Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-56453/USCOURTS-ca9-13-56453-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 

---

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ROBERT P. MOSIER, as Receiver for

Private Equity Management Group

Inc. and Private Equity Management

Group, LLC and their subsidiaries

and affiliates,

Plaintiff-Appellant,

v.

STONEFIELD JOSEPHSON, INC., CPAs,

a California corporation,

Defendant-Appellee.

No. 13-56453

D.C. No.

2:11-cv-02666-

PSG-E

OPINION

Appeal from the United States District Court

for the Central District of California

Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted

October 23, 2015—Pasadena, California

Filed February 23, 2016

Before: Harry Pregerson and Stephen S. Trott, Circuit

Judges and William H. Stafford,* Senior District Judge.

Opinion by Judge Trott

 

*

 The Honorable William H. Stafford, Jr., Senior District Judge for the

U.S. District Court for the Northern District of Florida, sitting by

designation.

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2 MOISER V. STONEFIELD JOSEPHSON

SUMMARY**

California Tort Law

The panel affirmed the district court’s summary judgment

in favor of accountants on tort claims brought by a court

appointed receiver against the accountants who audited the

financial statements for fraudulent offerings of the companies

for which the receiver was appointed.

The panel affirmed the district court’s grant of summary

judgment on the receiver’s claims for professional negligence

and aiding and abetting the wrongful conversion of the

companies’ assets under California law. The panel held that

the receiver did not raise a genuine issue as to causation

because he did not show that either the companies or its

investors relied on the audits. The panel also affirmed the

district court’s grant of summary judgment on a claim of

unjust enrichment.

COUNSEL

Randall A. Smith (argued), Ronald Rus, Sara A. Milroy, and

Laurel R. Zaeske, Brown Rudnick LLP, Irvine, California, for

Plaintiff-Appellant.

Stephen J. Tully (argued) and Efren A. Compeán, Garrett &

Tully, P.C., Westlake Village, California, for DefendantAppellee.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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MOISER V. STONEFIELD JOSEPHSON 3

Michael C. Kelley, Bradley H. Ellis, Mark E. Haddad, and

Collin P. Wedel, SidleyAustin LLP, Los Angeles, California,

for Amici Curiae California Society of Certified Public

Accountants and American Institute of Certified Public

Accountants.

OPINION

TROTT, Senior Circuit Judge:

Appellant Robert Mosier is the court appointed receiver

for Private Equity Management Group, Inc. and its

interrelated subsidiaries and affiliates (collectively,

“PEMGroup”). Mosier was appointed after the former

directors and mangers of PEMGroup used the companies to

defraud investors of approximately $950 million in what the

district court called a “massive Ponzi scheme.”

Mosier sued Appellee Stonefield Josephson, Inc., the

CPAs who audited the financial statements for six of

PEMGroup’s fraudulent offerings. Mosier contends that

Stonefield’s reports and related conduct materially

misrepresented PEMGroup’s financial condition, allowing

PEMGroup’s management to prolong the life of their scheme

and to loot and to dissipate assets from PEMGroup. 

According to Mosier, if Stonefield had performed its audits

competently or simply resigned after it caught wind of

management’s fraud, PEMGroup could not have attracted

new investors. Mosier seeks $51 million from Stonefield in

compensation for damages the firm allegedly caused to

PEMGroup.

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4 MOISER V. STONEFIELD JOSEPHSON

Mosier’s first amended complaint stated three causes of

action: 1) professional negligence, 2) aiding and abetting the

wrongful conversion of PEMGroup’s assets, and 3) unjust

enrichment. On summary judgment challenging all three

claims, the district court dismissed the first two, holding that

Mosier had not raised a genuine issue as to the existence of an

essential aspect of his case: proof of causation. Specifically,

the district court held that to show causation, Mosier

ultimately would have to demonstrate that either PEMGroup

or its investors relied on Stonefield’s audits, but that Mosier

had utterly failed to satisfy this legal requirement. Moreover,

the court concluded that any reliance on the audits by the

investors would have been unreasonable. As to claim three

for unjust enrichment, the court also granted summary

judgment. Although Stonefield challenged this cause of

action in its motion, Mosier did not respond to or defend it in

his response.

We have jurisdiction over this timely appeal pursuant to

28 U.S.C. § 1291, and we affirm.

I

BACKGROUND

Danny Pang founded PEMGroup. Together with

PEMGroup’s directors and management, Pang established

Genesis Voyager Equity Corporation (“GVEC”) and its

related entities GVEC II and GVEC IV as subsidiaries of

PEMGroup. These entities, known as “special purpose

vehicles,” eventually became parts of an integrated swindle.

