Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-15-55325/USCOURTS-ca9-15-55325-0/pdf.json

Parties Involved:
International Market Ventures
Appellant
Vincent J. Messina
Appellant
Securities and Exchange Commission
Appellee
WCM777 Inc.

WCM777 Ltd.

World Capital Market, Inc.

Ming Xu

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff-Appellee,

v.

WORLD CAPITAL MARKET, INC.;

WCM777 INC.; WCM777 LTD.,

DBA WCM777 Enterprises, Inc.;

MING XU, AKA Phil Ming Xu,

Defendants,

and

VINCENT J. MESSINA, Relief

Defendant; INTERNATIONAL

MARKET VENTURES, Relief

Defendant,

Defendants-Appellants.

No. 15-55325

D.C. No.

2:14-cv-02334-

JFW-MRW

OPINION

Appeal from the United States District Court

for the Central District of California

John F. Walter, District Judge, Presiding

Argued and Submitted January 10, 2017

Pasadena, California

Filed March 21, 2017

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2 SEC V. MESSINA

Before: Richard C. Tallman and Michelle T. Friedland,

Circuit Judges, and David A. Faber,* District Judge.

Opinion by Judge Tallman

SUMMARY**

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

* The Honorable David A. Faber, United States District Judge for the

Southern District of West Virginia, sitting by designation.

** 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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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.

COUNSEL

Maranda E. Fritz (argued) and Tammy P. Bieber, Thompson

Hine LLP, New York, New York, for Defendants-Appellants.

Daniel Staroselsky (argued), Senior Counsel; Randall W.

Quinn, Assistant Attorney General; Jacob H. Stillman,

Solicitor; Michael A. Conley, DeputyGeneral Counsel; Anne

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4 SEC V. MESSINA

K. Small, General Counsel; Securities and Exchange

Commission, Washington, D.C.; for Plaintiff-Appellee.

OPINION

TALLMAN, Circuit Judge:

We address an issue of first impression involving the

Securities and Exchange Commission’s abilityto disgorge illgotten funds from so-called “relief defendants.” Victor

Messina and International Market Ventures (“IMV”), contest

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 claims 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 assert that they received those funds as a

loan.

The question presented is 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. Messina and IMV argue that a facially colorable

claim is sufficient to destroy relief defendant jurisdiction, and

that to seek disgorgement from them, due process requires the

SEC either to join them as party defendants or bring a

separate action against them. Messina and IMV also argue

that the SEC failed to show that the funds the district court

ordered disgorged are proceeds of monies unlawfully

collected from United States investors.

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SEC V. MESSINA 5

We conclude 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 court acted

correctly under our precedent approving the invocation of

relief defendant procedures in SEC enforcement actions and

did not clearly err in finding, following a two-day evidentiary

hearing, that Messina and IMV had no legitimate claim to the

funds. The evidence demonstrates that far more than

$5 million was raised by Xu and his various entities in the

United States, and the court correctly concluded that the

funds sought were proceeds of illegal activity and subject to

disgorgement. Finally, the district court did not abuse its

discretion in later ordering disgorgement from Messina and

IMV as relief defendants. We have jurisdiction and affirm.

I

Phil Ming Xu, together with his corporations including

World Capital Market, Inc., WCM777 Inc., and WCM777

Ltd. (collectively, “WCM”), ran a multi-level marketing

business ostensibly selling investors membership units

providing access to cloud computing services. Xu and WCM

promised investors returns of up to 60 percent over a 100-day

period. WCM did not provide any actual products or services

and had no significant legitimate revenue-generating business

operations. Instead, Xu and WCM used money from new

investors to pay existing investors and to buy real property

and golf courses for Xu and associated third parties. Forensic

accountants established that investor funds deposited into

various Xu- and WCM-affiliated bank accounts between

January 2013 and March 2014 totaled $57,175,385. Xu was

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6 SEC V. MESSINA

the mastermind who controlled the Ponzi scheme.1 He later

stipulated to liability for securities law violations, and

judgment in favor of the SEC was ultimately entered against

Xu in the amount of $57,260,683.88.

Relief defendantVincent Messina began workingwith Xu

in June 2013, providing legal advice regarding tax, corporate,

and immigration matters. During this time, Messina was also

general counsel to relief defendant IMV in Washington, D.C. 

