Court Opinion

ID: 3036549
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:54:29.887352+00
Date Added: 2024-06-11T09:53:52.762601
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SECURITIES AND EXCHANGE                 
COMMISSION,
                  Plaintiff-Appellee,
                 v.
JT WALLENBROCK & ASSOCIATES;                 No. 04-55100
CITADEL CAPITAL MANAGEMENT
GROUP, INC.,                                  D.C. No.
                                            CV-02-00808-ER
                        Defendants,           OPINION
                and
LARRY TOSHIO OSAKI; VAN Y.
ICHINOTSUBO,
             Defendants-Appellants.
                                        
        Appeal from the United States District Court
           for the Central District of California
         Edward Rafeedie, District Judge, Presiding

                  Argued and Submitted
          October 17, 2005—Pasadena, California

                    Filed March 10, 2006

   Before: Andrew J. Kleinfeld, A. Wallace Tashima and
            Raymond C. Fisher, Circuit Judges.

                  Opinion by Judge Fisher

                             2509
                             SEC v. OSAKI                            2513

                              COUNSEL

Huey P. Cotton and Christine E. Field, Cozen O’Connor, Los
Angeles, California, for the defendants-appellants.

Mark Pennington, Assistant General Counsel, Securities and
Exchange Commission, Washington, D.C., for the plaintiff-
appellee.

                              OPINION

FISHER, Circuit Judge:

   At issue is an order entered against parties to a securities
pyramid or Ponzi scheme, requiring the principal and his two
companies, jointly and severally, to disgorge millions of dol-
lars that the district court found to be ill-gotten gains from
their having defrauded numerous investors. The defendants
are J.T. Wallenbrock & Associates (“Wallenbrock”) and Cita-
del Capital Management Group, Inc. (“Citadel”), business
entities that were organized and controlled by appellant-
defendant Larry Osaki, the managing general partner of Wal-
lenbrock and a 99.5 percent owner of Citadel (collectively
“the defendants”).1 Another appellant-defendant is Van Ichi-

  1
   Although Citadel was a named defendant in the SEC’s complaint, the
SEC requests that we dismiss Citadel’s appeal because the notice of
appeal does not name Citadel in either the caption or the body of the
notice as required by Fed. R. App. P. 3(c)(1)(A). In their reply brief, the
defendants concede that the appellants include only Wallenbrock, Osaki
and Ichinotsubo. Our disposition of the case ultimately renders this issue
moot. Because Citadel was a named defendant in the complaint, we
include Citadel as a “defendant” in this opinion.
2514                         SEC v. OSAKI
notsubo, an employee of both companies who solicited inves-
tors on their behalf and invested $1.2 million in Wallenbrock.2
We affirm the district court’s disgorgement order.