GVEC made debt and equity offerings in life insurance

policies and commercial real estate mortgages. These

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MOISER V. STONEFIELD JOSEPHSON 5

offerings allegedly raised $951 million. In its offering

memoranda, GVEC told investors to expect a return on their

investments of between approximately six to seven percent. 

However, eventually the “returns” GVEC paid did not come

from its investments. GVEC fraudulently paid its investors

with money from new investors and by selling GVEC’s assets

to GVEC II and GVEC IV at over-inflated prices. In addition

to paying old investors with new investor money,

management used the ill-gotten money from unsuspecting

investors to prop up GVEC by paying GVEC’s overhead and

retiring older offerings. Management also looted moneyfrom

PEMGroup for their own personal benefit.

In 2003, GVEC hired Stonefield to audit the financial

statements for six of its offerings. Stonefield issued ten audit

reports for fiscal years 2003 through 2007. Mosier alleged

that these reports fell below Generally Accepted Auditing

Standards (“GAAS”) in a variety of ways. However,

Stonefield’s cardinal sin in Mosier’s eyes was Stonefield’s

alleged failure sufficiently to warn investors that GVEC’s

management had not accurately reported the value of its

assets in accordance with Generally Accepted Accounting

Principles (“GAAP”). Mosier estimatesthatGVEC misstated

the value of eighty to ninety percent of the assets in the

financial statements.

Beginning with its March 2004 report, a wary Stonefield

issued “qualified” opinions about their client’s operations. 

“A qualified opinion states that, except for the effects of the

matter(s) to which the qualification relates, the financial

statements present fairly, in all material respects, the financial

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6 MOISER V. STONEFIELD JOSEPHSON

position, results of operations, and cash flows of the entity in

conformity with generally accepted accounting principles.”1

Extending through the end of Stonefield’s relationship

with PEMGroup, each of Stonefield’s audit reports expressed

significant reservations about its client’s improper method of

assigning value to its assets and the unknown effects of those

questionable practices on its financial statements. For

example, Stonefield’s “Independent Auditors’ Report” dated

March 4, 2005 says,

[T]he Company has valued certain

investments (“Growth Special Assets”) at a

method similar to an amortized cost basis,

which basis values the investment at historical

cost. Any potential unrealized gain resulting

from these Growth Special Assets is then

amortized on a straight-line basis over their

estimated life. In our opinion, accounting

principles generally accepted in the United

States of America require that all investments

be presented at fair value, and all

corresponding changes in fair value between

balance sheet dates be recorded to the

statement of operations. The Company has

elected to not disclose the exact nature of all

of the special assets for confidentiality

purposes, which is also a departure from

accounting principles generally accepted in

the United States of America. The effects on

 

1 Reports on Audited Financial Statements, AU § 508.10, available at

http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableD

ocuments/AU-00508.pdf.

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MOISER V. STONEFIELD JOSEPHSON 7

the financial statements of the preceding

practice is not reasonably determinable.

In a summary note to Stonefield’s report, the misgivings

continued:

The Company is recognizing unrealized gain

resulting from the Growth Special Assets . . .

on a straight-line basis method over the

estimated life of the Growth Special Assets,

which method is not in accordance with

accounting principles generally accepted in

the United States of America (“US GAAP”). 

US GAAP requires that all investments be

presented at fair value, and all corresponding

changes in fair value between balance sheet

dates be recorded to the statement of

operations. The effects on the financial

statements of this non US GAAP practice are

not reasonably determinable.

In a letter dated April 18, 2008 addressed to “Board of

Directors and Inventors Genesis Voyager Equity

Corporation,” Stonefield warned that GVEC’s

[r]ecording of the sale of Special Assets were

not in accordance with accounting principles

generally accepted in the United States of

America. The Special Assets of the Portfolio

were sold to an affiliated entity that shares the

same advisor as [GVEC]. Furthermore the

valuation for the sale price of the Special

Assets could not be concluded to be Fair

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8 MOISER V. STONEFIELD JOSEPHSON

MarketValue independentlyof management’s

internal valuation.