IMV’s President, Gary Messina, is Vincent Messina’s

nephew.2

By the fall of 2013, Messina was well aware that Xu and

WCM were under investigation by the SEC for securities law

violations. Xu instructed WCM’s chief operating officer to

keep Messina apprised of the Commission’s investigation “so

that Mr. Messina could help Mr. Xu protect his assets.” On

December 17, 2013, WCM disbursed $200,000 to Messina,

who deposited it into a lawyers trust account at Wells Fargo

Bank. Although no contract reflects the purpose of this

transfer, according to Messina the funds represented fees for

his services related to the formation of a political action

1 The term “Ponzi scheme” originates from a fraudulent investment

scheme created by Charles Ponzi in December 1919 in Boston. See

Cunningham v. Brown, 265 U.S. 1, 7 (1924). The SEC defines a Ponzi

scheme as “an investment fraud that involves the payment of purported

returns to existing investors from funds contributed by new investors.” 

Fast Answers – Ponzi Schemes, U.S. Securities and Exchange

Commission, http://www.sec.gov/answers/ponzi.htm(last visitedMar. 14,

2017).

2 To avoid confusion, we refer to Gary Messina by his full name and

to Vincent Messina as “Messina.”

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SEC V. MESSINA 7

committee (“PAC”) requested by Xu.3 Messina signed a

Consulting Contract with IMV on January 10, 2014, retaining

Gary Messina and IMV to assist with work related to the

formation of the PAC. The fees for IMV’s services were

listed as “Two Hundred Thousand Dollars consisting of two

payments: (1) One Hundred Thousand Dollars upon the

execution of this agreement and (2) One Hundred Thousand

Dollars on June 1st 2014.” No money was transferred to

IMV on the date of the execution of the agreement.

By February 2014, Xu’s outside securities law counsel,

Scott Warren, was in settlement discussions with the SEC on

behalf of Xu and WCM. Messina, learning that Warren had

recommended settling with the SEC for $64 million, texted

Xu on February 6, 2014, advising him to “drop Scott”

because the proposed settlement sum was “ridiculous.” 

Messina also wrote:

By the way the SEC does not have the power

to bring a criminal charge. That is the

decision of the US Attorney which is entirely

separate from the SEC. Perhaps the new

counsel can delay the negotiations so that

your assets seem less. I have tried to look at

your transactions from the standpoint of

rearranging them, but have not been able to

get the required information.

3 An undated Statement of Account provided by Messina lists

$121,800 due and owing for his work related to Xu’s PAC. Messina has

not explained why he commingled $200,000 in earned fees by depositing

the funds into a trust account, typically employed to hold client funds to

cover future legal work.

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8 SEC V. MESSINA

Xu responded: “Ok.”

Three weeks after this text exchange, Xu transferred $5

million from the bank account of ToPacific Inc. (another Xu

entity funded by WCM investor deposits) into Messina’s

Bank of America attorney-client trust account. Xu was

ToPacific Inc.’s sole director and the signatory on its bank

account. Xu asked Messina to hold the funds for future

business endeavors. Messina responded that he would not

simply hold the funds, and instead prepared and executed a

document Messina characterizes as a loan agreement the day

after the transfer which, in its entirety, reads:

This Agreement (“Agreement”)is entered into

on February 27, 2014, between Vincent J.

Messina and Ming Xu.

FOR VALUE RECEIVED, Vincent J.

Messina promises to pay to Ming Xu without

recourse the sum of Five Million Dollars

($5,000,000) with interest computed at five

percent (5%) per annum, interest and principal

due on January 2, 2019 at his place of

business.

That transfer from Xu to Messina was recorded as an

“uncategorized expense” in ToPacific’s books and a payee

was not specified. Messina testified before the district court

that the loan was in furtherance of previously discussed

proposals to set up a fund for future investments in Africa, the

“no recourse” language in the agreement meant that he could

do whatever he wanted with the money in terms of

investment ventures, and he had no personal legal obligation

to repay Xu, although he had a “moral obligation” to do so.

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SEC V. MESSINA 9

Nine days after Xu transferred the $5 million to Messina,

Xu sent a text message to him requesting the return of the

money to help fund a settlement with the SEC. Messina

refused, stating: “The money has already been wired out and

is i[n] accordance with the note I signed.” In actuality, as of

March 6, 2014—when Xu requested the recall of funds—

Messina still held almost all of the $5 million in a series of

personal and client trust accounts and had transferred only

$125,000 to IMV and $100,000 to Mohammed el Fatih

Saeed, who was in charge of IMV’s correspondent office in

the United Arab Emirates. Despite Xu’s request, Messina

went on to use seven different bank accounts to distribute

approximately $3 million of the funds to various business

partners and associates. Relevant here are Messina’s

additional transfers of $125,000 to IMV on March 10, 2014;

$350,000 on March 24, 2014; and $400,000 on March 29,

2014.

