United States Securities & Exchange Commission v. China Infrastructure Investment Corp.
189 F. Supp. 3d 118
D.D.C.2016Background
- CIIC, a Nevada corporation with securities registered under Section 12(g), and two officers (CEO/chair Li Xipeng and corporate secretary Wang Feng) submitted SEC filings and a NASDAQ letter in 2011 falsely representing that Li Lei remained CIIC’s CFO, despite his resignation on September 21, 2011; Lei’s electronic signature was used without authorization.
- Feng admitted forging Lei’s signature to avoid bad publicity during NASDAQ delisting proceedings; Loeb (outside counsel) later filed an 8-K disclosing Lei’s resignation and that Lei had not authorized the filings.
- SEC sued CIIC, Xipeng, and Feng alleging multiple Exchange Act and Rule violations (including §10(b)/Rule 10b-5, reporting violations, aiding-and-abetting, SOX-related rules, and control-person liability).
- After initial appearances, defendants ceased communicating with counsel, failed to respond to discovery, ignored multiple court orders (including an order deeming admissions admitted), and did not oppose the SEC’s motion for default judgment.
- The court found clear-and-convincing evidence of willful noncompliance with discovery orders, concluded lesser sanctions would be futile, entered default judgment on liability, and imposed permanent injunctions, officer/director bars (against Xipeng and Feng), and civil penalties ($1,500,000 for CIIC; $300,000 each for Xipeng and Feng).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether default judgment is warranted as a discovery sanction | SEC: defendants willfully ignored discovery and court orders, prejudicing the SEC and stalling the case; lesser sanctions futile | Defendants: no response (no active argument) | Court: Default judgment appropriate under FRCP 37/16 for willful, repeated noncompliance (Webb factors met) |
| Whether permanent injunction against future securities-law violations is warranted | SEC: pattern of deliberate falsifications over six weeks shows reasonable likelihood of recurrence | Defendants: no response | Court: Permanent injunction granted based on pattern, deliberateness, and ongoing reporting obligations |
| Whether Xipeng and Feng should be barred from serving as officers/directors of public issuers | SEC: defendants’ central roles, scienter, concealment, and lack of remediation show unfitness | Defendants: no response | Court: Permanent officer/director bars imposed on Xipeng and Feng (unfitness/recidivism justified) |
| Whether civil penalties should be assessed and in what amount | SEC: violations involved fraud/reckless disregard; requests second-tier penalties for each false filing (four violations) | Defendants: no response | Court: Second-tier penalties imposed at maximum for each counted violation — CIIC $1,500,000; Xipeng $300,000; Feng $300,000 |
Key Cases Cited
- Webb v. District of Columbia, 146 F.3d 964 (D.C. Cir. 1998) (articulating three justifications for default judgment as a discovery sanction)
- Wash. Metro. Area Transit Comm’n v. Reliable Limousine Serv., LLC, 776 F.3d 1 (D.C. Cir. 2015) (reaffirming default-judgment standards and necessity of willfulness/bad faith)
- Shea v. Donohoe Constr. Co., 795 F.2d 1071 (D.C. Cir. 1986) (discussing sanctions for discovery abuse and prejudice to other party)
- Founding Church of Scientology v. Webster, 802 F.2d 1448 (D.C. Cir. 1986) (default requires willfulness, bad faith, or fault)
- Mwani v. bin Laden, 417 F.3d 1 (D.C. Cir. 2005) (default appropriate when adversary process is halted by unresponsive party)
- Bilzerian v. SEC, 29 F.3d 689 (D.C. Cir. 1994) (standards for injunctions — reasonable likelihood of future violations)
- Patel v. United States SEC, 61 F.3d 137 (2d Cir. 1995) (framework for assessing unfitness for officer/director bars)
- Pentagon Capital Mgmt. PLC v. SEC, 725 F.3d 279 (2d Cir. 2013) (counting multiple separate violations when assessing penalties)