In Mosier’s opinion, however, Stonefield’s series of

qualified reports did not go far enough. Given the extent to

which GVEC admittedly misstated asset values, Mosier

alleges that Stonefield should have issued either an adverse

opinion or refused to issue any opinion at all and

simultaneously to unload GVEC as a client. “An adverse

opinion states that the financial statements do not present

fairly the financial position, results of operations, or cash

flows of the entity in conformity with generally accepted

accounting principles.” AU § 508.10, supra.

Stonefield’s involvement with GVEC and PEMGroup

went beyond issuing qualified audit reports. Stonefield

attended a meeting with at least one investor, although the

record does not reveal what Stonefield said during the

meeting. Also, Stonefield authored “comfort letters,” which

stated that its qualified audit reports were prepared in

accordance with GAAS and fairly described the “quality or

reliability of the [relevant] financial statements.” Two of

Stonefield’s auditors served as a character reference for

Danny Pang and another of PEMGroup’s managers. Finally,

Stonefield prepared for GVEC’s board of directors and

investors net asset valuations and limited reports concerning

two of the sales between GVEC and its affiliates.

Stonefield never had an entirely comfortable relationship

with GVEC. Early on, Stonefield learned that its predecessor

had resigned as GVEC’s CPA after GVEC misrepresented the

predecessor’s involvement with GVEC’s initial funding

period. Furthermore, the manner in which PEMGroup

structured GVEC and its offerings – e.g, soliciting only

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MOISER V. STONEFIELD JOSEPHSON 9

Chinese investors, basing its operations in the British Virgin

Islands, and promising seemingly unsustainable rates of

return – raised Stonefield’s concerns. As time went on,

Stonefield began seriously to question GVEC’s operations,

management’s integrity and competence, and whether

Stonefield should resign. Ultimately, Stonefield did resign,

but not until April 29, 2009, after it learned that the SEC had

filed a complaint against Pang and PEMGroup, and that the

FBI had arrested Pang.

II

DISCUSSION

1. On whose behalf may Mosier sue Stonefield?

To understand this controversy, some focus is useful.

At the early stages of the litigation, Stonefield moved to

dismiss Mosier’s First Amended Complaint pursuant to Fed.

R. Civ. P. 12(b)(6) on the ground that Mosier lacked standing

to sue on behalf of the defrauded investors. The court

concluded that Mosier had standing to sue Stonefield, but not

to do so on behalf of the investors. The court explained its

analysis and ruling as follows:

In general, a receiver has capacity to bring

only such actions as could have been brought

by the entity or individual whose property is

in a receivership, and thus may sue only to

redress injuries to the entity in receivership. 

Grant v. A.B. Leach & Co., 280 U.S. 351, 50

S.Ct. 107, 74 L.Ed 470 (1930); see also

Scholes v. Lehmann, 56 F.3d 750, 753 (7th

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10 MOISER V. STONEFIELD JOSEPHSON

Cir. 1995). In contrast, equity receiver or

trustee of an entity cannot pursue claims

where the alleged harm was suffered only by

third-party investors in that entity. See

Williams v. California 1st Bank, 859 F.2d

664, 666 (9th Cir. 1988); cf. Hays v. Adam,

512 F. Supp. 2d 1330, 1341 (N.D. Ga. 2007)

(noting that third party investors may

nonetheless indirectly benefit from the

receiver’s action as creditors of the

receivership). As the Ninth Circuit has noted,

“[a]lthough the line between ‘claims of the

debtor, which a trustee [or equity receiver] has

statutory authority to assert, and ‘claims of

creditors,’ which [Caplin v. Marine Midland

Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678,

32 L.Ed.2d 195 (1972)] bars the trustee from

pursuing, is not always clear, the focus of the

inquiry is on whether the Trustee is seeking to

redress injuries to the debtor itself caused by

the defendants’ alleged conduct.” Smith v.

Arthur Andersen LLP, 421 F.3d 989, 1002

(9th Cir. 2005).

Here, upon reviewing the FAC, the Court

finds that the allegations show that, in

bringing this action, the Receiver seeks to

redress injuries caused to PEMGroup and its

affiliate entities by Stonefield’s alleged

misconduct. The Receiver, for example, has

alleged that Stonefield owed, and breached, a

contractual duty of care to PEMGroup and

GVEC to conduct and audit of the company’s

financial statements using the appropriate

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MOISER V. STONEFIELD JOSEPHSON 11

industry standards. FAC ¶¶ 30–32, 43–47.

