Securities & Exchange Comm. v. Robert Yang

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 6, 2020
• Docket: 19-55289
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS AUG 6 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

U.S. SECURITIES & EXCHANGE No. 19-55289 COMMISSION, D.C. No. Plaintiff-Appellee, 5:15-cv-02387-SVW-KK

v. MEMORANDUM* ROBERT YANG; et al.,

Defendants-Appellants,

v.

CELTIC BANK,

Third-party-defendant, ______________________________

STEPHEN J. DONELL,

Receiver.

Appeal from the United States District Court for the Central District of California Stephen V. Wilson, District Judge, Presiding

Submitted May 15, 2020**

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). Pasadena, California

Before: EBEL,*** WARDLAW, and HUNSAKER, Circuit Judges.

Defendants Robert Yang, Claudia Kano, Yanrob Medical, Inc., HealthPro

Capital Partners, LLC, and Suncor Care, Inc. (collectively Defendants) appeal the

district court’s remedial order issued after Defendants entered into consent

agreements with the Securities and Exchange Commission (SEC) acknowledging

liability for their unlawful scheme to raise money from foreign investors. We have

jurisdiction under 28 U.S.C. § 1291. We reverse and remand with instructions for

the district court to conduct further proceedings consistent with this decision.

1. Defendants did not waive their right to appeal the remedial order under

their consent agreements with the SEC. We construe consent agreements de novo.

Blair v. Shanahan, 38 F.3d 1514, 1521 (9th Cir. 1994). In the Defendants’ consent

agreements they acknowledged their liability but did not consent to the amount of

disgorgement, prejudgment interest, or civil penalties. Instead, the agreements

provided that any monetary remedies would be “determined by the Court” upon a

motion from the SEC. Moreover, Defendants waived only their right to appeal entry

of the Judgment which occurred before the district court resolved the SEC’s remedy

motion. Thus, Defendants’ appeal of the district court’s remedial order is beyond the

*** The Honorable David M. Ebel, Senior United States Circuit Judge for the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.

2 scope of their appeal waiver. See Garza v. Idaho, 139 S. Ct. 738, 744 (2019).

2. Civil penalties are intended to punish the wrongdoer and deter future

securities violations. See Gabelli v. SEC, 568 U.S. 442, 451–52 (2013). Courts

determine the amount of civil penalties awarded “in light of the facts and

circumstances” of the case. 15 U.S.C. § 78u(d)(3)(B)(i). The parties agree that

determining the appropriate amount of penalty is discretionary with the court. They

also agree that, in exercising this discretion, courts routinely consider the factors set

out in SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980). See, e.g., SEC v. CMKM

Diamonds, Inc., 635 F. Supp. 2d 1185, 1192 (D. Nev. 2009) (noting same).

Defendants argue the district court failed to exercise discretion in setting the

amount of civil penalties and instead rubber-stamped the SEC’s requests. On the

record presented, we find no error in the district court’s imposition of third-tier

penalties under 15 U.S.C. § 78u(d)(3)(B)(iii), nor do we find error in its rejection of

many of Defendants’ arguments as inconsistent with admissions made in the consent

agreements. Nonetheless, because the district court granted the SEC’s requests for

civil penalties without discussing the Murphy factors or otherwise explaining its

rationale, we are unable to meaningfully review whether the district court considered

the statutory purposes for imposing civil penalties or exercised any discretion in

3 setting the penalty amounts.1 See United States v. $11,500.00 in U.S. Currency, 710

F.3d 1006, 1011 (9th Cir. 2013) (“A district court abuses its discretion if it . . . fails

to consider the factors relevant to the exercise of its discretion.”) (internal quotation

marks and citation omitted); see also Hayes v. Heckler, 785 F.2d 1455, 1457 (9th

Cir. 1986) (“It is impossible here to determine whether the district court abused its

discretion when the order below contains no information or explanation concerning

the basis for the district court’s decision.”). Therefore, we reverse the district court’s

imposition of civil penalties and remand for further proceedings for the district court

to consider all the “facts and circumstances” of the case, including the factors

relevant to its exercise of discretion. 15 U.S.C. § 78u(d)(3)(B)(i).

3. The Supreme Court recently held that ordering disgorgement in an

amount that “does not exceed a wrongdoer’s net profits and [that] is awarded for

victims” is permissible under the equitable authority granted in 15 U.S.C.

§ 78u(d)(5). Liu v. SEC, 140 S. Ct. 1936, 1940 (2020). Because this power arises

under equity, disgorgement orders must be crafted so that their effect is restitutionary

only, not punitive, reaching beyond the consequences of the specific wrongdoer’s

actions. Id. at 1943, 1947–50.

Here, despite making numerous arguments against imposition of monetary

1 The court ordered Yang to disgorge $2,014,050 with $237,032 prejudgment interest, totaling $2,251,082. This amount is $200 less than that requested by the SEC. Because we remand, we need not address this discrepancy.

4 remedies, Defendants did not challenge the SEC’s calculation or supporting

evidence establishing the amount of gains Defendants received from their unlawful

conduct, which was their burden to do if they believed the government’s calculation

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

2010). However, it is unclear whether the district court limited its disgorgement

orders imposed against the two individual defendants to their specific conduct

where, for example, it made them both jointly and severally liable for the

disgorgement amounts ordered against the entity defendants. See Liu, 140 S. Ct. at

1945, 1949. Likewise, it is unclear that the disgorgement amounts ordered are

“appropriate and necessary for the benefit of investors.” 15 U.S.C. § 78u(d)(5); see

Liu, 140 S. Ct. at 1948–49. Therefore, on remand we further direct the district court

to determine, consistent with the terms of the consent agreements, whether its

disgorgement orders comply with the Supreme Court’s decision in Liu.

REVERSED and REMANDED with instructions.