Ponzi Schemers Appeal Broad Freeze on Assets

SAN FRANCISCO (CN) - Two alleged key players in an $800 million Ponzi scheme made headway in trying to show the 9th Circuit that a federal judge went too far in freezing virtually all of their assets.

Investors defrauded by MRI International investors brought the challenge at hand in Las Vegas after the Securities and Exchange Commission brought charges in 2013.

MRI executives Junzo Suzuki and Paul Musashi Suzuki went to the 9th Circuit after the court presiding over the investors' claims froze all of their assets except for those needed to pay their legal fees and living costs.

The Suzukis and others have meanwhile been hit with summary judgment in the SEC case. U.S. District Judge James Mahan ordered the defendants to disgorge $442 million, and he hit them with another $102 million in interest and $20 million each in civil penalties. The defendants' six commercial properties were placed in receivership as well.

Nick Morgan, an attorney for the Suzukis with Zaccaro and Morgan in Los Angeles, told a three-judge panel of the 9th Circuit on Monday that the "asset freeze is overbroad."

"There are limits to a district court's ability to freeze assets," Morgan argued.

With an asset freeze limited to targeting only a defendant's "equitable interests," Morgan said that means the Suzuki's frozen assets must be "traceable to the commissions that they received from MRI."

The case currently has 25 plaintiffs who lost a combined $3 million in the Ponzi scheme, Morgan said, adding that a pending class certification has not been approved.

What these investors have failed so far to show, however, is "how much of the $3 million was in the form of commissions to the Suzukis" and "whether any of the $3 million went to the Suzukis," Morgan claimed.

On about $3 million lost by 25 current plaintiffs, the commissions amounted only to between $430,000 and $450,000, the attorney added.

Morgan also argued the asset freeze incorrectly applies to properties and other assets the Suzukis owned long before the MRI scheme occurred, including a property bought in 1987.

He said the asset freeze can apply only to assets acquired after the Suzukis had "actual or constructive notice of the underlying fraud at MRI."

With the trial court having found that the Suzukis had "actual notice" of the fraudulent scheme as of April 2012, only assets acquired after that time can be subjected to an asset freeze, the attorney added.

The investors' attorney Robert Cohen told the court that the evidence of fraud and the dissipation of funds support the asset freeze.

"Within two weeks of the Japanese government's finding of the underlying fraud of the existence of this Ponzi scheme, the Suzukis were undertaking rapid efforts to dissipate their assets and protect them from the judgment that is likely to be in this case," Cohen argued.

He said the Suzukis are "the main guys" at MRI and made false representations "constantly over a period of many, many years."

"They are MRI "and "made literally all of the representations to the Japanese victims," Cohen argued. "These Suzukis are the ones who spoke to them [and] who took them to Las Vegas countless times touting the virtues of the MRI investment."

Cohen said the SEC has sound recordings of the Suzukis at meetings and discussed ways to lie to the Japanese government while trying to hide the fact that MRI was buying affiliate companies after lying about only investing in medical account receivables.

When asked if the size of the asset freeze is appropriate to create a constructive trust, Cohen said there are potentially more than 8,000 members of a yet-to-be-certified class action who lost "hundreds of millions of dollars."

Cohen scoffed at the notion that the asset freeze went too far into the past, thus targeting assets obtained before the scheme was perpetrated.

"It's hardly a stretch to assume that they have been paying mortgages and maintaining those houses with money that was taken from these commissions," he said. "Everything they have is traceable, in that sense, to this money."

Chief Judge Sidney Thomas said he and the rest of the panel, Judges Fortunado Benevides and John Owens, might leave the current injunction and asset freeze in place until the U.S. District Court in Las Vegas can hold a discovery hearing.

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