He goes on to assert that Stonefield’s breach

of this duty allowed the PEMGroup Principals

to dissipate GVEC’s assets through transfers

to other Tranches when GVEC was unable to

pay its operating expenses, which ultimately

led to the “retirement” of GVEC portfolios

once those portfolios had been looted of their

assets. FAC ¶¶ 25–26, 35. Further, according

to the pleading, “[h]ad the misuse of funds

been revealed earlier, Pang and the

PEMGroup Management Team would have

been stopped and investigated, preventing

millions of dollars of additional losses.” FAC

¶ 35.

While certain allegations in the FACcould

conceivably be said to allege injury to

investors as well, this does not necessarily

vitiate the Receiver’s standing to pursue

claims on behalf of the receivership entities. 

Rather, as the Ninth Circuit has

acknowledged, so long as an entity in

receivership has suffered harm, an equity

receiver has standing to pursue a claim for

such injuries – even if the creditors of the

receivership entity may also have a claim

arising from the same underlying misconduct. 

Smith v. Arthur Andersen LLP, 421 F.3d 989,

1002–04 (9th Cir. 2005) (noting that the

“dissipation of assets limited the firm’s ability

to repay its debts . . . is not, however, a

concession that only the creditors, and not [the

corporate entity] itself, have sustained any

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12 MOISER V. STONEFIELD JOSEPHSON

injury. [I]t is a recognition of the economic

reality that any injury to an insolvent firm is

necessarily felt by its creditors.”). . . .

Here, similarly, the Receiver has alleged

that Stonefield’s failures to (1) conduct

rigorous audits in accordance with GAAS

standards, FAC ¶ 35; (2) to make disclosures

regarding, inter alia, allegedly improper interTranche transfers, FAC ¶¶ 32, 46; and (3)

Stonefield’s allegedly false and misleading

audit reports were all significant factors in

concealing Pang and PEMGroup Principals’

misuse of investor funds. FAC. ¶ 35. 

According to the pleading, had the misuse of

funds been revealed earlier, additional losses

would have not been incurred. Id. The Court

finds that, as in Smith, these allegations

qualify as a corporate injury traceable to

Stonefield’s conduct for which the Receiver is

authorized to seek recovery. Additionally,

while Stonefield contends that PEMGroup’s

use of funds from later Tranches to purchase

life insurance policies from earlier GVEC

Tranches at inflated prices actually benefitted

GVEC in that it “served to maintain the

illusion of the financial and operational

strength of PEMGroup,” Reply 1:13–16,

evaluation of this assertion requires the Court

to look beyond the pleadings. At this stage in

the proceedings, however, the Court must take

as true the Receiver’s allegations that the

PEMGroup and GVEC entities were harmed

by, inter alia, their inability to repay various

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MOISER V. STONEFIELD JOSEPHSON 13

note and debenture holders as a result of

Stonefield’s alleged misconduct. See Cousins

v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.

2009).

The consequences of the district court’s Rule 12(b)(6)

holding on standing, which Mosier does not challenge on

appeal, is that his lawsuit requires a viable cause of action not

on behalf of the investors, but on behalf of PEMGroup.

Accordingly, there are two avenues Mosier as a receiver

might pursue against Stonefield on behalf of the derelict

PEMGroup. The first is a professional negligence claim, i.e.,

that Stonefield provided PEMGroup with substandard and

misleading audit reports which wrongly enabled PEMGroup

to continue to exist as it plundered its own assets. This path

alleged a breach by Stonefield of its contractual duty to

PEMGroup. The second avenue is an aiding and abetting

claim, i.e.,that Stonefield created substandard and misleading

audit reports which caused investors to continue to pour

money into PEMGroup, and which (1) kept it alive,

(2) facilitated its illicit fundraising activities, (3) pumped up

the enterprise, (4) gave it a badge of legitimacy, and

(5) brought in millions of dollars which Danny Pang and

associates then stole.

2. Reasonable reliance is a necessary component of

Mosier’s professional negligence and aiding and

abetting claims.

No matter which avenue Mosier pursues, his professional

negligence as well as his aiding and abetting claims require

Mosier to prove that Stonefield’s tortious conduct was a

proximate cause of PEMGroup’s harm. See Williams v.

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14 MOISER V. STONEFIELD JOSEPHSON

Wraxall, 33 Cal.App.4th 120, 132 (1995) (“Causation [in a

professional negligence claim] requires proof that the

defendant’s conduct was a ‘substantial factor’ in bringing

about the harm to the plaintiff.” (emphasis added)); Neilson

v. Union Bank of California, N.A., 290 F. Supp. 2d 1101,

1135 (C.D. Cal. 2003) (“[C]ausation is an essential element

of an aiding and abetting claim, i.e., plaintiff must show that

the aider and abettor provided assistance that was a

substantial factor in causing the harm suffered.” (emphasis

added)) cited with approval in American Master Lease LLC

v. Idanta Partners, Ltd., 225 Cal. App. 4th 1451, 1476

(2014).

