreements and in information provided to16the First Investor which he provided to subsequent investors, Cain and ANI17Development provided false and misleading information that investor money would18be used to fund the transfer of liquor licenses, and represented that investor proceeds19would be kept safe in the escrow account until they were transferred back to the20investor. In reality, ANI and Cain had unfettered access to escrow funds and used21that access to fund American National Investment’s unrelated business operations,22such that the entire ANI Development investment strategy was fictitious.2375.The misrepresentations and omissions made by Cain and ANI24Development were material because investors in the liquor license loan funding25program would have wanted to know: that ANI Development’s investment strategy26was wholly fictitious; that the real escrow agreements allowed Cain to withdraw27investor funds at any time; that ANI Development does not appear to have made a28single loan to alcohol-license applicants; that the escrow company accounts were not15

Case 3:19-cv-01628-H-BLM Document 1 Filed 08/28/19 PageID.16 Page 16 of 191suitable for the transfer of alcohol licenses; that the escrow officers involved did not2handle these types of transactions; and that the real escrow agreements allowed Cain3to withdraw investor funds at any time.476.Cain and ANI Development’s statements regarding the use of investors’5funds and the high interes

9. Gina Champion-Cain, age 57, is a resident of San Diego, California. She is the founder and CEO of American National Investments, Inc., a real estate development company that has over 40 affiliated businesses, including ANI Development, LLC. 10. ANI Development, LLC, is a California limited liability company located in San Diego.