          I.   Factual and Procedural Background3

   From at least 1997 to October 2003, the defendants raised
nearly $253.2 million from thousands of investors through the
fraudulent sale of unregistered promissory notes.4 The defen-
dants misrepresented to investors that they were using the
proceeds of the notes, matched by Wallenbrock, to purchase
accounts receivable of Malaysian latex glove manufacturing
companies and that the investments would yield returns of 15-
20 percent every 90 days. The defendants told investors that
there was little or no risk in the Wallenbrock investments and
emphasized the safety of profits. In fact, the defendants did
not purchase such receivables but instead used the investors’
funds to engage in a high-stakes Ponzi scheme and invest in
speculative business ventures.5
  2
     We also include Ichinotsubo in our reference to “the defendants.”
  3
     The undisputed facts are based on the allegations in the SEC’s com-
plaint and the district court’s disgorgement order. In accordance with a
February 28, 2003 order of permanent injunction, the defendants are pre-
cluded from denying or arguing that they did not violate federal securities
law in the manner set out in the SEC’s complaint.
   4
     According to the “Accounting of Investor Funds” prepared by a foren-
sic certified public accountant (“CPA”) on behalf of the court-appointed
receiver, this amount included $229.2 million received from individuals
and companies and $24.0 million from investors’ IRA and other retire-
ment accounts. The Accounting of Investor Funds summarizes the find-
ings of the CPA’s comprehensive accounting of Wallenbrock and Citadel
based on records provided by the defendants.
   5
     As the SEC’s complaint explains, the defendants have “no evidence
confirming that [investor] funds were being invested as represented or
confirming the source of funds returned as profit or repayment of principal
to investors.” For example, the defendants have “no documentation show-
ing any ownership interest in accounts receivable” and “no documentation
confirming the use of investor funds, such as schedules reflecting the pur-
chase of receivables, dates payments were expected or received on receiv-
ables and information on defaults.”
                             SEC v. OSAKI                            2515
   Wallenbrock first deposited the investors’ $253.2 million in
Osaki’s Wallenbrock checking account. The defendants then
used $113.8 million of these funds to pay investors their “re-
turns,” maintaining the illusion that the defendants were actu-
ally making the investments as represented. Of the remaining
$139.4 million, the defendants spent $11.1 million to cover
operating expenses for both Citadel and Wallenbrock, includ-
ing expenses such as office space and payroll for over 60
employees of both companies, and $25.5 million to pay for
various Wallenbrock operating expenses and Osaki’s personal
expenses.6 Wallenbrock also spent $99.8 million to fund over
175 start-up companies on Citadel’s behalf, of which Citadel
was obligated to repay Wallenbrock $71.2 million plus 10
percent annual interest.7 The remaining $3.0 million was still
in Osaki’s Wallenbrock checking account as of December
2001.
  6
     Because of the large volume of transactions, the commingled use of
funds and the inadequacies in Wallenbrock’s accounting, the forensic CPA
was unable to ascertain what amount of the $25.5 million in payments
were for personal or for business expenses. For example, included in these
payments were items that could be personal expenses of Osaki such as
over $1.5 million in payments to at least 10 credit card companies and
approximately $1.5 million in cash withdrawals.
   7
     The defendants assert that Wallenbrock loaned $131.0 million to Cita-
del for its investment business, rather than $99.8 million. They support
this assertion by relying on an unverified one-page accounting they pro-
vided to the district court in February 2002 and numerous one-paragraph
promissory notes dated between October 1, 1996 and December 31, 2001
that obligate Citadel to pay Wallenbrock several million dollars “for value
received.” However, it is unclear how the defendants arrive at their $131.0
million figure, and the record shows that Citadel was obligated to repay
Wallenbrock only $71.2 million “for value received.” In addition, the
CPA’s detailed accounting shows that Wallenbrock spent only $110.8 mil-
lion related to Citadel, $99.8 million of which went directly to start-up
companies on Citadel’s behalf. In any event, the defendants’ argument that
the district court should have deducted the loan to Citadel — whatever its
amount — from the disgorgeable gain lacks merit. See Section III.A.2,
infra.
2516                         SEC v. OSAKI
   In January 2002, the SEC brought a civil enforcement
action against the defendants alleging violations of the anti-
fraud, broker-dealer registration and securities registration
provisions of the federal securities laws.8 The district court
granted the SEC’s request for an asset freeze and temporary
restraining order enjoining future violations, and appointed a
receiver on February 21, 2002. In May 2002, the defendants
consented to a preliminary injunction. After we affirmed the
district court’s denial of the defendants’ motion to dismiss in
SEC v. Wallenbrock, 313 F.3d 532 (9th Cir. 2002), the defen-
dants, in February 2003, settled with the SEC by consenting
to entry of a permanent injunction against future violations.
The injunction order authorized the district court to determine
the amounts of disgorgement, plus prejudgment interest and
civil penalties to be imposed on the defendants “as a result of
the conduct alleged in the Commission’s complaint.” The
injunction order also precluded the defendants from “denying
or arguing that they did not violate the federal securities laws
in the manner set out in the Commission’s complaint,” but did
not preclude defendants from “presenting evidence as to
whether and what amount of disgorgement, prejudgment
interest and civil penalties are appropriate.”