According to Gary Messina’s testimony, $100,000 of the

close to $1 million IMV received from Messina during this

time represented fees for IMV’s services under the January

2014 PAC Consulting Agreement and the remainder “related

to a potential business venture that would be undertaken as

part of an agreement with CNC Consulting.”4 On April 1,

2014, acting on instructions from Messina, Gary Messina

wired $840,485 of the funds to a bank account in Canada

maintained by Andrew Savor. Gary Messina testified that

Savor was the agent for CNC Consulting in Canada.

4 CNC Consulting was another entity affiliated with IMV and

WCM—in this case through Scott Choi, a senior vice president at IMV

who was slated to run WCM’s operations in Hong Kong.

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10 SEC V. MESSINA

Meanwhile, the SEC initiated enforcement proceedings

against Xu and WCM in Los Angeles district court. On

March 27, 2014, the Commission filed its complaint against

Xu and WCM, and the court appointed a statutory receiver

and issued a temporary restraining order freezing all of Xu’s

and WCM’s assets and accounts (including ToPacific’s

accounts). After discovering Xu’s February 26 transfer of

$5 million to Messina, the receiver contacted Messina on

March 30 and provided him with a copy of the temporary

restraining order. Subsequent negotiations between

Messina’s attorney at Thompson Hine LLP, the receiver, and

the SEC resulted in Messina’s transfer of the approximately

$2 million remaining from the funds he had received from Xu

to Thompson Hine’s client trust account to hold in escrow

pending further order of the court. Gary Messina also wired

$100,000 of Xu’s funds to Thompson Hine’s trust account.

The SEC amended its complaint against Xu and WCM on

May 7, 2014, adding Messina and IMV as relief defendants. 

On May 21, the district court ordered Messina and IMV’s

assets frozen and authorized expedited discovery. Messina

and IMV filed a motion to dismiss on June 2, 2014, arguing

they were not proper relief defendants because they had a

legitimate claim to the $5 million they received from Xu. 

The district court denied the motion to dismiss on July 10, but

ordered a Rule 12(b)(1) evidentiary hearing to resolve

disputed issues of fact related to the legitimacy of Messina

and IMV’s claims to the funds. On July 30, 2014, Xu

separatelyconsented to the entry of judgment against him and

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SEC V. MESSINA 11

disgorgement and a civil penalty in an amount to be

determined by the court upon motion by the SEC.5

Following expedited discovery, the district court held its

Rule 12(b)(1) evidentiary hearing on September 5 and 17,

2014, during which it heard testimony from six witnesses,

including Vincent and Gary Messina. One hundred thirtyeight exhibits offered by the SEC and twenty-five exhibits

offered by the relief defendants were admitted into evidence. 

The district court made an adverse credibility finding against

Vincent Messina, noting that histestimonyseemed “contrived

and evasive” and that his “long, rambling, non-responsive

answers to simple, straightforward questions were designed

to avoid directly answering questions that would be harmful

to his position.” Ultimately, the court concluded after

listening to the witness that it was left “with the distinct

impression that Vincent Messina was prepared to say

whatever he deemed necessary in an attempt to hold on to the

$5 million.” The court ruled that Messina had no legitimate

claim to the $5 million because the loan agreement with Xu

was a sham and that IMV likewise had no legitimate claim to

$941,505 of the $1,050,000 it received from Messina. The

court also concluded, however, that the SEC had failed to

carry its burden to demonstrate Messina and IMV were not

entitled, respectively, to $200,000 and $108,495 for their

work related to Xu’s requested PAC.

5 The district court entered final judgment against Xu on December

6, 2016, in the amount of $57,260,683.88, from which any sums

ultimately disgorged from Messina and IMV as relief defendants were to

be deducted. Xu did not appear in court to contest the amount of

judgment. The district court entered final judgment against WCM on

November 23, 2016, in the amount of $87,793,384.02.

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12 SEC V. MESSINA

On January 12, 2015, the SEC filed a motion for an order

of disgorgement against Messina and IMV. After full

briefing, the district court granted the motion without further

hearing on February 4, 2015, and ordered Messina to

disgorge $5 million, with IMV jointly liable for $941,505 of

that amount. Final judgment against Messina and IMV was

entered on February 20, 2015, and they timely appealed. We

have jurisdiction under 28 U.S.C. § 1291.

