Securities and Exchange Commission v. Fujinaga et al

Filing 210

ORDER denying 196 Motion for District Judge to Reconsider Order. Denying 205 Motion to Extend Time. Signed by Judge James C. Mahan on 4/20/2015. (Copies have been distributed pursuant to the NEF - DKJ)

1
2
3
4

UNITED STATES DISTRICT COURT

5

DISTRICT OF NEVADA

6

***

7
8
9

SECURITIES AND EXCHANGE
COMMISSION,

Case No. 2:13-CV-1658 JCM (CWH)
ORDER

Plaintiff(s),
v.

10
11

EDWIN YOSHIHIRO FUJINAGA and MRI
INTERNATIONAL, INC., et al.,

12

Defendant(s).

13
14

Presently before the court is defendants Edwin Fujinaga and MRI International’s

15

(hereinafter “defendants”) motion for reconsideration. (Doc. # 196). Plaintiff Securities and

16

Exchange Commission (hereinafter “the SEC”) filed a response, (doc. # 198), and defendants filed

17

a reply, (doc. # 204).

18
19
20

Also before the court is defendants’ motion for extension of time. (Doc. # 205).
I.

Background
The instant case arises from a Ponzi scheme perpetrated by defendants.

Defendants

21

collected hundreds of millions of dollars for purported investments in medical accounts receivable.

22

Defendants used these funds to repay earlier investments as well as for their own personal

23

expenses. By May 2013, defendants had entirely depleted the invested funds. (Doc. # 118).

24

On September 11, 2013, the SEC filed a civil enforcement action against defendants. (Doc.

25

# 2). On October 7, 2013, the parties stipulated to the entry of a preliminary injunction. (Doc. #

26

20). On December 11, 2013, defendants filed an answer to the SEC’s complaint. (Doc. # 27).

27

The parties completed discovery by July 8, 2014. (Doc. # 138).

28
James C. Mahan
U.S. District Judge

1

On July 16, 2014, the SEC filed a motion for summary judgment on liability. (Doc. # 113).

2

On October 3, 2014, the court granted the SEC’s motion. (Doc. # 156). On November 24, 2014,

3

the SEC filed a motion for judgment against defendants Fujinaga and MRI International, Inc.

4

(Doc. # 178). Defendants filed a response, (doc. # 184), and the SEC filed a reply, (doc. # 185).

5

On January 27, 2015, the court granted the SEC’s motion for judgment, holding defendants

6

jointly and severally liable for the disgorgement of proceeds in the amount of $442,229,611.70,

7

and prejudgment interest in the amount of $102,129,752.38. The court also held defendants liable

8

for civil money penalties of $20,000,000.00 each. Finally, the court permanently enjoined

9

defendants from any further securities violations. (Doc. # 188).

10

On the same date, the clerk entered judgment in favor of the SEC in the same amounts.

11

(doc. # 189). On February 4, 2015, the SEC filed a motion to certify the court’s judgment as final

12

pursuant to Federal Rule of Civil Procedure 54(b). Defendants did not file a response, and the

13

court granted the motion on February 25, 2015. (Doc. # 195).

14

On March 9, 2015, defendants filed the instant motion for reconsideration. (Doc. # 196).

15

On April 15, 2015, upon filing their reply, defendants filed the instant motion to extend time. (Doc.

16

# 205).

17

II.

Legal Standard

18

A motion for reconsideration “should not be granted, absent highly unusual circumstances.”

19

Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). “Reconsideration is

20

appropriate if the district court (1) is presented with newly discovered evidence, (2) committed

21

clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in

22

controlling law.” School Dist. No. 1J v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); Fed. R.

23

Civ. P. 60(b). “A motion to alter or amend a judgment must be filed no later than 28 days after

24

the entry of the judgment.” Fed. R. Civ. P. 59(e).

25

III.

26

Discussion
In the instant motion, defendants argue that the court should reconsider its January 27,

27

2015, order on the SEC’s motion for judgment.