  In December 2003, the district court granted the SEC’s
motion for disgorgement. The court found that Osaki and
Ichinotsubo operated a Ponzi scheme through Wallenbrock
and Citadel, repaying to investors $113.8 million of the
$253.2 million raised and spending $136.4 million of the
investor funds “for their own benefit.”9 In its order, the court
imposed (1) disgorgement against Wallenbrock, Osaki and
  8
     15 U.S.C. §§ 77e(a), 77e(c), and 77q(a) (1933 Act); 15 U.S.C. § 78j(b)
(1934 Act); and 17 C.F.R. § 240.10b-5.
   9
     The amount “spent” by the defendants included the $36.6 million in
Wallenbrock and Citadel operating expenses and the $99.8 million paid to
start-up companies. The remaining $3.0 million in Osaki’s Wallenbrock
checking account had been frozen and transferred to a receivership shortly
after the SEC filed its complaint.
                             SEC v. OSAKI                           2517
Citadel, jointly and severally, of $139.4 million (the entire
proceeds from the scheme less amounts paid to investors) plus
prejudgment interest of $24.3 million, minus any disgorge-
ment payments made by Ichinotsubo; (2) disgorgement
against Ichinotsubo of $409,798 (the amount he received from
the proceeds of the scheme) plus prejudgment interest of
$85,435; and (3) a civil penalty of $100,000 each against
Osaki and Ichinotsubo pursuant to 15 U.S.C. § 78t(d)(2)(c)
and 15 U.S.C. §78u(d)(3)(B)(iii).10 The defendants have
appealed only the district court’s calculation of disgorgement
assessed against each of them.

          II.   Jurisdiction and Standard of Review

  The district court had jurisdiction pursuant to 28 U.S.C.
§§ 1331 and 1345, and we have jurisdiction pursuant to 28
U.S.C. § 1291. We review the district court’s order of disgor-
gement for abuse of discretion. SEC v. First Pac. Bancorp,
142. F.3d 1186, 1190 (9th Cir. 1998).

                          III.   Discussion

   The defendants argue that the district court abused its dis-
cretion in refusing to deduct $36.6 million in Wallenbrock
and Citadel business and operating expenses from the disgor-
gement amount. They also contend that Wallenbrock loaned
$131.0 million to Citadel for “business operations-capital
investment,” which the district court improperly included as
disgorgeable gain. Finally, the defendants claim that Wallen-
  10
     On March 22, 2005, Osaki pled guilty to conspiracy to commit securi-
ties fraud, two counts of securities fraud, obstruction of justice and one
count of money laundering in relation to the pyramid scheme. See U.S.
Department of Justice Press Release, March 22, 2005, available at http://
www.usdoj.gov/usao/cac/pr2005/051.html. Osaki acknowledged that he
relocated operations to Canada, Belize and elsewhere after consenting to
the permanent injunction. Id. On December 16, 2005, Osaki was sentenced
to 20 years in federal prison and ordered to pay more than $145 million
in restitution to his victims. Id.
2518                      SEC v. OSAKI
brock received $23.0 million from business operations unre-
lated to income from defrauded investors, that the district
court should not have ordered disgorged. Each of these argu-
ments lacks merit.

A.     Determining “ill-gotten gains” and “unjust
       enrichment”

   [1] As we made clear in First Pacific Bancorp, the district
court has broad equity powers to order the disgorgement of
“ill-gotten gains” obtained through the violation of federal
securities laws. 142 F.3d at 1191; see also SEC v. Colello,
139 F.3d 674, 679 (9th Cir. 1998) (“To order disgorgement,
the district court . . . . need find only that [the defendant] has
no right to retain the funds illegally taken from the victims.”).
“Disgorgement is designed to deprive a wrongdoer of unjust
enrichment, and to deter others from violating securities laws
by making violations unprofitable.” First Pac. Bancorp, 142
F.3d at 1191 (citing Hateley v. SEC, 8 F.3d 653, 655 (9th Cir.
1993)). The district court also has broad discretion in calculat-
ing the amount to be disgorged. See, e.g., SEC v. First Jersey
Sec., Inc., 101 F.3d 1450, 1474-75 (2d Cir. 1996). A disgorge-
ment calculation requires only a “reasonable approximation of
profits causally connected to the violation,” First Pac. Ban-
corp, 142 F.3d at 1192 n.6 (internal citation omitted), and the
amount of disgorgement should include “all gains flowing
from the illegal activities.” SEC v. Cross Fin. Servs., 908 F.
Supp. 718, 734 (C.D. Cal. 1995).

   [2] The essence of the defendants’ scheme was to obtain
investors’ money under false pretenses in order to fund the
defendants’ speculative business ventures. Rather than put
their own money at risk, the defendants benefitted from the
use of investors’ money to spend at the defendants’ discretion
— whether to cover operating expenses, invest in start-up
companies, pay personal expenses or to pay fake returns to
investors to perpetuate the fraud. Cf. SEC v. Great Lakes
Equities Co., 775 F. Supp. 211, 215 (E.D. Mich. 1991) (rea-
                               SEC v. OSAKI                              2519
soning that where a defendant’s use of fraudulently obtained
funds is “to defray obligations of the wrongdoer, the wrong-
doer is benefitted by those expenditures”). Given these cir-
cumstances, all $253.2 million obtained from investors was an
ill-gotten gain that unjustly enriched the defendants.