Given Mosier’s case, in order to prove causation he must

ultimatelyprove reasonable reliance, even though reliance per

se is not a technical element of his causes of action. 

Stonefield’s work could not have been a “substantial factor”

or given “substantial assistance” to PEMGroup in soliciting

new investors unless the potential investors relied on

Stonefield’s reports. The district court therefore properly

concluded that to survive summary judgment, Mosier would

have to offer substantial evidence – meaning sufficient

evidence to justify a verdict in his favor – that investors

reasonably relied on Stonefield’s audits in order to show

causation. The cases the district court cited support that

conclusion. See Smolen v. Deloitte, Haskins & Sells,

921 F.2d 959, 964 (9th Cir. 1990); see also In re NM

Holdings Co., LLC, 622 F.3d 613, 619 (6th Cir. 2010)

(“Although Gold is correct in pointing out that reliance is not

per se an element of professional negligence, proof of reliance

is necessary here in order to show that Deloitte’s allegedly

deficient audits were the cause in fact of Venture’s tenuous

financial position and resulting bankruptcy.” (emphasis

added)); F.D.I.C. v. Ernst & Young, 967 F.2d 166, 170 (5th

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MOISER V. STONEFIELD JOSEPHSON 15

Cir. 1992) (“If nobody relied upon the audit, then the audit

could not have been a substantial factor in bringing about the

injury.” (internal quotation marks omitted)).

Mosier disagrees that proof of reasonable reliance is

necessary in order to show causation, relying on Smith v.

Arthur Andersen LLP, 421 F.3d 989 (9th Cir. 2005). There,

the bankruptcy trustee alleged that the debtor’s auditors

committed professional malpractice by concealing the

debtor’s deepening insolvency from its outside directors and

investors. Id. at 1003. The auditor’s concealment thereby

artificially prolonged the life of the debtor corporation,

wasting corporate assets that could have otherwise gone to its

creditors in the process. Id. at 1003. Smith held that the

bankruptcy trustee’s “deepening insolvency” theory stated an

injury-in-fact sufficient to give the trustee standing. Id. But

standing was the only issue we decided in that case. We

explicitly declined to say anything about the merits of the

lawsuit, not even whether the complaint stated a valid claim

for relief. Id. at 1006. Smith is of no help to Mosier.

3. Avenue #1, for a contractual breach of duty to

PEMGroup.

As the district court correctly held,

As participants in the fraud, GVEC and

PEMGroup “cannot have relied on the truth of

the fraudulent representations” in the audits. 

See Cenco Inc. v. Seadman & Seidman,

686 F.2d 449, 454 (7th Cir. 1982). In other

words, “[b]ecause [GVEC and PEMGroup]

knew of and participated in the fraud, [they]

could not have justifiably relied on

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16 MOISER V. STONEFIELD JOSEPHSON

[Defendant’s] audits to uncover a fraud of

which it already was aware.” See

Agribiotech, 2005 WL 4122738, at *12; see

also PNC Bank, Ky., 899 F. Supp. at 1406

(“[I]t is clear that HMC as an institution did

not rely upon the audits conducted by Grant

Thornton in any manner in shaping its

conduct, since it was aware, through the

knowledge of its owners and top officers, of

fraudulent conduct affecting the accuracy of

the financial statements.”). In sum, “the

uncontested facts show fraud permeating the

top management of [GVEC and PEMGroup]. 

In such a case the corporation should not be

allowed to shift the entire responsibility for

the fraud to its auditors.” Cenco, 686 F.2d at

456.

The Receiver’s other arguments regarding

causation all miss the point. The Receiver

appears to believe the Defendant is seeking to

assert an in peri delicto defense or attempting

to impute knowledge from PEMGroup to the

Receiver. Opp. 18:4–20:2. While the

Receiver is correct that this Court has already

rejected the notion that any wrongdoing or

knowledge may be imputed from PEMGroup

to the Receiver, this conclusion is irrelevant to

the present motion. Defendant does not now

seek to impute knowledge from PEMGroup to

the Receiver . . . .

This correct analysis disposes of Avenue #1.

