SEC v. Messina, No. 15-55325 (9th Cir. 2017)
Annotate this CaseVictor Messina and International Market Ventures (IMV), challenged their liability as relief defendants in the SEC's enforcement action against Phil Ming Xu and various Xu-related entities for federal securities law violations arising out of a fraudulent investment scheme. The SEC alleged that Messina and IMV received $5 million of the tens of millions of dollars Xu unlawfully raised through investor deposits worldwide, but Messina and IMV asserted that they received those funds as a loan. At issue was whether putative relief defendants may divest a district court of jurisdiction to proceed against them using summary procedures simply by asserting a claim of entitlement to the disputed funds in their possession. The court concluded that the district court properly exercised its jurisdiction to determine the legal and factual legitimacy of Messina and IMV's claim to the $5 million; the district court acted correctly under its precedent approving the invocation of relief defendant procedures in SEC enforcement actions and did not clearly err in finding that Messina and IMV had no legitimate claim to the funds; the evidence demonstrated that far more than $5 million was raised by Xu and his various entities in the United States, and the district court correctly concluded that the funds sought were proceeds of illegal activity and subject to disgorgement; and thus the district court did not abuse its discretion in later ordering disgorgement from Messina and IMV as relief defendants. Accordingly, the court affirmed the judgment.
Court Description: Securities and Exchange Commission / Disgorgement. The panel affirmed the district court’s final judgment as to appellants Vincent J. Messina and International Market Ventures, who contested their liability as “relief defendants” arising from the Securities and Exchange Commission’s (“SEC”) enforcement action against Phil Ming Xu and Xu-related entities for federal securities law violations arising out of a fraudulent investment scheme. The SEC file a motion for an order of disgorgement against appellants, alleging they received $5 million of the tens of millions of dollars Xu unlawfully raised through investor deposits worldwide. Appellants alleged that they received those funds as a loan. The panel held that the district court properly asserted jurisdiction over appellants as relief defendants to determine the legal and factual legitimacy of appellants’ claim to the $5 SEC V. MESSINA 3 million. The panel held that the SEC made the required showing that: (1) appellants received ill-gotten gains; and (2) appellants did not have a legitimate claim to those funds. The panel rejected appellants’ contention that once they advanced a facially colorable claim to the disputed funds as loan proceeds, the court was immediately divested of jurisdiction to adjudicate the legitimacy of their claim. The panel held that the district court did not clearly err in finding that the $5 million transfer from Xu to Messina as a loan was a sham. The panel also held that the record amply supported the district court’s conclusion that the funds transferred to Messina and International Market Ventures were ill gotten as a matter of law. The panel further held that the district court did not err in holding International Market Ventures jointly liable for the portion of those ill-gotten funds that it received. The panel rejected appellants’ procedural challenges to the manner in which the district court adjudicated the disgorgement proceedings. The panel also held that appellants were afforded sufficient due process during the relief defendant proceedings before the district court.
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