  1.    Business and Operating Expenses

   [3] It follows that it would be unjust to permit the defen-
dants to offset against the investor dollars they received the
expenses of running the very business they created to defraud
those investors into giving the defendants the money in the
first place. Cf. SEC v. TLC Invs. & Trade Co., 179 F. Supp.
2d 1149, 1157 (C.D. Cal. 2001) (concluding that “expenses in
carrying out a fraudulent scheme . . . are hardly appropriate
or legitimate deductions”) (internal citation and quotation
omitted).

   [4] This is not the case of a partially legitimate company
misdirecting or misappropriating revenues. For example, if an
investor buys stock through a licensed broker who then skims
off some or all of the profits generated by the stock, either
through dividends or upon resale, the broker is enriched by
the amount skimmed. Under some circumstances, the broker
might be entitled to offset expenses customarily incurred in
the purchase and sale of such stock if the investor would have
had to pay for such expenses in any legitimate transaction.
For example, in SEC v. Thomas James Assocs., Inc., 738 F.
Supp. 88, 89-90 (W.D.N.Y. 1990), the district court ordered
the defendants (including a brokerage firm) to disgorge the
illegal profits reaped by their manipulation of the market to
“charge excessive markups in the initial aftermarket” of four
initial public offerings.11 In assessing disgorgement, the court
   11
      The defendants’ scheme in Thomas James was implemented by domi-
nating and controlling the supply and demand of the stocks, causing their
price to rise upon the opening of the aftermarket. 738 F. Supp. at 89-91.
At these “artificially inflated prices,” the defendants filled the waiting pur-
chase orders of its customers from their own private reserve of securities
units. Id. at 91. In the first three days of trading the IPOs, the scheme gen-
erated several million dollars in excessive markups. Id.
2520                          SEC v. OSAKI
deducted certain business expenses, such as commissions,
telephone charges and underwriting expenses. Id. at 92, 94-
95. The court explained that “markups are a function of the
way a securities firm does business, and thus have corre-
sponding costs and expenses related to them.” Id. at 95. Given
that the customers would have had to factor these expenses
into their returns regardless of the defendants’ scheme, the
court concluded that a reduction was appropriate “to reflect a
fair setoff for necessary business expenses.” Id. at 92 (empha-
sis added); see also Litton Indus., Inc. v. Lehman Bros., 734
F. Supp 1071, 1077 (S.D.N.Y. 1990) (allowing deductions for
various transaction costs, including brokerage commissions
paid to third party brokers as part of an agreement for services
customarily rendered in connection with the transactions at
issue).

   [5] Applying Thomas James’ analysis does not help the
defendants here. Their entire business enterprise and related
expenses were not legitimate at all, and no aspect of the
defendants’ conduct can be fairly characterized as a “function
of the way a securities firm does business.” 738 F. Supp. at
95; see also Cross Fin. Servs., 908 F. Supp. at 732 (explaining
that a defendant’s “receipt of investor monies for an alleged
purpose that was never disclosed to the investors” demon-
strates in part “the absence of any legitimate call on the
funds”). Unlike the brokerage firm in Thomas James, Wallen-
brock and Citadel existed simply to obtain investors’ money
under false pretenses, money the defendants spent at their sole
discretion, unrelated to the investors’ expectations of the pur-
poses, risks and rewards of entrusting the defendants with
their investment dollars.12 In short, the defendants here seek
  12
     Thomas James itself recognized that “securities law violations may
exist in which disgorgement is properly ordered in the amount of the total
gross profits.” 738 F. Supp. at 95 (citing SEC v. R.J. Allen and Associates,
Inc., 386 F. Supp. 866 (S.D. Fla. 1974), in which the court ordered disgor-
gement of all proceeds received in a fraudulent scheme aimed at deceiving
and defrauding investors). For example, the court noted that when a secur-
ities law violator earns profits “in furtherance of arguably more egregious
forms of securities fraud,” such as insider trading, the wrongdoer may not
insulate those profits from disgorgement. Id.
                            SEC v. OSAKI                           2521
an offset for entirely illegitimate expenses incurred to perpet-
uate an entirely fraudulent operation.