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MOISER V. STONEFIELD JOSEPHSON 17

4. Avenue #2, for reliance by the investors.

Before the district court and at oral argument, Mosier

admitted he did not submit direct evidence that investors

relied on Stonefield’s audit reports or how PEMGroup used

them. During oral argument on the motion for summary

judgment, the district court asked, “Is there any evidence that

one investor was provided with the audit report?” Mosier’s

attorney answer was, “[T]he answer to that specific question

is no, your Honor, but the evidence does show [circumstantial

evidence of investor reliance].”

This void becomes all the more problematic considering

what Mosier said on May 15, 2013 in his deposition

regarding potential investor witnesses, a deposition that took

place almost two months before the hearing on the motion for

summary judgment:

Q (Counsel for Stonefield) Well, you are

telling me that certain investors have told you

they relied upon Stonefield’s audit reports for

GVEC tranches to do something, and I just

want to know specifically?

A (Robert Mosier) Let me draw a picture for

you. I’m having a meeting with the investors

and they are all sitting around this table

talking about what induced them to come to

PEM. And one investor said, I relied on the

audit report. And the other investors agreed

with him, yes, that’s correct. We all relied on

the audit reports.

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18 MOISER V. STONEFIELD JOSEPHSON

Q And which investor, what individual at the

investors, representative of the investor said

that?

A I would have to go back and tell you who

were at the meetings.

Mosier concedes he made a deliberate decision to oppose

summary judgment without direct evidence of reliance by

investors because he believed the circumstantial evidence of

reliance and causation was sufficient. When the issue arose

in district court, the court excluded his information of alleged

reliance as hearsay, and correctly so. Mosier agrees with and

does not challenge that ruling on appeal.

We find it difficult on this record to swallow the idea that

PEMGroup showed Stonefield’s qualified audits to investors

in Taiwan. Mosier would have us believe that numerous

Taiwanese investors lost millions to this fraud, yet he has not

produced a single victim willing to step forward to help in a

process that could indirectly recoup his or her losses. Were

the audits translated into their language? Do they read

English? In his deposition, Mosier testified that he had a

meeting with defrauded investors to discuss what “induced

them to come” to PEMGroup. Mosier said – and this was

excluded hearsay – that the investors said, “We all relied on

the audit reports.” Did Mosier ask the investors for any

paperwork corroborating their assertion? At least one of

them might have had paperwork and files to scaffold their

alleged statements and Mosier’s assertions. Did he ask them

for it? It’s axiomatic that when stronger evidence of a fact is

available, weaker evidence becomes even more so. If Conan

Doyle had authored this scenario, he could have called it

“The Case of the Missing Link.”

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MOISER V. STONEFIELD JOSEPHSON 19

Mosier argues in the alternative that there is “strong”

circumstantial evidence of investor reliance. He points to

(1) GVEC’s offering memoranda, which stated that

Stonefield was the auditor; (2) emails between Stonefield’s

accountants questioning GVEC’s integrity; (3) the “comfort”

letters; (4) GVEC’s request for a statement explaining the

impact of a qualified opinion; (5) and a May 23, 2006 “To

Whom It May Concern” letter in which Stonefield stated that

GVEC’s “financial statements present fairly, in all material

respects, the financial position and results of operations and

cash flows of each of the six projects.”

The fatal problem for Mosier is that he has no evidence

whatsoever demonstrating how these materials were used

and, given Stonefield’s qualifications, what weight, if any,

investors placed on them. Instead, he asks us to draw the

inference from his circumstantial evidence that indeed

investors did rely on them. This equivocal evidence does not

warrant such an inference. First, because of the clear

qualifications in Stonefield’s audit reports, which amount to

red flags, it is just as likely – without any evidence to the

contrary – that PEMGroup did not show them to people it

was attempting to deceive. It defies logic to assume that a

crook would waive cautionary “buyer-beware” alerts in front

of potential innocent victims of a Ponzi scheme. Stonefield’s

qualifications previously quoted amount to a warning that

PEMGroup was using improper and unreliable valuation

methods, methodsthat violated GAAP; and that PEMGroup’s

financial statements might not be reliable.

In United States v. Arthur Young, 465 U.S. 805, 818 n.14

(1984), the Supreme Court said,

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20 MOISER V. STONEFIELD JOSEPHSON

The inclusion in an audited financial

statement of anything less than an unqualified

opinion [, such as a qualified opinion,] could

send signals to stockholders, creditors,

potential investors, and others that the

independent auditor has been unable to give

the corporation a clean bill of financial health.