II

Messina and IMV’s primary contention on appeal is that

the district court lacked subject matter jurisdiction to

determine the legitimacy of their claim to the $5 million

Messina received from Xu. They also argue the district court

erred in its factual findings, improperly ordered

disgorgement, and denied them due process.

We review a district court’s exercise of subject matter

jurisdiction over relief defendants de novo. See SEC v.

Colello, 139 F.3d 674, 675 (9th Cir. 1998). We review the

district court’s underlying factual findings on jurisdictional

issues, however, for clear error. See United States ex rel.

Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121, 1126–27

(9th Cir. 2015) (en banc) (“Where the district court relied on

findings of fact to draw its conclusions about subject-matter

jurisdiction, we review those factual findings for clear

error.”); see also Commodity Futures Trading Comm’n v.

Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 192 (4th Cir.

2002) (reviewing for clear error factual findings entered after

a hearing to determine the legitimacy of a relief defendant’s

claim to the disputed funds).

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SEC V. MESSINA 13

Generally, a district court’s decision to award

disgorgement is reviewed for abuse of discretion. Colello,

139 F.3d at 675. The court’s order of disgorgement in this

case, however, resulted in part from its conclusion that the

undisputed forensic evidence tracing the investor money

demonstrated as a matter of law that the funds Xu transferred

to Messina were ill gotten. We review that conclusion de

novo because it involves the application of law to facts not

disputed at the hearing.

6

 Id.

III

The SEC is authorized by both the Securities Act of 1933

and the Securities Exchange Act of 1934 to bring civil

enforcement actions seeking equitable relief in the form of

injunctions against those committing violations of the Acts. 

See 15 U.S.C. §§ 77t(b), 78u(d)(1). In such actions, federal

courts may grant “any equitable relief that may be appropriate

or necessary for the benefit of investors,” 15 U.S.C.

§ 78u(d)(5), including disgorgement of the gains obtained

from securities law violations. See, e.g., SEC v. Platforms

Wireless Int’l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010). 

Courts may also exercise their broad equitable powers to

order disgorgement fromnon-violating third parties who have

received proceeds of others’ violations to which the third

parties have no legitimate claim. In such circumstances,

these non-violating third parties are referred to as “relief

defendants” or “nominal defendants.” Colello, 139 F.3d at

676.

6 Consistent with that approach, the district court treated the SEC’s

motion for disgorgement as one for summary judgment, and the parties

agree that this court accordingly should review the resulting order de

novo. See id.

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14 SEC V. MESSINA

In the context of an SEC enforcement action, a relief

defendant “is a person who ‘holds the subject matter of the

litigation in a subordinate or possessory capacity as to which

there is no dispute.’” Id. (quoting SEC v. Cherif, 933 F.2d

403, 414 (7th Cir. 1991)). Accordingly, a relief defendant is

“not a real party in interest,” id., and “can be joined to aid the

recovery of relief without the assertion of subject matter

jurisdiction” because he or she “has no ownership interest in

the property which is the subject of litigation,” Cherif,

933 F.2d at 414. As we have previously recognized, “the

paradigmatic example of a nominal defendant is ‘a bank or

trustee [that] has only a custodial claim to the property,’”

however “the term is broad enough to encompass persons

who are in possession of funds to which they have no rightful

claim, such as money that has been fraudulently transferred

by the defendant in the underlying securities enforcement

action.” SEC v. Ross, 504 F.3d 1130, 1141 (9th Cir. 2007)

(quoting Colello, 139 F.3d at 677).

To assert jurisdiction over—and ultimately obtain

disgorgement from—Messina and IMV as relief defendants,

the SEC was required to demonstrate that Messina and IMV

(1) received ill-gotten funds and (2) do not have a legitimate

claim to those funds. Colello, 139 F.3d at 677. We agree

with the district court that the SEC made both of the required

showings in this case and we hold that asserting jurisdiction

over Messina and IMV as relief defendants was proper.

A

Messina and IMV contend that once they advanced a

facially colorable claim to the disputed funds as loan

proceeds, the district court was immediately divested of

jurisdiction to adjudicate the legitimacy of their claim and

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SEC V. MESSINA 15

proceed any further against them as relief defendants. They

insist they would have to be named as defendants either in the

SEC’s underlying civil enforcement action against Xu and the

Xu-related entities or in a stand-alone lawsuit, with all of the

rights attending a civil action. We disagree.