   [6] Neither the deterrent purpose of disgorgement nor the
goal of depriving a wrongdoer of unjust enrichment would be
served were we to allow these defendants — who defrauded
investors of $253.2 million — to “escape disgorgement by
asserting that expenses associated with this fraud were legiti-
mate.” SEC. v. Kenton Capital, Ltd., 69 F. Supp. 2d 1, 16
(D.D.C. 1998); see also SEC v. Hughes Capital Corp., 917 F.
Supp. 1080, 1087 (D.N.J. 1996) (stating that the “overwhelm-
ing weight of authority holds that securities law violators may
not offset their disgorgement liability with business
expenses”). The district court did not abuse its discretion in
refusing to deduct $36.6 million in Wallenbrock and Citadel
business and operating expenses from the disgorgement
amount. See also SEC v. Blavin, 760 F.2d 706, 713 (6th Cir.
1985) (holding that the court possesses the equitable power to
grant disgorgement of “a sum of money equal to all the illegal
payments [ ] received”).

  2.   Loan to Citadel

   [7] The defendants contend that Wallenbrock loaned
$131.0 million to Citadel as a capital investment. However,
the forensic CPA’s comprehensive accounting of the defen-
dants’ scheme reveals that Wallenbrock loaned only $99.8
million to Citadel, an amount Wallenbrock paid directly to
start-up businesses on Citadel’s behalf. The district court
properly ordered this amount disgorgeable, because it was a
subsequent investment of the illegally obtained investor funds.13
See, e.g., Thomas James, 738 F. Supp. at 95 (“[A] securities
  13
     The defendants’ records indicate that Citadel was obligated to repay
Wallenbrock only $71.2 million of the $99.8 million loaned. For disgorge-
ment purposes, however, we construe the entire $99.8 million as a subse-
quent investment of the illegally obtained funds, regardless of its loan
status.
2522                     SEC v. OSAKI
law violator [may not] avoid or diminish his responsibility to
return his ill-gotten gains by establishing that he is no longer
in possession of such funds due to subsequent, unsuccessful
investments or other forms of discretionary spending.”).

   To challenge this finding, the defendants rely on Hateley v.
SEC, 8 F.3d 653 (9th Cir. 1993), to suggest that the $99.8 mil-
lion paid to start-up companies should not be disgorged
because the defendants dissipated and did not retain these
funds. Hateley provides no support for this argument. The
three petitioners in Hateley were a broker-dealer securities
firm that was a registered member of the National Association
of Securities Dealers, Inc. (“NASD”) and two of its officers.
Id. at 654. They had entered into a “finder’s fee agreement”
with a third party (who — in violation of NASD rules — was
not a registered representative of the firm) giving him 90 per-
cent of the commissions generated by all securities transac-
tions he solicited on behalf of the firm. Id. These commissions
totaled roughly $55,000, of which the petitioners retained
only $5,062.50, according to the agreement’s terms. Id. The
NASD, affirmed by the SEC, held the three petitioners jointly
and severally responsible for disgorging the entire $55,000 in
commissions, although also holding the third party liable for
disgorging his $50,000 share. Id. at 655-56.

   We upheld the joint and several aspect of the disgorgement
award because the petitioners “acted collectively” to enter
into the “improper arrangement” with the unregistered third
party. Id. at 656. But we held that the petitioners’ “unjust
enrichment” was limited to the $5,062.50 in fees they actually
retained under the terms of the preexisting illicit agreement.
Moreover, to hold them also liable for the third party’s
$50,000 share would have been duplicative of his disgorge-
ment liability and over 10 times their own illicit fee. Id.

