U.S. Securities & Exchange Commission v. Fujinaga
696 F. App'x 203
9th Cir.2017Background
- SEC sued Edwin Fujinaga and MRI International, Inc. for securities fraud under Section 10(b)/Rule 10b-5 and Section 17(a); district court granted summary judgment for the SEC and entered disgorgement and penalties (disgorgement ~$442.2M, prejudgment interest $102.1M, civil penalties $40M).
- Fujinaga was MRI’s sole officer and owner; he invoked the Fifth Amendment and refused to testify at summary judgment, prompting the district court to draw an adverse inference.
- Investors wired funds to MRI’s U.S. bank account; paperwork was processed in Nevada and Certificates of Investment were issued from the U.S. with a Nevada corporate seal.
- The SEC’s disgorgement calculation relied on a CPA’s accounting that approximated investor funds received minus payments to investors; defendants failed to rebut that approximation with substantive evidence.
- Defendants raised extraterritoriality, evidentiary, and authentication challenges on appeal; many arguments were deemed not properly raised below and were not considered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adverse inference from Fifth Amendment invocation | SEC: court may draw adverse inference when necessary and supported by independent evidence | Fujinaga: drawing inference was abuse because it substituted for required proof | Court affirmed: inference proper where defendant sole source of material info and independent evidence existed; not an abuse of discretion |
| Extraterritorial application of U.S. securities laws | SEC: transactions were "made" in U.S. because funds, paperwork, and certificates passed through U.S. entities/offices | Defs: transactions occurred outside U.S., so Morrison bars application | Court affirmed: sales made in U.S. (wires to U.S. account, Nevada processing, U.S. certificates) |
| Disgorgement amount | SEC: CPA provided reasonable approximation of unjust enrichment; burden shifts to defendants to rebut | Defs: disgorgement figure unreliable and excessive | Court affirmed: SEC met burden; defendants failed to rebut with reliable evidence; disgorgement reasonable |
| Civil monetary penalties | SEC: penalties within statutory bounds given fraud and investor losses | Defs: penalties excessive | Court affirmed: penalties (total ~10% of disgorgement) permissible under statute |
Key Cases Cited
- Pakootas v. Teck Cominco Metals, Ltd., 830 F.3d 975 (9th Cir. 2016) (standard for reviewing denial of Rule 12(b)(6) motion)
- McCormack v. Herzog, 788 F.3d 1017 (9th Cir. 2015) (standard for reviewing summary judgment)
- Nationwide Life Ins. Co. v. Richards, 541 F.3d 903 (9th Cir. 2008) (district court discretion to draw adverse inference from Fifth Amendment invocation)
- Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258 (9th Cir. 2000) (adverse inference requires substantial need and lack of less burdensome alternative)
- Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010) (limits extraterritorial application of U.S. securities laws; sales "made" in U.S. are covered)
- Platforms Wireless Int’l Corp., 617 F.3d 1072 (9th Cir. 2010) (standard and district court discretion for disgorgement awards)
- SEC v. JT Wallenbrock & Assocs., 440 F.3d 1109 (9th Cir. 2006) (disgorgement calculation may be a reasonable approximation)
- USA Petroleum Co. v. Atl. Richfield Co., 13 F.3d 1276 (9th Cir. 1994) (appellate courts typically consider only the district court record)