In this regard, we agree with the district court that “[in]

light of the statements in the audits regarding [GAAP]

violations, it would not have been reasonable to rely on the

audits to accurately reflect GVEC’s financial condition . . . .”

Mosier has yet another problem. With the exception of

the ill-advised glowing May 23, 2006 letter signed by Rick

Poole, none of the materials provides an opinion on GVEC’s

financial statements. Instead, the materials either say nothing

about the financials, or they direct the reader to the qualified

audits. The “comfort” letters repeated the qualifications. The

May 23, 2006 letter does provide an opinion on GVEC’s

financials, but, again, the record is devoid of any substantial

evidence that investors relied on it.

Mosier also relies on (1) an agenda from an investor

meeting that allotted time for Stonefield; (2) Poole’s

character references for Pang and another manager; (3) the

net asset valuations, (4) the limited reports regarding the sales

of GVEC’s assets, and (5) the turncoat deposition testimony

of Wilbur Quon, the CFO of PEMGroup, that “Stonefield

audit reports were “[t]ypically . . . sent to our sales office in

Taiwan.”

Once again, Mosier offers no evidence showing how

these materials were used, or what weight a reasonable

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MOISER V. STONEFIELD JOSEPHSON 21

investor would have placed on them. Reasonable reliance on

them is dubious at best. Stonefield’s net asset valuation

stated its scope was “limited to presenting in the form of

financial statements information that is the representation of

management. We have not audited or reviewed the

accompanying statement of net assets and, accordingly, do

not express an opinion or any other form of assurance on it.” 

As quoted earlier, Stonefield’s April 18, 2008 reports on the

sale of GVEC’s assets stated that the sales were not recorded

“in accordance with the accounting principals [sic] generally

accepted in the United States of America”; were “sold to an

affiliated entity that share[d] the same Advisor as [GVEC];

and “the valuation for the sale price of [GVEC’s assets] could

not be concluded to be Fair Market Value independently of

management’s internal valuation.” GVEC’s Chief Financial

Officer Wilbur Quon’s evidence that the audit reports were

“typically sent” to Taiwan suffers the same infirmity as the

rest of Mosier’s evidence: what happened to them when they

got there?

The district court correctly said that “[t]he record is

entirely devoid of any actual, admissible evidence of reliance

by anyone – PEMGroup or GVEC principals, investors, or

anyone else.” The court was correct. We have combed the

record from top to bottom and have yet to uncover significant

evidence that any part of Stonefield’s work product was

delivered to a single investor. Without either direct or

substantial circumstantial evidence of reasonable reliance,

Mosier would simply hold Stonefield liable for granting its

“imprimatur to PEMGroup and GVEC.” What would amount

to a strict liability standard in this context finds no support in

the law.

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22 MOISER V. STONEFIELD JOSEPHSON

5. Circumstantial Evidence

Mosier repeatedly reminds us that “[t]he law makes no

distinction between the weight to be given to either direct or

circumstantial evidence.” Of course he is correct, but he

misunderstands the difference in terms of what this means. 

As the rest of the jury instruction (which he fails to quote)

says, “Direct evidence is direct proof of a fact,” such as an

investor testifying that he relied on Stonefield’s audit reports. 

Circumstantial evidence, on the other hand, “is proof of one

or more facts from which you could find another fact.” Ninth

Circuit Model Civil Jury Instructions 1.9 (2015). In other

words, the probative value of circumstantial evidence

depends entirely upon the strength of the inferences that can

be drawn from the proven circumstances, and in this case,

whether the equivocal circumstances Mosier offers would be

sufficient to support a verdict in his favor. They are not. 

Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986) (“The

mere existence of a scintilla of evidence in support of the

plaintiff’s position will be insufficient; there must be

evidence on which the jury could reasonably find for the

plaintiff.”).

6. Expert Testimony

The final piece of Mosier’s offered evidence was his

expert’s opinion that a proper reaction by Stonefield “would

likely have had a significant adverse effect on attracting and

obtaining funds from investors . . . .” The basis for the

expert’s “would likely have had” opinion seems to be his

experience with how audit reports are generally used. He did

not examine GVEC’s sales practices or the specific effect on

Stonefield’s audits on GVEC’s actual investors. This aspect

of the expert’s purely speculative opinion therefore does not

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MOISER V. STONEFIELD JOSEPHSON 23

support reliance or sufficient evidence of causation to go to

a jury.

