San Diego-based ANI Development LLC, its principal, Gina Champion-Cain, raised hundreds of millions of dollars from investors to make short-term, high-interest loans to parties seeking to acquire California alcohol licenses. The SEC alleges, the investment opportunities were shams and diverted directed significant amounts of investor funds to other uses.
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. Cain told investors that this regulatory requirement presented an investment opportunity.
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. That escrow agent allowed Cain to move the money around instead of keeping it safe in escrow.
Were those loans securities? If not, then its not securities fraud. The SEC addressed this is issue in the complaint using the Howey test.
60. As directed by defendants, investors’ funds were pooled in a common escrow account, which defendants claimed was being used to fund the transfer of California state liquor licenses.
61. Whether investors would profit from their investment was dependent on the success of defendants’ represented liquor license funding program.
62. Cain and ANI Development’s efforts in identifying liquor license escrow participants who were appropriate for investment, executing the loans to those entities, and collecting the purported interest payments from those participants, were critical to the enterprise’s success, as investors were not allowed to play an active role in managing ANI Development’s investment decisions under the claimed liquor license funding program.
Sounds like it passes the test because Cain pooled money into the escrow accounts instead of keeping them separate.
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