Securities and Exchange Commission v. PLCMGMT LLC, et al., LACV16-02594-TJH (FFMx), U.S. District Court, Central District of California
June 20, 2017 – Investor Questions – see FAQs Section in Right Sidebar
The Receiver’s office receives questions from investors on various subjects. Rather than respond to each inquiry separately, we have prepared a section on Frequently Asked Questions (“FAQs”) which addresses these questions. Click the FAQs link on the right sidebar to access. The most recurring questions relate to the case portfolio, particularly what is it worth and how much money will it generate to the receivership. We address this in FAQ No. 11. In short, there have not yet been any settlements or verdicts in any of the Risperal cases in the portfolio, which account for 95% of the cases, and there is no reliable way to predict results. We are in regular communication with lead counsel for the portfolio and will provide updates as they are available.
June 19, 2017 – Receiver’s Update
Solicitation Letter Sent to Investors from Law Firm Goodman & Nekvasil
Several investors have alerted our office that they have received a solicitation letter from a Florida law firm, Goodman & Nekvasil, offering their services for an arbitration action against “the brokerage firm that sold this investment.” This advertising – offering the services of an attorney to sue a broker – is understandably confusing to the people who have contacted us. We can offer the following:
- The solicitation appears limited to actions against brokerage firms. We are not aware of any investors who invested in Prometheus through a licensed brokerage firm. Indeed, the SEC’s case was based, in part, on the claim of the unlicensed sale of unregistered securities.
- The Financial Industry Regulatory Authority (“FINRA”) acts as a self-regulatory organization for brokerage firms and operates a large arbitration forum. Most agreements between stockbrokers and their customers include mandatory arbitration agreements calling for FINRA arbitration of disputes. It appears that this law firm handles these types of arbitrations. But, this arbitration would only be available for investments brought through a brokerage firm and, as noted above, we are not aware of any investors who purchased through a broker who would be bound by the FINRA rules.
- The letter states that “we believe that you have lost your entire investment in Prometheus.” As you know, the Receiver’s main mission is to accumulate the assets of the Defendants, including any fees paid from the case portfolio, for return to investors. While there is no reliable way to predict the “value” of the portfolio, we expect it ultimately to generate funds which will be disbursed to investors through a process approved by the court.
- We provide this background for informational purposes, each investor must make his or her decision on how to proceed.
May 17, 2017 – Receiver’s Update
PLC Principals Aldrich and Catipay Have Been Sentenced to Federal Prison
PLC principals David Aldrich and James Catipay have now been sentenced in their federal criminal cases brought by the U.S. Attorney’s Office in San Diego. Aldrich was sentenced to 18 months incarceration, plus restitution of $8.3 million. Catipay was sentenced to 24 months incarceration, plus restitution of $11.7 million.
Both Aldrich and Catipay previously stipulated to judgments in the SEC’s civil case against them. The Aldrich judgment included a specific provision that he pay $3.6 million to the SEC, but he has made no payments toward that judgment – if he does ultimately make any payments to the SEC, we anticipate that the SEC will make such funds available for restitution. The Catipay judgment does not include a specific dollar judgment as the amount of monetary relief as to Catipay will be determined at a later date.
February 3, 2017 – Receiver’s Update
The Receiver’s office has received multiple inquiries as to the status and potential value of the Case Portfolio as to which Mr. Catipay and Prometheus were to receive a share of the contingency fees due counsel if and when the cases are successfully resolved, by settlement or trial.
The good news is that, despite the Aldrich and Catipay’s squandering of investor funds for their own personal use, there is a Case Portfolio of potential plaintiffs as to which the receivership has a claim to a portion of fees earned from successful cases. Lead counsel for the cases in the Case Portfolio have emphasized, however, that it is not possible to project with precision the “value” of the Portfolio or the fees that may flow from the cases before they are tried or resolved. Nor is it possible to provide any specific timeline as to when the cases may be resolved. Litigation is inherently unpredictable and all cases are very fact and court specific. Beyond the lack of precision, it is also not strategically wise for counsel to provide public estimates of valuation which could adversely impact future trials or settlement negotiations.
It is also extremely important to note that, even if the cases are resolved in favor of the plaintiffs, the fees due the receivership are limited to a portion (generally 1/3) of the fees lead counsel receive.