7. The district court did not err in sua sponte

dismissing Mosier’s unjust enrichment claim.

Although Stonefield challenged Mosier’s unjust

enrichment claim on summaryjudgment, Mosier inexplicably

did not respond. Normally, we do not consider on appeal

issues not properly raised before the district court. 

Accordingly, Mosier has forfeited this issue. However, even

if we were to entertain it, he has no case.

Mosier claimed that Stonefield was unjustly enriched by

accepting fees from PEMGroup ($770,365.54) and GVEC

($122,725.33) which Stonefield had earned in a “negligent

and reckless” manner by providing defective services. 

Without the parties’ input, the district court dismissed

Mosier’s unjust enrichment claim, holding that it could not

survive in absence of Mosier’s other claims. The district

court was correct.

After oral argument, we requested Mosier to explain his

theory of unjust enrichment against Stonefield. His

unpersuasive explanation is that Stonefield earned $894,190

for services that knowingly facilitated PEMGroup’s Ponzi

scheme, not so much to the financial detriment of the crooked

PEMGroup, but to the investors who lost money. Mosier’s

intention is to return Stonefield’s fees to the investors,

obviously not to PEMGroup. We are not aware of, nor has

Mosier provided us with, any cases supporting this novel

“pass through” theory. Moreover, “[A]s a matter of law, a

quasi-contract action for unjust enrichment does not lie

where, as here, express binding agreements exist and define

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24 MOISER V. STONEFIELD JOSEPHSON

the parties’ rights.” Cal. Med. Ass’n, Inc. v. AETNA U.S.

Healthcare of Cal., Inc., 94 Cal. App. 4th 151, 172 (2001).

The contractual engagement agreement between

Stonefield and PEMGroup stated that Stonefield would not be

responsible for any misrepresentations made by GVEC.

We understand that you will provide us with

the basic information required for our audit

and that you are responsible for the accuracy

and completeness of that information. We

will advise you about appropriate accounting

principles and their application and will assist

in the preparation of your financial

statements, but the responsibility for the

financial statements remains with you. This

responsibility includes the maintenance of

adequate records and related internal control

structure, the selection and application of

accounting principles, and the safeguarding of

assets. You are responsible for adjusting the

financial statements to correct material

misstatements and for confirming to us in the

management representation letter that the

effects of any uncorrected misstatements

aggregated by us during the current

engagement and pertaining to the latest period

presented are immaterial, both individually

and in the aggregate, to the financial

statements taken as a whole. Management is

also responsible for identifying and ensuring

that the entity complies with applicable laws

and regulations.

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MOISER V. STONEFIELD JOSEPHSON 25

. . .

Because of the importance of management’s

representations to the effective performance

of our services, Genesis Voyager Equity

Corporation will release Stonefield Josephson

and its personnel from any claims, liabilities,

costs and expenses relating to our services

under this letter attributable to any

misrepresentations in the representation letter

referred to above.

If anyone breached this contract, it was PEMGroup, not

Stonefield. Mosier admits PEMGroup deceived Stonefield

and kept them in the dark about their scheme. Stonefield was

not unjustly enriched vis-a-vis PEMGroup, period. 

PEMGroup got what it deserved: qualified reports. This

result was hardly unjust. Unless the investors relied on

Stonefield’s audit reports, and unless Mosier can prove his

claims of negligence and wrongful conversion as an

underlying wrong, which he cannot, the investors – who have

no standing in this case – are in no better position against

Stonefield than PEMGroup. Thus, Mosier’s failure to come

forward with any substantial evidence of causation as to

either claim is also fatal to his claim of unjust enrichment. 

Ironically, Mosier claims PEMGroup was a victim of unjust

enrichment because Stonefield did not put them out of

business.

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26 MOISER V. STONEFIELD JOSEPHSON

III

THE RULES GOVERNING SUMMARY JUDGMENT

Mosier argues that the district court overstepped its

bounds and ignored the rules of summary judgment. The

record read as a whole refutes his claim. Mosier simply did

not advance sufficient probative evidence of causation to

support a verdict in his favor, and thus to merit consideration

by a jury – and the district court said so: “Upon review of the

record and the arguments before the Court, the Court

concludes that the present motion turns on whether the

Receiver has raised a triable fact regarding whether

Defendant’s conduct caused the alleged losses.” The

sentences that Mosier cherry-picks out of context from the

district court’s order do not prove otherwise.

AFFIRMED.

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