Messina and IMV filed a Rule 12(b)(1) motion to dismiss

for lack of subject matter jurisdiction, challenging the factual

predicate for the court’s relief-defendant jurisdiction—

namely, the legitimacy of their claim to the $5 million

received from Xu. In adjudicating a motion to dismiss under

Federal Rule of Civil Procedure 12(b)(1), “if the existence of

jurisdiction turns on disputed factual issues, the district court

may resolve those factual disputes itself.” Leite v. Crane Co.,

749 F.3d 1117, 1121–22 (9th Cir. 2014). We see no reason

to treat a factual dispute any differently in the context of a

relief defendant proceeding. We therefore conclude that the

district court properly conducted a Rule 12(b)(1) evidentiary

hearing to evaluate the legitimacy of Messina and IMV’s

claims to the funds at issue.

In Messina’s contrary view, the putative loan agreement

gave him “presumptive title” to the money and the receiver

therefore could not proceed against him as a relief defendant;

rather, the receiver could disgorge the $5 million only by

demonstrating that Messina himself had violated the

securities laws. See Ross, 504 F.3d at 1142. But this position

begs the question because it necessarily assumes the loan was

not a sham—the very issue the district court resolved in the

Rule 12(b)(1) hearing in deciding whether to allow the

proceedings against Messina and IMV as relief defendants to

continue. See Colello, 139 F.3d at 677 (“[T]he lack of a

legitimate claim to the funds is the defining element of a

nominal defendant.”). Relief defendants cannot defeat

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16 SEC V. MESSINA

jurisdiction simply by asserting an ownership interest in the

disputed funds; rather, as the Fourth Circuit has explained,

they must assert an interest both “recognized in law” and

“valid in fact.” Kimberlynn Creek Ranch, Inc., 276 F.3d at

192 (rejecting relief defendant’s ownership claim as “not

factually valid”). We join the Fourth Circuit in so holding. 

Otherwise, any third party with a custodial claim to the

proceeds of securities violations committed by others would

be able to defeat relief defendant jurisdiction “simply by

stating a claim of ownership, however specious.” Id.

Our holding in Ross does not compel a different

conclusion. In that case, it was undisputed that the purported

relief defendant, a salesman for the company accused of

violating securities laws, received funds in the form of

commissions on his sales of unregistered securities—that is,

“he received compensation in return for services rendered.” 

504 F.3d at 1142. We recognized that the salesman had

presumptive title to the funds just as “any other employee or

vendor,” and it was on that basis that we reversed the district

court’s exercise of jurisdiction over him as a relief defendant. 

Id. Here, by contrast, the facts demonstrating presumptive

title are disputed; indeed, whether the $5 million Messina

received represented the proceeds of a valid loan or was

instead an attempt to make Xu’s assets “seem less” was hotly

contested. Messina and IMV’s reliance on U.S. Commodity

Futures Trading Commission v. WeCorp, Inc., 848 F. Supp.

2d 1195 (D. Haw. 2012), is similarly misplaced. In WeCorp,

the district court found an attorney had a legitimate claim to

funds received following the circulation of an email offering

legal services because the undisputed evidence demonstrated

the attorney had actually performed work in exchange for the

payment. See id. at 1201–03. No such undisputed evidence

is present here.

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SEC V. MESSINA 17

Nor are we persuaded by the cases Messina and IMV cite

to support their argument that the purported existence of a

loan agreement, without more, is sufficient to establish

presumptive title and destroy relief defendant jurisdiction. 

Those cases are inapposite because, just as in Ross and

WeCorp, each rests on an undisputed underlying factual

premise of legitimacy missing in this case. In SEC v.

Founding Partners Capital Management, for example, it was

“undisputed that [the purported relief defendant] received the

loan proceeds pursuant to written loan agreements”

establishing a valid debtor-creditor relationship executed

eight years prior to the SEC enforcement action. 639 F.

Supp. 2d 1291, 1294 (M.D. Fla. 2009). Similarly, in Janvey

v. Adams, it was “undisputed that the [purported relief

defendants] received the [funds] pursuant to written

certificate of deposit agreements . . . well before the

underlying SEC enforcement action.” 588 F.3d 831, 834–35

(5th Cir. 2009).

