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SEC v. Liu

United States Court of Appeals for the Ninth Circuit

October 11, 2018,Argued and Submitted, Pasadena, California; October 25, 2018, Filed

No. 17-55849

Opinion

 [*506]  MEMORANDUM2

Charles Liu ("Liu") and his wife, Xin Wang ("Wang"), appeal the district court's entry of summary judgment in favor of the SEC, finding that the couple violated Section 17(a)(2) of the Securities Act of 1933. Liu and Wang raised approximately $27 million from Chinese investors under the EB-5 Immigrant Investor Program (the "EB-5 Program"), which is administered by United States Citizenship and Immigration Services and which allows foreign citizens to obtain visas in exchange for investments in job-creating projects in the United States.

The Appellants' project [**2]  involved selling membership interests in an LLC, which would then lend the proceeds of those sales to a second LLC; the second LLC was supposed to use the lent funds to  [*507]  construct and operate a cancer treatment center in California. Each investor was required to put up a $500,000 "Capital Contribution" and a $45,000 "Administrative Fee." According to the Private Offering Memorandum (henceforth, the "POM") provided to investors, the Capital Contribution would be used for construction costs, equipment purchases, and other items needed to build and operate the cancer treatment center, while the Administrative Fee would be used to pay "legal, accounting and administration expenses" related to the offering. Moreover, "[o]ffering expenses, commissions, and fees incurred in connection with [the] [o]ffering" would be paid only from the Administrative Fee, not from the Capital Contribution. The district court found that the Appellants misappropriated most of the money raised, paying $12.9 million to marketing firms to solicit new investors, and paying themselves approximately $8.2 million in salaries, although there was no mention of such exorbitant salaries in the POM.3 Despite these expenditures, [**3]  the Appellants never even obtained the required permits to break ground for the cancer center.

In granting summary judgment, the district court ordered disgorgement of the entire amount that had been raised from investors, imposed civil penalties equal to the $8.2 million the Appellants had personally received from the project, and permanently enjoined the Appellants from future solicitation of EB-5 Program investors.

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754 Fed. Appx. 505 *; 2018 U.S. App. LEXIS 30133 **; Fed. Sec. L. Rep. (CCH) P100,295; 2018 WL 5308171

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. CHARLES C. LIU, XIN WANG a/k/a LISA WANG, Defendants-Appellants, and PACIFIC PROTON THERAPY REGIONAL CENTER LLC; et al., Defendants.

Notice: PLEASE REFER TO FEDERAL RULES OF APPELLATE PROCEDURE RULE 32.1 GOVERNING THE CITATION TO UNPUBLISHED OPINIONS.

Subsequent History: Request denied by SEC v. Liu, 2018 U.S. App. LEXIS 31158 (9th Cir. Cal., Nov. 2, 2018)

Rehearing denied by, Rehearing, en banc, denied by SEC v. Liu, 2019 U.S. App. LEXIS 176 (9th Cir. Cal., Jan. 3, 2019)

Stay granted by SEC v. Liu, 2019 U.S. App. LEXIS 1459 (9th Cir. Cal., Jan. 16, 2019)

Stay granted by SEC v. Liu, 2019 U.S. App. LEXIS 9268 (9th Cir. Cal., Mar. 28, 2019)

US Supreme Court certiorari granted by Liu v. SEC, 140 S. Ct. 451, 205 L. Ed. 2d 265, 2019 U.S. LEXIS 6599 (U.S., Nov. 1, 2019)

Vacated by, Remanded by Liu v. Sec., 2020 U.S. LEXIS 3374 (U.S., June 22, 2020)

Prior History:  [**1] Appeal from the United States District Court for the Central District of California. D.C. No. 8:16-cv-00974-CJC-AGR. Cormac J. Carney, District Judge, Presiding.

SEC v. Liu, 262 F. Supp. 3d 957, 2017 U.S. Dist. LEXIS 216503 (C.D. Cal., Apr. 20, 2017)

Disposition: AFFIRMED.

CORE TERMS

investors, disgorgement, cancer

Civil Procedure, Appeals, Standards of Review, De Novo Review, Summary Judgment Review, Standards of Review, Business & Corporate Compliance, Contracts Law, Types of Contracts, Investment Contracts, Abuse of Discretion, Constitutional Law, Fundamental Rights, Procedural Due Process, Self-Incrimination Privilege, Securities Law, Civil Liability Considerations, Remedies, Equitable Relief, Damages