We provide below a general summary of the Case Portfolio which is based upon descriptions and representations of lead counsel.
The Portfolio contains approximately 2,115 potential plaintiffs. This number may fluctuate because potential plaintiffs may be dropped if further due diligence indicates that they are not qualified or their injuries are not provable. It must be stressed that 2,115 is the number of potential plaintiffs pre-screened by counsel to date, but is not necessarily the number of cases that have actually been filed. We are told this is common in mass tort litigation where cases do not have to be filed until there is an imminent statute of limitations issue. As favorable results are reached in trials or settlements in the filed cases, counsel for the plaintiffs will work toward a global settlement involving all other plaintiffs with provable injuries.
95% of the Portfolio are potential plaintiffs relating to a single drug manufactured by a large pharmaceutical company which has some known side effects. The ultimate value of these cases will depend on multiple factors, including the age of the plaintiff, the evidence of use and side effects, the years in which the drug was used, and the applicable warning label used during those years. Settlements or trial results in some cases will present valuation parameters for other cases. None of these cases in the Portfolio have yet been settled or decided. .
The receivership has received, to date, $151,200 in fees relating to cases involving two other drugs that have been resolved:
- $142,723 has been received as the receivership’s share of fees related to the pre-filing settlement of nine cases relating to a diabetes drug. Those settlements totaled $2,028,619, of which, $1,362,832 has been paid as an interim payment. Additional fees will be paid as the remaining settlement amounts are paid.
- $8,527 has been received as the receivership’s share of fees from the settlement of four cases involving a female contraception product which were settled for a total of $96,665. The receivership has received $8,527 as its share of the fees due on those settlements.
January 5, 2017 – Receiver’s Update
PLC Principals Aldrich and Catipay to be Sentenced Following Guilty Pleas in Criminal Cases; Receiver’s Status Report and Accounting
PLC principals David Aldrich and James Catipay have both entered guilty pleas in separate criminal cases brought against them by the U.S. Attorney’s Office in San Diego. Both have plead guilty to one count of conspiracy to commit Securities Fraud in violation of 18 United States Code Section 371. The sentencing hearings are set for February 13, 2017 (Aldrich) and March 20, 2017 (Catipay) before Judge Houston.
On November 22, 2016, the U.S. Attorney’s Office in San Diego did issue a Press Release confirming the guilty pleas – a copy of that Press Release is posted at the right sidebar.
The Receiver has also filed a detailed Status Report and Accounting (filed November 10, 2016) which summarizes receivership activities to date – a copy can be accessed at the right sidebar.
September 28, 2016 – Claw Back Profits Paid to Investors and Commissions Paid to Sales Agents/Consultants
One of the receiver’s duties in cases like PLC is to identify investors who received profits and sales consultants who received commissions. The law authorizes the receiver to “clawback” such profits and commissions and add them to the pool of funds for later distribution to investors who lost money.
To date, the Receiver has identified six investors who received nominal profits and approximately 37 sales agents/consultants who were paid commissions. The Receiver has initiated the process of sending notices to each of them demanding the return of such profits and commissions to the receivership.
In order to assist those who receive these notices and their counsel, we are posting copies of two court decisions which include clear explanations of the law and procedures on the return of profits and commissions in Ponzi scheme cases. Click on the case name below to read a complete copy of each decision.
- Donell v. Kowell, 533 F.3d 762, 779 (9th Cir. 2008). In this case, the Ninth Circuit Court of Appeals concluded: “Those who receive gains from innocent participation in [a Ponzi] scheme may be required to disgorge those amounts . . .” to a Receiver.
- Hays v. Adam, 512 F. Supp. 2d 1330, 1344 (N.D. Ga. 2007). This decision from the U.S. District Court in Georgia addresses the return of commissions in Ponzi scheme cases and cases involving the sale of unregistered securities: “Just as the law would require innocent investors to disgorge profits obtained from investing in an unlawful Ponzi scheme, . . . it dictates that the court cannot permit the sales agent defendants to unjustly benefit from their unlawful sales of securities in furtherance of a Ponzi scheme. The court will accordingly use its powers in equity to require the defendants to disgorge their commissions and bonuses arising from these activities.”