Here, the relevant facts were disputed; the district court

received extensive documentary evidence and heard

considerable testimony regarding Messina’s dealings with

Xu, WCM, and IMV, including evidence about the creation

of the disputed loan agreement, and ultimately determined

that Messina’s ownership claim was not factually valid—i.e.,

it was not a legitimate loan upon which to base a cognizable

claim. To conclude that the district court lacks jurisdiction to

engage in such factfinding after the mere invocation of a

claim of entitlement to the funds would effectively eliminate

the relief defendant procedure in SEC enforcement actions in

any case involving a disputed claim to funds alleged to be the

proceeds of securities fraud. We decline to take such a step,

and hold that the district court appropriately adjudicated the

legal and factual validity of Messina and IMV’s claim to the

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18 SEC V. MESSINA

$5 million to determine whether it had jurisdiction over them

as relief defendants.

B

Having concluded that it was proper for the district court

to adjudicate the legitimacy of Messina and IMV’s claim, we

next hold that there was no clear error in the district court’s

finding that the $5 million transfer from Xu to Messina as a

loan was a sham. Over the course of a two-day evidentiary

hearing, the court assessed more than 150 exhibits and heard

testimony from six witnesses, including Vincent Messina and

Gary Messina, whose credibility the court was in the unique

position to evaluate. See Valenzuela v. Michel, 736 F.3d

1173, 1176 (9th Cir. 2013) (noting that where findings of fact

turn on credibility determinations, “the findings receive

heightened deference in light of the fact finder’s unique

opportunity to observe the demeanor of the witnesses”

(internal quotation marks omitted)). We will not disturb the

district court’s factual findings absent a “definite and firm

conviction that a mistake has been committed.” McClure v.

Thompson, 323 F.3d 1233, 1240 (9th Cir. 2003). Our review

of the record yields no such conviction.

In concluding the loan agreement was a ruse designed to

keep $5 million of Xu’s money out of the reach of the SEC,

the district court relied not just on its rejection of Messina’s

incredible testimony, but also on impeaching evidence such

as: Messina’s text message to Xu advising him to delay the

SEC negotiations so that they could make his assets “seem

less”; Xu’s transfer of the $5 million less than three weeks

later, before any discussion of a potential loan, along with a

contemporaneous request for Messina to “hold” the money;

the cursory agreement prepared by Messina after the transfer,

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SEC V. MESSINA 19

which lacked the normal provisions of a valid loan

agreement; ToPacific’s record of the transfer as an

“uncategorized expense” without a listed payee; the

agreement’s promise to repay Xu rather than ToPacific;

Messina’s testimony that he had no personal legal obligation

to repay the $5 million; and Xu’s request to Messina to return

the $5 million just nine days after the transfer. The court did

not clearly err in evaluating this evidence and, accordingly,

we affirm its finding that the loan transaction was a sham.

C

In its February 4, 2015, disgorgement order, the district

court concluded that the $5 million transferred from Xu to

Messina and the $941,505 Messina subsequently transferred

to IMV were ill gotten as a matter of law. We affirm because

the unrebutted forensic analysis traced the source of the

transferred funds. There was no error in the court’s ultimate

conclusion that the monies were the proceeds of unlawful

activity or that IMV should be held jointly liable for the

$941,505 of those funds it received.

The SEC provided unrebutted declarations from the

receiver and the SEC accountant responsible for the

Commission’s forensic accountinginvestigation showing that

the only significant source of funds in Xu and WCM’s bank

accounts, including the ToPacific account from which funds

were transferred to Messina and then on to IMV, were

proceeds fromXu andWCM’sfraudulent investment scheme. 

For example, the SEC accountant’s sworn declaration filed on

August 22, 2014, describing her work in tracing the deposits

of investor funds and transfers between Xu and WCM

accounts, supported her conclusion that the records showed

no “appreciable source of revenue other than apparent

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20 SEC V. MESSINA

payments from investors in the WCM777 offerings.” 

Likewise, the receiver swore in her August 22, 2014,

declaration that she had found no evidence that “the

Receivership Entities had any actual revenue-generating

business operations related to the WCM777 or ToPacific

programs, other than the pyramid-like scheme for raising

money.”7

Messina and IMV did not offer anyevidence to controvert

the SEC’s analysis of Xu’s and Messina’s bank accounts, nor

did they proffer any evidence potentially available to them

through additional discovery that could raise a triable issue of

fact regarding the source of the funds ultimately transferred

to Messina and IMV. Although they now argue the receiver’s

final forensic accounting report filed on February 27, 2015,

was not available to them before the district court entered its

order of disgorgement, Messina and IMV point to no

information in the final report that creates a triable issue of

fact questioning the source of the funds. Indeed, that report

largely restates the earlier information provided to the district

court in the receiver’s numerous interim reports, and in the

receiver and SEC accountant’s pre-hearing declarations and

live testimony during the evidentiary hearing. That record

amply supports the district court’s conclusion that the funds

transferred to Messina and IMV were ill gotten as a matter of

law.