28

reconsideration is proper because “the SEC failed to meet its burden of reasonably approximating

James C. Mahan
U.S. District Judge

-2-

(Doc. # 196).

Defendants contend that

1

a disgorgement value, and provided improper, inadmissible, and previously unproduced expert

2

testimony in support of its Motion.” (Doc. # 196). The SEC responds that defendants’ motion is

3

no more than “a veiled attempt to re-argue their opposition to the SEC’s motion for final

4

judgment.” (Doc. # 198).

5

Defendants argue that the court committed clear error in granting the SEC’s motion for

6

judgment in the amounts requested. Defendants also state that there is new evidence in this case

7

that warrants reconsideration. These arguments will be addressed in turn.

8

A. Clear error

9

Defendants contend that the court erroneously considered improper evidence and applied

10

inconsistent legal standards, such that reconsideration is warranted. (Doc. # 196). The court will

11

address each clear error argument individually.

12

i.

Rand declaration

13

Through the instant motion, defendants restate their objections to Mr. Rand’s declaration

14

already made in their response to the SEC’s motion for judgment. The court rejected these

15

arguments in concluding that Mr. Rand served as a summary witness for the SEC. The court did

16

not consider Mr. Rand’s declaration as expert testimony, and finds that defendants’ arguments do

17

not provide a basis for reconsideration. See United States v. Ransfer, 749 F.3d 914, 937 (11th Cir.

18

2014) (“The testimony did not require expertise because it was a summary of financial records the

19

witness reviewed and an explanation of how the summary was calculated.”); see also SEC v.

20

Blackwell, No. 3:11-CV-0234-L, 2012 WL 13564, at *3 (N.D. Tex. 2012) (considering declaration

21

of SEC accountant based on analysis of bank account activity and concluding that method of

22

calculating interest was reasonable).

23

Mr. Rand’s declaration provided an explanation of the SEC’s calculation methods for

24

profits to be disgorged in this case. The court independently reviewed the SEC’s proposed figures

25

and calculations, concluding that the SEC produced sufficient evidence to show that its

26

disgorgement approximation was reasonable. (Doc. # 188).

27

Pursuant to the applicable legal standard, the burden then shifted to defendants to show

28

that the SEC’s figures were not reasonable. The court found that defendants failed to meet this

James C. Mahan
U.S. District Judge

-3-

1

burden.1 Accordingly, the court found it appropriate to hold defendants liable for disgorgement in

2

the amount requested by the SEC.

3

The court has already rejected defendants’ arguments that Mr. Rand’s declaration

4

constitutes improper expert testimony. Mr. Rand’s declaration served as a summary of the SEC’s

5

evidence in support of disgorgement, and did not constitute opinion testimony based on specialized

6

knowledge. Because defendants cannot show that the court committed clear error in considering

7

Mr. Rand’s declaration, reconsideration is not appropriate on these grounds.
ii.

8

Inconsistent legal standards

9

Defendants contend that the court applied inconsistent legal standards in reviewing the

10

evidence in the case. Specifically, defendants argue that the court accepted the SEC’s reliance on

11

summary charts while penalizing defendants for failing to produce voluminous records in support

12

of their opposition. (Doc. # 196).

13

The SEC responds that this argument is baseless and that the court “ruled consistently with

14

a record that contained glaring differences in proof.” (Doc. # 198). The SEC contends that Mr.

15

Rand’s declaration was inherently more reliable than that of Mr. Fujinaga, for a few reasons. (Doc.

16

# 196).

17

First, the SEC notes that Mr. Fujinaga’s declaration was properly viewed with suspicion,

18

considering his implication in the wrongdoing at issue in this case. Second, the SEC points out

19

that while Mr. Rand prepared his spreadsheets based on the records at issue, Mr. Fujinaga did not

20

personally create the tables attached to his declaration.2

21

calculations were more trustworthy because Mr. Rand’s declaration included an explanation of the

22

methodology used to obtain the disgorgement amounts, while the declaration of defendant

23

Fujinaga did not include such a description.