Receiver’s Update – The Court has Entered Judgments as to PLC principals David Aldrich and James Catipay
PLC principals David Aldrich and James Catipay have now both consented to the entry of formal Judgments of liability against them. Those Judgments are posted at the right sidebar.
These judgments include recitations that they do not admit or deny the SEC’s allegations against them, but include permanent injunctions against any future violations of the Securities Exchange Act of 1934 or the Securities Act of 1933 and order that each pay disgorgement of all ill-gotten gains and a civil penalty. As to Catipay, the Court will determine the amount of the disgorgement and civil penalty upon a motion which will be brought by the SEC in the future.
As to Aldrich, the Judgment against him recites as follows: “IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for disgorgement of $2,667,945.00, representing profits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $17,786.30, and a civil penalty in the amount of $1,000,000.00 pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d) and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3). Defendant shall satisfy this obligation by paying $3,685,731.30 to the Securities and Exchange Commission within 14 days after entry of this Final Judgment.”
August 18, 2016 Update to Investors
Both James Catipay and David Aldrich have now stipulated to formal judgments with the SEC.
The Receiver’s office continues to receive inquiries from investors as to when they can expect to receive payouts from their investments in Prometheus. Undeniably, the most significant asset of the receivership estate is the portfolio of cases as to which Catipay/Prometheus are owed a percentage of the contingency fee earned by the counsel of record as the cases settle or are otherwise resolved. We anticipate proceeds from this arrangement will be substantial, but we cannot responsibly project the amounts of these proceeds as each case is fact specific with wide variations in the value of claims. We do know that projections made by the Defendants as to the value of the portfolio, ultimate cash flow to Prometheus, and payouts to investors were very exaggerated.
As cases in the portfolio are resolved and the receivership receives its share of the identified fees, the receivership will accumulate a fund. We must clarify, however, that disbursements to investors from this fund cannot be made until the court approves, and the Receiver implements, a comprehensive claims process. That process will include procedures by which the Receiver will confirm the amount of principal invested by each investor and a formula for the disbursal of the accumulated fund to those investors. We anticipate that a series of interim distributions would be made as the fund grows, but those details will ultimately be refined in the claims process approved by the court.
We will provide updates as to the details of the case portfolio, but we do not expect to have fully reliable information to report for several months as we complete a detailed due diligence review of the cases.
The Receiver continues to work toward the accumulation of Prometheus assets beyond the case portfolio. This process will be advanced by the upcoming depositions of James Catipay, David Aldrich and other Prometheus operatives.
Any questions should be sent to firstname.lastname@example.org.
June 22, 2016 Update to Investors
Defendant James Catipay has now stipulated to the entry of a formal judgment against him.
The Receiver is taking steps to accumulate available assets of the Defendants. Those efforts have been hampered by the less than candid responses and answers of Defendant Catipay and another former Prometheus employee. The deposition testimony of the Defendants will be taken as soon as responses to bank subpoenas are received. This should occur in the next three weeks. We will continue to follow leads and accumulate as much as possible toward a fund for ultimate disbursal to investors.
The most significant asset of the receivership estate is the portfolio of cases as to which Catipay/Prometheus are owed a percentage of the contingency fee earned by the counsel of record as the cases settled or were otherwise resolved. We anticipate proceeds from this arrangement will be substantial, but we cannot yet quantify with any precision the true value of the interest in the cases. We will undertake further due diligence and consult with counsel of record. We do know that projections made by the Defendants as to the value of the portfolio and ultimate cash flow to Prometheus were often very exaggerated.
We will post further updates and communicate directly with investors as we proceed. Any questions should be sent to email@example.com.
April 26, 2016
In a case brought by the Securities Exchange Commission (“SEC”), the U.S. District Court in Los Angeles has placed PLCMGMT, LLC (which operates under the dba Prometheus Law) under the control of a receiver. The receiver was appointed in the case SEC vs. PLCMGMT LLC. The SEC’s Complaint and the stipulated Preliminary Injunction can be accessed from the right sidebar of this website.
Also named in the case were principals David Aldrich and James Catipay. The SEC alleges that Prometheus committed securities fraud in connection with the solicitation of investments in a legal marketing program which, among other things, promised returns in excess of 100%. The receiver has suspended all operations and has commenced a thorough review of operations. Once that review has been completed, the receiver will post additional updates on this website and will communicate directly with investors and other parties.