7 Similar evidence was presented in an earlier declaration by the SEC

accountant filed on March 31, 2014, which detailed her analysis of Xu and

WCM accounts in support of the SEC’s application for a preliminary

injunction. The SEC also filed a second declaration by the receiver in

support of its motion for an order of disgorgement on January 12, 2015,

in which the receiver confirmed her prior findings regarding the source of

the funds in the Xu and WCM accounts and provided additional

supporting information characterizing the moneyin the ToPacific account.

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SEC V. MESSINA 21

The district court likewise did not err in holding IMV

jointly liable for the portion of those ill-gotten funds that it

received. The relief defendants argue that IMV neither

possesses nor benefitted from the funds it received and

subsequently transferred, and that it therefore should not be

subject to the disgorgement order. The district court was free

to reject this argument because ongoing possession of the

funds is not required for disgorgement. See Platforms

Wireless, 617 F.3d at 1098 (“A person who controls the

distribution of illegally obtained funds is liable for the funds

he or she dissipated as well as the funds he or she retained.”);

SEC v. JT Wallenbrock & Assocs., 440 F.3d 1109, 1116 (9th

Cir. 2006) (“The manner in which [the recipient of ill-gotten

funds] chose to spend the illegally obtained funds has no

relevance to the disgorgement calculation.”); see also Colello,

139 F.3d at 677 (approving the use of relief defendant

procedures even where the disputed funds were “paid over to

others” by the relief defendant after their receipt). The

district court also found that the equities weigh in favor of

holding IMV jointly liable because Gary Messina willingly

dissipated the funds despite knowing they were the subject of

an ongoing SEC investigation and a dispute between Messina

and Xu. The evidence—including the evidence showing the

extent to which IMV was intertwined with Xu, WCM, and

Messina—substantially supports the district court’s

conclusion.

IV

In addition to contesting the amount of disgorgement

ordered by the district court, Messina and IMV also mount a

series of procedural challenges to the manner in which the

district court adjudicated the disgorgement proceedings. 

Essentially, Messina and IMV argue that the district court

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22 SEC V. MESSINA

abused its discretion by refusing to extend the briefing

schedule or to adjourn its ruling until after the receiver’s final

report was issued. They argue that as a result, the district

court did not yet know the total amount of the fraud, the

amount of fraudulent gains outstanding, or the amount over

which the SEC would ultimately be able to establish

territorial jurisdiction.

First, we reject Messina and IMV’s argument that the

district court erred in ordering disgorgement from them as

relief defendants before entry of a final judgment of the total

amount to be disgorged by Xu. They point to no authority in

support of their argument and, regardless, ignore the wealth

of undisputed evidence available to the district court

demonstrating that close to $60 million of investor funds

were collected as “deposits into the United States dollar

portion of” the Xu and WCM bank accounts as a result of

Xu’s scheme. Xu had already consented to entry of judgment

against him for his alleged securities violations, and all that

remained was for the district court to determine the total

amount of the investor funds Xu would be ordered to

disgorge.

8 Once the district court found that Messina and

IMV were proper relief defendants, it was not an abuse of

discretion to order them to disgorge this small fraction of

these proceeds.

8 That number ultimately was fixed at $57,260,683.88. To the extent

the relief defendants are concerned with the potential for double recovery

by the SEC, that concern is assuaged by the district court’s provision that

“Xu shall receive a credit for any sums paid by [the relief defendants] on

their disgorgement and/or prejudgment interest obligations.”

