SEC Shuts Down $300M California Alcohol License Loan Scheme

Bottles of Pernod Ricard SA Blender's Pride whiskey and Chivas Regal Scotch whisky, from left, N.V. Group Blue Moon gin, United Spirits Ltd. Whyte & Mackay Scotch whisky and Henkell & Co Sektkellerei KG Wodka Gorbatschow vodka are arranged for a photograph at The Living Room bar in the Hauz Khas area in New Delhi, India, on Thursday, Sept. 27, 2012. Diageo Plc confirmed that it's in talks to buy a stake in billionaire Vijay Mallya's United Spirits Ltd., a deal that would help the world's biggest distiller build its presence in the Indian whiskey market. Photographer: Sanjit Das/Bloomberg

The Securities and Exchange Commission on Aug. 28 filed charges and obtained an asset freeze against a San Diego-based firm and its principal for defrauding 50 retail investors out of $300 million tied to California alcohol license loans.

ANI Development LLC; its principal, Gina Champion-Cain; and a relief defendant were charged by the agency operating a multi-year scheme that since 2012 raised over $300 million, including over $100 million in the past year.

According to the complaint, when raising the investor funds, "defendants claimed to be offering investors an opportunity to make short-term, high-interest loans to parties seeking to acquire California alcohol licenses. In truth, that investment opportunity was a sham."

Contrary to defendants' representations, the SEC asserts, defendants did not use investor funds to make loans to alcohol license applicants.

Instead, Cain directed significant amounts of investor money to a relief defendant that she controlled.

Under California state law, liquor license applicants are required to escrow an amount equal to the license purchase price while their application remains pending with the state, the complaint states.

"Cain told investors that this regulatory requirement presented an investment opportunity," the complaint states. "She directed investors to deposit their money into specified escrow accounts maintained by ANI Development, and represented to them that their funds were being loaned to liquor license applicants at a high interest rate."

Los Angeles Regional Director Michele Wein Layne said in a statement that the SEC "took emergency action to stop what we allege is an egregious fraud. Importantly, the agreement we reached with the defendants to freeze their assets during the litigation will give investors the best chance to maximize their recovery going forward."

The SEC's complaint, filed in federal district court in San Diego on Aug. 28, charges defendants with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933.

Without admitting any violations of federal law, defendants have agreed to preliminary injunctions against violations of these provisions of the federal securities laws, asset freezes, and the appointment of a receiver over ANI and the relief defendant to marshal and preserve assets, the SEC states.

The stipulated order is subject to court approval.

The complaint seeks disgorgement of allegedly ill-gotten gains and prejudgment interest, monetary penalties, and permanent injunctions.

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