Third, the SEC contends that its

24
25
26
27

In particular, the court rejected defendants’ argument that the disgorgement amount
should not include funds received before 2008. In doing so, the court cited applicable case law
supporting its conclusion and noted that the amended complaint in this case included allegations
of conduct predating 2008. (Doc. # 188).
1

Mr. Fujinaga’s declaration included the following statement: “To my knowledge, this
[compilation from the bank statements] was prepared by Shiu Ling Lam, an employee of MRI, at
my direction. Ms. Lam is no longer employed by MRI.” (Doc. # 184-2).
2

28
James C. Mahan
U.S. District Judge

-4-

1

The court agrees. The SEC’s calculations were based on MRI’s balance sheet, which the

2

court considered in determining whether the SEC’s approximations were reasonable. After

3

concluding that the SEC had met its burden, the court looked to the evidence produced by

4

defendants in opposition.

5

The court concluded that defendants failed to show how the SEC’s calculations were

6

unreasonable. While the court noted that defendants failed to provide records in support of their

7

calculations, the court did not base its analysis on this fact alone. Instead, the court reviewed

8

defendants’ arguments and concluded that they failed to refute the SEC’s reasonable calculations.

9

(Doc. # 188).

10

The court did not apply two different evidentiary standards to the parties’ data. Instead,

11

the court first considered the SEC’s disgorgement calculations, concluding based on the evidence

12

provided that they were reasonable. The court then appropriately shifted the burden to defendants

13

to show that the SEC’s approximation was improper. Upon considering defendants’ supporting

14

evidence, the court concluded that defendants did not meet this burden.

15

On this basis, the court found that the SEC was entitled to disgorgement in the amount

16

requested. This was not clear error. The motion for reconsideration will not be granted on

17

defendants’ theory of inconsistent legal standards.

18

iii.

Failure to include liquidations

19

Defendants also take issue with the fact that the court failed to offset the disgorgement

20

amount with defendants’ proposed amounts of liquidations or redemptions paid out to investors.

21

As the court previously held, the SEC met its burden to show a reasonable approximation of

22

disgorgement funds. By contrast, the court found that defendants failed to meet their burden of

23

proving the SEC’s approximation unreasonable. (Doc. # 188).

24

In the instant motion, defendants provide the same arguments as to why the court should

25

offset the disgorgement amounts with liquidations. Defendants attempt to bolster their contentions

26

by attaching bank statements and further declarations. Defendants argue that the court should

27

consider this evidence and alter its ruling because defendants were not provided an appropriate

28

opportunity to respond to the SEC’s evidence produced in support of its motion for judgment.

James C. Mahan
U.S. District Judge

-5-

1

The court has already declined to entertain defendants’ objections regarding Mr. Rand’s

2

declaration. The court will not readdress these previously rejected arguments on a motion to

3

reconsider. Defendants have not shown that the court committed clear error in failing to adopt the

4

defendants’ proposed calculations.

5

appropriate.
iv.

6

Accordingly, reconsideration on these grounds is not

Prejudgment interest

7

Defendants argue that the court improperly calculated prejudgment interest. In support of

8

this contention, defendants largely restate arguments previously made in support of their response

9

to the SEC’s motion for judgment, as well as reasoning contained in the instant request for

10

reconsideration of the disgorgement amounts imposed.

11

Prejudgment interest is contingent on the proper disgorgement amount. Pursuant to the

12

analysis above, the court finds that reconsideration of the disgorgement amount in this case is not

13

appropriate. Accordingly, the court will also decline the request to reconsider prejudgment

14

interest.

15

Defendants do not show clear error or new evidence warranting reconsideration of the

16

prejudgment interest amounts. The court imposed prejudgment interest consistent with the SEC’s

17

reasonable approximation for disgorgement. For these reasons, the motion to reconsider will not

18

be granted on these grounds.