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SEC V. MESSINA 23

Nor did the district court err in rejecting the relief

defendants’ related extra-territoriality argument.9 Messina

and IMV assert that under Morrison v. National Australia

Bank Ltd., 561 U.S. 247 (2010), Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), applies only to domestic

transactions, and that the district court did not know at the

time it entered the order of disgorgement against the relief

defendants what percentage of Xu’s ill-gotten funds derived

from securities transactions in the United States.10 Even

assuming that the SEC can only seek disgorgement of funds

related to domestic securities transactions, the undisputed

evidence here shows that far more than $5 million in investor

transactions took place in the United States. See Absolute

Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 69

(2d Cir. 2012) (explaining that under Morrison, “a securities

transaction is domestic when the parties incur irrevocable

liability to carry out the transaction within the United States

9 Given that relief defendants are not real parties in interest, Ross,

504 F.3d at 1141, it is not apparent that a relief defendant would have

standing to challenge generally the SEC’s territorial jurisdiction over the

funds at issue in the underlying enforcement action. But Messina and

IMV frame their extra-territoriality argument as a complaint about the

manner in which the district court handled the disgorgement proceedings

against them. Specifically, they argued that the district court abused its

discretion by ordering disgorgement before the receiver’s final report

issued because the court had not yet determined the total amount of illgotten gains at issue in the underlying SEC action. We address the

argument in that posture.

10 The SEC argues in response that Congress overrode the Morrison

decision when it enacted Section 929P(b) of the Dodd-Frank Wall Street

Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat.

1376. The SEC did not raise this argument below, and we need not

address it here. See Arduini v. Hart, 774 F.3d 622, 634 n.12 (9th Cir.

2014) (“We generally do not consider issues raised for the first time on

appeal.”).

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24 SEC V. MESSINA

or when title is passed within the United States”).11

Accordingly, the district court properly exercised its

discretion in ordering the relief defendants to disgorge the

$5 million they had received from Xu. We therefore affirm

the disgorgement order in its entirety.

V

Messina and IMV were afforded sufficient due process

during the relief defendant proceedings before the district

court. Our precedent recognizes “a truncated form of process

vis-à-vis” relief defendants. Ross, 504 F.3d at 1141. No less

importantly, the process afforded Messina and IMV here was

substantial. Messina was contacted by the receiver on April

1, 2014—just four days after the SEC filed its case against Xu

and WCM—and Messina, represented by counsel, entered

into negotiations with the receiver and the SEC over the next

few days that resulted in his deposit of the remaining

contested funds into escrow. Messina therefore had notice of

the underlying action against Xu and WCM almost

immediately and cannot claim he was unaware of his own

potential liability by April 2014. Messina and IMV were

formally named by the SEC as relief defendants and served

with the First Amended Complaint a month later. They were

granted expedited discovery, and they participated fully in the

Rule 12(b)(1) evidentiary hearing, where they were

represented by able counsel, and where they testified,

11 We have yet to address what constitutes a domestic transaction

under Morrison, but the Second Circuit’s analysis of this issue in Ficeto

is instructive. Given the undisputed evidence regarding the scale and

scope of Xu and WCM’s operations in the United States, we consider it

beyond peradventure that far in excess of $5 million was raised via

domestic transactions under any reasonable interpretation of Morrison.

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SEC V. MESSINA 25

examined witnesses, and offered documentary evidence. We

hold that Messina and IMV were provided a constitutionally

sufficient opportunity to litigate their rights.

Messina and IMV again point to their late receipt of the

receiver’s forensic accounting report as proof that the

proceedings were unfair. Again, we disagree. Even if it was

error to enter the disgorgement order before the final forensic

report issued, Messina and IMV have not explained how they

were prejudiced by that error. Throughout the proceedings

before the district court, Messina and IMV had unfettered

access to the receiver’s numerous interim reports as well as

the receiver and SEC accountant’s detailed declarations and

testimony. The final forensic accounting report largely

restates and further corroborates the previously disclosed

interim conclusions demonstrating the existence and

functioning of a large and successful Ponzi scheme

orchestrated by Xu. Moreover, we see no exculpatory

information helpful to the relief defendants’ position in the

final report, nor have relief defendants identified anything in

the report that would have materially assisted their positions

during the evidentiary hearing or in resisting disgorgement. 

As the district court correctly noted, the relief defendants

“had more than an adequate opportunity to conduct

discovery” and “failed to identify the particular facts [] they

reasonably expect[ed] to obtain with further discovery, or

explain why those facts would preclude granting the SEC’s

Motion for Order of Disgorgement.” On the facts before us,

we hold the relief defendants were provided adequate due

process to litigate their claims.

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26 SEC V. MESSINA

VI

The Final Judgment as to relief defendants Vincent J.

Messina and International Market Ventures is AFFIRMED.

Costs on appeal are awarded to the Securities and Exchange

Commission.

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