   [8] Here, there was no preexisting agreement limiting the
defendants to only a share of the ill-gotten gain or requiring
them to pay a portion of the proceeds to third parties. The
                         SEC v. OSAKI                      2523
defendants funneled all of the proceeds from the scheme to
the Wallenbrock checking account, which Osaki then distrib-
uted to himself, to Wallenbrock, to Citadel or to start-up
investment companies. The manner in which Osaki chose to
spend the illegally obtained funds has no relevance to the dis-
gorgement calculation because, as we have explained, the
defendants had the full benefit of the entire $253.2 million
fraudulently raised from investors. Cf. SEC v. Benson, 657 F.
Supp. 1122, 1134 (S.D.N.Y. 1987) (stating that the “manner
in which [the defendant] chose to spend his misappropriations
is irrelevant” to the disgorgement calculation). As with the
defendants’ other uses of their ill-gotten gains, using the
investors’ $99.8 million to invest in start-up companies
(rather than purchase accounts receivable) was part of the
defendants’ unjust enrichment. The district court did not
abuse its discretion when it included this amount as part of the
disgorgeable gain.

  3.    Unrelated Income

   Finally, we see no merit to the defendants’ assertion that
$23 million of the funds raised came from its business opera-
tions unrelated to income from investors. The forensic CPA’s
accounting (which is based on the defendants’ own records)
shows that investor funds comprised the entire $253.2 million,
including $229.2 million received from individuals and com-
panies and $24.0 million from investors’ IRA and other retire-
ment accounts. The defendants have not offered evidence to
challenge the CPA’s accounting. Thus, the district court did
not abuse its discretion when it included this amount as ill-
gotten gain.

B.     Joint and Several Liability

   [9] The district court properly held Wallenbrock, Osaki and
Citadel jointly and severally liable for the disgorgement of
their fraudulently obtained investor funds. “[W]here two or
more individuals or entities collaborate or have a close rela-
2524                          SEC v. OSAKI
tionship in engaging in the violations of the securities laws,
they [may be] held jointly and severally liable for the disgor-
gement of illegally obtained proceeds.” See First Pac. Ban-
corp, 142 F.3d at 1191; see also Hateley, 8 F.3d at 656. Based
on the undisputed allegations in the complaint and the foren-
sic CPA’s accounting, the district court found that Osaki,
Wallenbrock and Citadel raised the almost $253.2 million
from investors by fraudulently offering high return invest-
ments in accounts receivable financing.14 Rather than invest
the money as they represented, the defendants used all of the
investors’ funds to operate their pyramid scheme and invest
in speculative business ventures, all to the defendants’ benefit.
Given these undisputed allegations, the district court did not
abuse its discretion in concluding that Wallenbrock, Osaki
and Citadel evinced the requisite close relationship and jointly
benefitted from the illegal scheme to be found jointly and sev-
erally liable.15

C.     Disgorgement against Ichinotsubo

   [10] The district court did not abuse its discretion in order-
ing disgorgement of $409,798 against Ichinotsubo despite his
loss on the $1.2 million he invested in the pyramid scheme.
As we noted in First Pacific Bancorp, “the fact that [a defen-
dant’s] scheme ultimately failed and he lost $1,000,000 of his
own funds [does not] release him from his [disgorgement]
obligations.” 142 F.3d at 1192 n.6. The district court found
that Ichinotsubo made false representations to investors and
  14
      Citadel also acted as an unregistered securities broker-dealer in con-
nection with the scheme.
   15
      The defendants’ argument that joint and several liability cannot be
imposed on Citadel, a nominal defendant, is without merit. Even if Citadel
is a nominal defendant, the district court has the authority to require dis-
gorgement of ill-gotten gains from such defendants. See SEC v. Colello,
139 F.3d 674, 676-77 (9th Cir. 1998) (holding that the SEC may sue a
nominal defendant “to effect full relief in the marshaling of assets that are
the fruit of the underlying fraud”).
                            SEC v. OSAKI                         2525
that he was unjustly enriched by $409,798 as a result of his
conduct.16

                         IV.    Conclusion

   The entire $253.2 million the defendants received was an
“ill-gotten gain” that “unjustly enriched” a “wrongdoer.” First
Pac. Bancorp, 142 F.3d at 1191-93. Because the district court
did not abuse its discretion in assessing the amount of disgor-
gement against the defendants or in imposing joint and sev-
eral liability against Wallenbrock, Osaki and Citadel, the
judgment of the district court is AFFIRMED.

  16
    This amount includes $232,704 in payroll payments, $36,503 in
unpaid loans from Citadel, a $50,000 unpaid loan to Ichinotsubo’s com-
pany, a $60,591 credit card payment made by Osaki with investor funds
on Ichinotsubo’s behalf, and a $30,000 direct payment of investor funds
from Osaki to Ichinotsubo.