U.S. Securities & Exchange Commission v. Fujinaga

FILED
NOT FOR PUBLICATION
JUN 07 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

U.S. SECURITIES & EXCHANGE No. 15-16026
COMMISSION,
D.C. No.
Plaintiff-Appellee, 2:13-cv-01658-JCM-CWH

v.
MEMORANDUM*
EDWIN YOSHIHIRO FUJINAGA; et al.,

Defendants-Appellants,

and

THE YUNJU TRUST, Relief Defendant
and JUNE FUJINAGA, Relief Defendant,

Defendants,
______________________________

ROBB EVANS & ASSOCIATES LLC,

Receiver-Appellee.

Appeal from the United States District Court
for the District of Nevada
James C. Mahan, District Judge, Presiding

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Argued and Submitted April 21, 2017
San Francisco, California

Before: TASHIMA and PAEZ, Circuit Judges, and AMON,** District Judge.

In a civil enforcement action brought by the Securities and Exchange

Commission (the “SEC”), Edwin Fujinaga (“Fujinaga”) and his company MRI

International, Inc. (“MRI”) (collectively, “Defendants”) were found liable for

securities violations under Section 10(b) and Rule 10b-5 of the Securities

Exchange Act of 1934, and Section 17(a) of the Securities Act of 1933.1 The

district court ordered Defendants to disgorge $442.2 million, and to pay $102.1

million in prejudgment interest and $40 million in civil monetary penalties.

Defendants appeal the district court’s order granting summary judgment to

the SEC on the issue of Defendants’ liability and denying Defendants’ motion to

dismiss under Federal Rule of Civil Procedure 12(b)(6). Defendants also appeal

the district court’s order granting the SEC’s motion for judgment and

disgorgement.

We review de novo a “denial of a Federal Rule of Civil Procedure 12(b)(6)

motion to dismiss,” Pakootas v. Teck Cominco Metals, LTD., 830 F.3d 975, 980

**
The Honorable Carol Bagley Amon, United States District Judge for
the Eastern District of New York, sitting by designation.
1
Defendants-Appellants CSA Service Center (“CSA”) and The Factoring
Company were named as Relief Defendants in this action.
2
(9th Cir. 2016), and an award of summary judgment, McCormack v. Herzog, 788

F.3d 1017, 1029 (9th Cir. 2015). We review for abuse of discretion an order of

disgorgement, SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1096 (9th

Cir. 2010), and “a district court’s decision to draw an adverse inference from a

party’s invocation in a civil case of the Fifth Amendment privilege against self-

incrimination,” Nationwide Life Ins. Co. v. Richards, 541 F.3d 903, 909 (9th Cir.

2008). We affirm.

1. “We apply a general rule against entertaining arguments on appeal

that were not presented or developed before the district court.” Conservation Nw.

v. Sherman, 715 F.3d 1181, 1188 (9th Cir. 2013) (quoting In re Mercury

Interactive Corp. Sec. Litig., 618 F.3d 988, 992 (9th Cir. 2010)). Defendants failed

to “properly” raise their argument regarding the SEC’s authentication of

documents, their challenge to Colin J. Rand’s declaration under Federal Rule of

Evidence 701, and their argument regarding the nature of and performance under

the investment contracts. See O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert,

Inc.), 887 F.2d 955, 957 (9th Cir. 1989). We therefore will not consider those

arguments. See id.

2. Defendants’ primary argument on appeal is that, in granting summary

judgment to the SEC, the district court abused its discretion by drawing an adverse

3
inference from Fujinaga’s assertion of his Fifth Amendment privilege against self-

incrimination. “When a party asserts the privilege against self-incrimination in a

civil case, the district court has discretion to draw an adverse inference from such

assertion.” Nationwide Life Ins. Co., 541 F.3d at 911. “The inference may not be

drawn ‘unless there is a substantial need for the information and there is not

another less burdensome way of obtaining that information.’” Id. at 912 (quoting

Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258, 1265 (9th Cir. 2000)).

“Moreover, the inference may be drawn only when there is independent evidence

of the fact about which the party refuses to testify.” Id.

3. Here, because Fujinaga was MRI’s sole corporate officer and owner,

Fujinaga exclusively possessed information that was material to this case, and he

refused to testify as to those matters. The district court nonetheless relied not only

on the adverse inference it drew from Fujinaga’s assertion of his privilege, but also

on other substantial evidence. Under these circumstances, it was not an abuse of

discretion for the district court to draw an adverse inference from Fujinaga’s

assertion of his privilege. See id. at 914.

4. Defendants argue that the district court erred in denying their motion

to dismiss because the transactions occurred extra-territorially, and the United

States securities laws therefore do not apply. Their argument fails, however,

4
because Defendants’ sales of securities were “made” in the United States. See

Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 269–70 (2010). Indeed, to

complete an investment, investors’ funds were wired to MRI’s United States bank

account, their paperwork was forwarded to MRI’s office in Nevada, and the MRI

office issued the Certificate of Investment. The Certificates of Investment further

indicate that they are “Corporate Certificate[s] of Investment” issued in “The

United States of America,” and they contain a Nevada corporation seal.

5. Defendants’ argument that the district court abused its discretion in

ordering disgorgement likewise fails. “The SEC bears the ultimate burden of

persuasion that its disgorgement figure reasonably approximates the amount of

unjust enrichment.” Platforms Wireless, 617 F.3d at 1096 (internal quotation

marks omitted). “Once the SEC establishes a reasonable approximation of

defendants’ actual profits, however, . . . the burden shifts to the defendants to

demonstrate that the disgorgement figure was not a reasonable approximation.” Id.

(internal quotation marks omitted). The SEC approximated Defendants’ profits by

relying on a thorough analysis conducted by a Certified Public Accountant for the

SEC, which accounted for both the amount of investments received by Defendants

and the amount Defendants paid out to investors. It was not an abuse of discretion

for the district court to deem this calculation reasonable. See SEC v. JT

5
Wallenbrock & Assocs., 440 F.3d 1109, 1114 (9th Cir. 2006). Defendants failed to

rebut the SEC’s calculation with reliable substantive evidence, and therefore failed

to carry their burden of overcoming the SEC’s reasonable approximation. See

Platforms Wireless, 617 F.3d at 1096.

6. The district court did not abuse its discretion in imposing civil

monetary penalties on Defendants in an amount that, in sum, represented only ten

percent of the total disgorgement figure. See 15 U.S.C. § 77T(d)(2)(C) (permitting

imposition of civil penalty up to “the gross amount of pecuniary gain” where the

violation “involved fraud, deceit, manipulation, or deliberate or reckless disregard

of a regulatory requirement” and “directly or indirectly resulted in substantial

losses . . . to other persons”).

7. Defendants’ motion to supplement the record and for judicial notice

(Dkt. No. 18) is DENIED. “Only the record that was before the district court is

normally considered, and the summary judgment record cannot be supplemented

on appeal.” USA Petroleum Co. v. Atl. Richfield Co., 13 F.3d 1276, 1279 (9th Cir.

1994) (citations omitted).

AFFIRMED.