19

v.

Penalties

20

The court will not reconsider its decision to impose civil monetary penalties on defendants.

21

Here, defendants again restate arguments previously made in their response to the SEC’s motion

22

for judgment. In essence, defendants argue that penalties are inappropriate because defendants do

23

not pose a threat of future violations. (Doc. # 196).

24

Defendants seek to introduce further support for this argument in the form of

25

correspondence between Mr. Fujinaga and other individuals regarding Japanese securities laws.

26

These attachments do not constitute “newly discovered evidence,” and are not relevant to the

27

court’s decision to impose civil monetary penalties. Accordingly, reconsideration on this basis is

28

not appropriate.

James C. Mahan
U.S. District Judge

-6-

1

The court imposed third-tier civil penalties in light of the amounts fraudulently obtained

2

from investors in this case. Defendants fail to show clear error. In fact, the court believes that the

3

applicable case law clearly supports the imposition of third-tier penalties in this case. The motion

4

will not be granted on this basis.

5

B. New evidence

6

Defendants purport to submit new evidence and analysis, contending that they should have

7

been afforded the opportunity to cross-examine and challenge the SEC’s reasonable approximation

8

of disgorgement. In particular, defendants attach proposed tax returns and bank statements.

9

Defendants state that “[d]ue to both time and monetary constraints, this information was not

10

previously available; moreover, it is the byproduct of months of effort, which was required to

11

reanalyze MRI’s income position and the subsequent tax returns.” (Doc. # 196).

12

The SEC responds that all evidence submitted in conjunction with defendants’ motion was

13

available to defendants to use in their response to the SEC’s motion for judgment, with the

14

exception of the amended tax return drafts. However, the SEC contends that these documents have

15

no weight because they are simply unsigned drafts prepared by accountants for defendant Fujinaga.

16

Further, the SEC notes that the documents upon which these drafts are based were previously

17

available. (Doc. # 198).

18

The court agrees with the SEC on this issue.

Defendants have not shown “newly

19

discovered evidence” warranting reconsideration. Instead, defendants simply present evidence

20

that was previously available in additional forms, in an attempt to obtain a different result. The

21

court is not persuaded that reconsideration is warranted on these grounds. Accordingly, the court

22

will not grant the motion to reconsider on the basis of newly discovered evidence.

23

C. Motion for extension of time

24

On April 15, 2015, defendants filed a motion for extension of time within which to present

25

new evidence. Defendants note that they have recently obtained new counsel. Defendants seek

26

an additional fourteen days to review records and present new evidence to the court. They state

27

that the SEC declined to stipulate to this request, in light of its desire to secure a final judgment as

28

soon as possible. (Doc. # 205).

James C. Mahan
U.S. District Judge

-7-

1

The court will deny defendants’ request. The instant issues have been briefed extensively,

2

and the court has already ruled on them. Further, defendants had the chance to present new

3

evidence through the instant motion. The court will not delay resolution of this case any further.

4

IV.

Conclusion

5

Overall, the court is not persuaded by defendants’ arguments. The court considered the

6

evidence produced by the SEC in support of its motion for judgment and concluded that the

7

proposed amounts for disgorgement, prejudgment interest, and civil penalties were reasonable. As

8

already stated, defendants have been provided more than sufficient opportunity to respond and

9

refute the SEC’s arguments. They still fail to do so.

10

Accordingly,

11

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that defendants’ motion for

12
13
14
15

reconsideration, (doc. # 196), be, and the same hereby is, DENIED.
IT IS FURTHER ORDERED that defendants’ motion for extension of time, (doc. # 205),
be, and the same hereby is, DENIED.
DATED April 20, 2015.

16
17

__________________________________________
UNITED STATES DISTRICT JUDGE

18
19
20
21
22
23
24
25
26
27
28
James C. Mahan
U.S. District Judge

-8-