Court Opinion

ID: 7799931
Source: CourtListenerOpinion
Date Created: 2022-08-11 20:00:56.051017+00
Date Added: 2024-06-11T16:29:00.812056
License: Public Domain

NOT FOR PUBLICATION                          FILED
                    UNITED STATES COURT OF APPEALS                       AUG 11 2022
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                            FOR THE NINTH CIRCUIT

U.S. SECURITIES & EXCHANGE                      No.    21-55437
COMMISSION,
                                                D.C. No.
                Plaintiff-Appellee,             5:15-cv-02387-SVW-KK

 v.
                                                MEMORANDUM*
ROBERT YANG; et al.,

                Defendants-Appellants,

and

CLAUDIA KANO; et al.,

                Defendants,

 v.

CELTIC BANK,

             Third-party-defendant,
______________________________

STEPHEN J. DONELL,

                Receiver.

                   Appeal from the United States District Court
                      for the Central District of California

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                                                                         Page 2 of 6

                   Stephen V. Wilson, District Judge, Presiding

                       Argued and Submitted July 29, 2022
                              Pasadena, California

Before: PAEZ and WATFORD, Circuit Judges, and BENNETT,** District Judge.

      Defendant Robert Yang and relief defendants Yanrob’s Medical, Inc.

(Yanrob), HealthPro Capital Partners, LLC (HealthPro), and Suncor Care, Inc.

(Suncor Care) appeal from the district court’s judgment imposing disgorgement

and civil penalties pursuant to consent agreements with each of the defendants.

We affirm.

      1. The district court did not abuse its discretion in ordering disgorgement

against relief defendant HealthPro. HealthPro argues that the district court erred

by holding that relief defendants are not permitted to deduct “legitimate expenses”

under the Supreme Court’s decision in Liu v. SEC, 140 S. Ct. 1936, 1950 (2020).

But even assuming that Liu requires the deduction of legitimate expenses in this

case, HealthPro’s expenses do not qualify.

      HealthPro used funds raised from investors in the Suncor Lynwood project

to pay down a construction loan related to a different project, the Suncor Fontana

facility. This expenditure of investor funds on another project was prohibited by

      **
              The Honorable Richard D. Bennett, United States District Judge for
the District of Maryland, sitting by designation.
                                                                           Page 3 of 6

the Suncor Lynwood offering documents and contravened the purpose for which

the funds were invested. These expenses were therefore illegitimate under Liu.

The fact that the other project was also engaged in the development of a nursing

home facility does not change this result.

      2. The district court did not abuse its discretion in holding Yang jointly and

severally liable with Yanrob. Yang misappropriated investor funds and transferred

them to Yanrob, an entity that he owned and controlled and through which he ran

his personal medical practice. Yanrob had no connection to the Suncor projects,

and Yanrob’s various uses for these funds do not qualify as legitimate expenses.

Thus, Yang is liable as a wrongdoing defendant for the entire amount of the

misappropriated funds that he dissipated by transferring them to his medical

practice. See SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1098 (9th Cir.

2010). In this situation, there is no concern that the district court held Yang liable

for profits “that have accrued to another,” Liu, 140 S. Ct. at 1945, and the SEC was

not required to show that Yanrob’s expenditure of the misappropriated funds

benefited Yang directly.

      3. The district court did not abuse its discretion in holding Yang

individually liable for disgorgement of $1,414,250. Yang contends that the district

court’s order violated the consent agreement, which requires that the allegations of

the Amended Complaint be accepted as true for the purposes of determining
                                                                          Page 4 of 6

disgorgement. The Amended Complaint in turn alleges that Yang misappropriated

“approximately $1.14 million” of Suncor Fontana funds to pay off loans from

friends and family. But the consent agreement does not state that the parties

agreed to limit Yang’s disgorgement liability to $1.14 million. It instead provides

that the district court “may determine the issues raised in the [disgorgement]

motion on the basis of affidavits, declarations, excerpts of sworn deposition or

investigative testimony, and documentary evidence.” The district court did not

abuse its discretion in determining that the evidence presented supported a

disgorgement amount of $1.4 million. Furthermore, judicial estoppel does not

apply, as there is no indication that the district court was misled by the SEC’s

initial allegation that Yang misappropriated approximately $1.14 million of

investor funds.

      4. The district court did not abuse its discretion in imposing a $1,938,600

civil penalty equal to Yang’s “gross amount of pecuniary gain.” 15 U.S.C.

§§ 77t(d)(2)(C), 78u(d)(3)(B)(iii). The court determined that it had the authority to

impose the SEC’s requested penalty of approximately $6 million but concluded

that an amount equal to Yang’s pecuniary gain was “appropriate.” Yang contends

that the SEC’s requested amount was forbidden by the relevant statutes and that the

district court would have imposed an even lower penalty if it had recognized that

$1.9 million was the statutory maximum.
                                                                          Page 5 of 6

      Even assuming that each of Yang’s 39 victims did not count as a separate

“violation” for purposes of calculating the maximum allowable penalty, this

argument fails. The district court did not indicate that the three Murphy factors

that favored Yang dictated a particular reduction from the SEC’s proposed $6

million penalty. See SEC v. Murphy, 626 F.2d 633, 655 (9th Cir. 1980). Instead,

the court determined that a gross pecuniary gain penalty was appropriate in light of

all the Murphy factors, the particular facts and circumstances of the case, and the

need for deterrence. The court also noted that district courts frequently impose

civil penalties equal to the amount of disgorgement. A penalty based on Yang’s

disgorgement liability was not an abuse of discretion even if it was the maximum

amount permitted by statute, and even if three of the five Murphy factors indicated

a lower “likelihood of future violations.” Id.

      Nor did the district court abuse its discretion in evaluating the Murphy

factors. Yang correctly notes that the Amended Complaint does not specify that he

was more than negligent in making false and misleading statements and omissions

in the offering documents. Nonetheless, the district court properly found that

Yang’s specific actions—including falsifying escrow documents and making false

statements to mislead investors even after he began misappropriating their funds—

established “some degree of intentional or conscious misconduct.” SEC v. Rubera,

350 F.3d 1084, 1094–95 (9th Cir. 2003) (internal quotations and citation omitted).
                                                                           Page 6 of 6

The district court also properly found recurrent conduct based on Yang’s three

separate securities offerings over the course of a year and a half, even though Yang

had no prior securities law violations. See Murphy, 626 F.2d at 655.

      5. The $1.9 million civil penalty imposed by the district court was not

unconstitutionally excessive. The court’s analysis of the Murphy factors indicates

that a substantial penalty was necessary “to achieve the desired deterrence.”

United States v. Mackby, 261 F.3d 821, 830 (9th Cir. 2001). Yang’s fraudulent

scheme also caused substantial harm, with his investors losing more than $13

million. See United States v. Bajakajian, 524 U.S. 321, 339 (1998). In these

circumstances, a $1.9 million penalty, equal to Yang’s wrongful pecuniary gain, is

not “grossly disproportional” to the gravity of his offense. Id. at 337.

      AFFIRMED.