Dorsey & Whitney – The lure of big profits from the settlement of large personal injury law suits was the hook used by a lawyer and his partner to attract investors to Prometheus Law. The thought of all those dollars — virtually riskless profits — drew investors. But in a world that is constantly changing one thing does not — “to-good to be true” is just that, “to good to be true.” The promoters made money; the investors lost. SEC v. PLCMGT LLC, Civil Action No. 2:16-cv-02594 (C.D. CA. Filed April 15, 2016).
Defendant PLCMGMT, dba Prometheus Law was founded by attorney James Catipay. The firm’s president and chief marketing officer was, for a portion of the relevant period here, defendant David Aldrich.
In 2013 Mr. Aldrich, using PLC VA as an investment vehicle, solicited investments for legal marketing to locate potential mass tort plaintiffs. While a few investors were located, but Mr. Aldrich could not locate an attorney to handle the cases because of the ethical restrictions on fee splitting with non-attorneys. Later that year Mr. Catipay, a tax attorney, agreed to join with Mr. Aldrich in his endeavor. Mr. Catipay revamped his firm’s website, soliciting investors. In November Attorney A entered into an arrangement with the Catipay Law Firm and Prometheus. A trilateral joint representation agreement was executed. The focus would be mass tort litigation.
Investors were solicited to purchase what were called “prepaid forward contracts.” The investments had a fixed principal amount and a set date when the initial investment and a guaranteed return would be paid back to the investor. The investments took various forums which offered returns that ranged from 100% to as much as 300% depending on the length of time.
Investors were told that the investment was safe with minimal risk. This was because Prometheus only marketed to, and qualified, plaintiffs in pre-settled or about to be settle cases were funds had been put into escrow. The settlement funds in these actions were substantial, investors were told. Investors were also promised that they could redeem their principal at any time and that their funds were secured under the Uniform Commercial Code. None of the claims were true.
Nevertheless, prior to the time Messrs. Catipay and Adrich got into a dispute in February 2015, about $8.54 million was raised in approximately 1,018 investments. Subsequently, Mr. Catipay took sole ownership of Prometheus and filed suit against Mr. Aldrich. The complaint alleged that his former business associated had converted over $3 million of Prometheus’ assets to personal use.
Mr. Catipay continued soliciting investors. Overall about $11.7 million was raised from investors. Of that amount only 35% was used on legal marketing expenses. Mr. Aldrich took about $3.7 million. Mr. Catipay took about $1.87 million by early 2016. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending.