SEC issues order denying petition involving Andy Chin Fong Chen
Targeted News Service
On November 10, 2022, the SEC issued an order instituting proceedings ("OIP") against Andy Chin Fong Chen, pursuant to Commission Rule of Practice 102(e)(3),/1 based on Chen's having been permanently enjoined from violating antifraud provisions of the securities laws./2 The OIP further temporarily suspended Chen from appearing or practicing before the Commission./3 According to the OIP, Chen was licensed in the State of Washington as a Certified Public Accountant in 1990 and currently holds a valid CPA-inactive certificate in the state that expires in 2025./4
On December 20, 2022, Chen filed a petition to lift his temporary suspension and dismiss this administrative proceeding. For the reasons below, we deny the request to lift the temporary suspension and set the matter down for a hearing in accordance with Commission Rule of Practice 102(e)(3)./5
On May 15, 2017, the Commission filed a civil complaint (the "Complaint") against Chen; the company of which he served as president, Aero Space Port International Group, Inc. ("ASPI"); and others./6 As alleged in the Complaint, Chen and ASPI fraudulently raised over $14.5 million from investors in exchange for membership interests in a limited liability company, falsely representing that investor funds would be used to finance the development of real property in Washington State.
According to the Complaint, Chen instead misappropriated virtually all of the investor funds and used them for other purposes. The Complaint also alleged that Chen and ASPI misrepresented to investors, all of whom were foreign nationals, that their investment would enable them to participate in the Employment-Based Immigration Fifth Preference Program ("EB-5 program"). This program provides a means for foreign nationals to obtain lawful permanent residency in the United States.
On February 15, 2019, the court granted summary judgment in favor of the Commission against Chen and ASPI on the Commission's claims that they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder,/7 and Section 17(a)(2) of the Securities Act of 1933,/8 by falsely promising that Chen and ASPI would use investors' capital to finance the real estate project in accordance with EB-5 program requirements and by failing to disclose that they would instead use investor funds for purposes contrary to the EB-5 program./9 In holding that Chen and ASPI acted with scienter, the court found that Chen solicited investors' money with the intent to deploy those funds at ASPI's complete discretion, contrary to the terms of the EB-5 program./10 The court found that unauthorized expenditures of investors' money on payments on Chen's luxury vehicle and loans to family members showed that Chen must have been aware that he was falsifying the representations to investors./11 The court also found that Chen knew that he could not verify the truth of the offering's central premise that Chen and ASPI would spend investors' funds in a way that would enable investors to qualify for EB-5 status./12
Following its grant of summary judgment, the court entered a final judgment on August 16, 2022,/13 permanently enjoining Chen and ASPI from violating Exchange Act Section 10(b), Exchange Act Rule 10b-5(b), and Securities Act Section 17(a)(2), and from participating in the EB-5 program./14 The judgment also ordered Chen and ASPI to pay, respectively, $75,000 and $375,000 in civil money penalties to a receiver previously appointed to protect investor assets./15 The Commission previously had withdrawn its request that defendants be ordered to pay disgorgement because their business expenses exceeded the amount of that request./16 The court agreed with the Commission, however, that six investors' initial $500,000 investments should be returned to them from funds held by the receiver./17
On November 10, 2022, we issued the OIP, temporarily suspending Chen from appearing or practicing before the Commission./18 The OIP further ordered that the temporary suspension become permanent unless Chen filed a petition to lift it within 30 days after service of the OIP, and we provided that if Chen filed such a petition we would "either lift the temporary suspension, or set the matter down for hearing . . . or both."/19 On December 20, 2022, Chen filed this petition requesting that we lift the temporary suspension and dismiss the proceeding.
Under Rule of Practice 102(e)(3)(i), we may, with due regard to the public interest and without preliminary hearing, temporarily suspend from appearing or practicing before us any accountant who has been "[p]ermanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating any provision of the federal securities laws . . . or of the rules and regulations thereunder."/20 Upon the filing of a petition to lift a temporary suspension under Rule 102(e)(3)(ii),/21 Rule 102(e)(3)(iii) requires us to lift the suspension, set the matter down for hearing, or both./22 Based on the record currently before us, we find it appropriate here not to lift the suspension and to instead set the matter down for a hearing.
There is no dispute that a federal district court permanently enjoined Chen from violating antifraud provisions of the federal securities laws in an action brought by the Commission. And, in instituting this proceeding, we determined that, in view of the injunction, it was appropriate and in the public interest that Chen be temporarily suspended from appearing or practicing before the Commission./23 A suspension furthers the policy objectives Rule 102(e)(3) was designed to serve, which include protecting the Commission's processes and the investing public from being harmed by accountants and other professionals who have demonstrated an unwillingness or inability to comply with the requirements of the federal securities laws./24
Considering the injunction against Chen from violations of the antifraud provisions, and the findings underlying it, we find it appropriate to maintain Chen's temporary suspension pending a hearing./25
Chen argues that we should vacate the temporary suspension for various reasons, none of which we find persuasive. Chen contends, for instance, that the Commission "lacks jurisdiction" to suspend him under Rule 102 because, as a holder of a CPA-Inactive certificate, he is not currently licensed to practice as a certified public accountant, and because, according to him, he has never "practiced" before the Commission as that term is defined in Rule 102(f)./26 Citing Rule 102(e)(1)(iv), Chen argues that Rule 102(e) in its entirety applies to only those accountants currently "licensed to practice" as certified public accountants./27
Chen's argument ignores the language of Rule 102(e)(3)--the relevant provision here-- which specifies that the Commission may temporarily suspend "any . . . accountant," not only those accountants currently licensed to practice as certified public accountants./28 Chen instead cites Rule 102(e)(1), which provides separate bases from those at issue here for the Commission to censure or deny persons the privilege of appearing or practicing before it, including "persons licensed to practice as accountants" who engage in "improper professional conduct."/29 But Rule 102(e)(3), which provides the authority for this proceeding, contains no similarly limiting language./30
Chen similarly contends that Rule 102(e) applies only to those who have actually practiced before the Commission as an accountant and that the Commission has never previously suspended a person from practicing before it who had not done so. But nothing in the text of Rule 102(e)(3) requires that an accountant have practiced before the Commission for the Commission to suspend the accountant, and Chen cites nothing imposing such a requirement. Although Chen notes that Rule 102(f) identifies examples of what constitutes "practicing before the Commission,"/31 that provision does not establish a precondition to the exercise of Commission authority under Rule 102(e)./32 Rather, Rule 102(f) identifies activities in which persons suspended under Rule 102(e) may not engage./33
Chen also argues that the temporary suspension is "meaningless," and thus not remedial, because his CPA license is inactive. But without a suspension, Chen could appear or practice before the Commission in the future should he become relicensed as a CPA./34
Chen further asserts that the suspension is "retaliatory" because the Commission was "largely unsuccessful" in its action against him, since the court did not order disgorgement as the Commission had requested. But Chen's allegation does not present a legally cognizable basis to challenge the Commission's decision to institute proceedings./35 And the premise of Chen's argument is incorrect, as the Commission's enforcement action was not unsuccessful. The court found that Chen and ASTI violated antifraud provisions of the federal securities laws, enjoined them from future violations and participation in the EB-5 program, and ordered them to pay civil money penalties./36 The court also appointed a receiver to protect investor interests./37
We thus find that, at this stage, the court's injunction against Chen, and the findings underlying it, "justify the continuance of his suspension until it can be determined what, if any, action may be appropriate to protect the Commission's processes."/38 During the hearing, the parties may address any arguments, and present any evidence, that they believe relevant to the final sanction, if any, that may be imposed.
Accordingly, IT IS ORDERED that Chen's petition to lift the temporary suspension is denied, and that the temporary suspension will remain in effect pending a public hearing and decision in this matter; and it is further
ORDERED that this proceeding be set down for a hearing before the Commission in accordance with Rule 110 of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.110; and it is further
ORDERED that the Division of Enforcement and Chen shall conduct a prehearing conference pursuant to Rule 221 of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.221, within fourteen (14) days of service of this order./39 The parties may meet in person or participate by telephone or other remote means; following the conference, they shall file a statement with the Office of the Secretary advising the Commission of any agreements reached at said conference. If a prehearing conference is not held, a statement shall be filed with the Office of the Secretary advising the Commission of that fact and of the efforts made to meet and confer.
If Chen fails to appear at a hearing or conference after being duly notified, he may be deemed in default and the proceedings may be determined against him as provided by Rules 155(a), 221(f), and 310 of the Commission's Rules of Practice, 17 C.F.R. Sec.Sec. 201.155(a), 201.221(f), and 201.310. If in the statement filed with the Office of the Secretary either party states an intent to file a motion for summary disposition under Rule of Practice 250, the Commission shall issue a briefing schedule for such motion(s).
Attention is called to Rule 151(b) and (c) of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.151(b) and (c), providing that when, as here, a proceeding is set before the Commission, all papers (including those listed in the following paragraph) shall be filed with the Office of the Secretary and all motions, objections, or applications will be decided by the Commission.
Attention also is called to the OIP, in which the Commission found that it would serve the interests of justice and not result in prejudice to any party to provide, pursuant to Rule 100(c) of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.100(c), that notwithstanding any contrary reference in the Rules of Practice to service of paper copies, service to the Division of Enforcement of all opinions, orders, and decisions described in Rule 141, 17 C.F.R. Sec. 201.141, and all papers described in Rule 150(a), 17 C.F.R. Sec. 201.150(a), in these proceedings shall be by email to the attorneys who enter an appearance on behalf of the Division, and not by paper service.
The Commission finds that it would serve the interests of justice and not result in prejudice to any party to provide, pursuant to Rule 100(c) of the Rules of Practice, 17 C.F.R. Sec. 201.100(c), that notwithstanding any contrary reference in the Rules of Practice to filing with or disposition by a hearing officer, all filings, including those under Rules 210, 221, 222, 230, 231, 232, 233, and 250 of the Commission's Rules of Practice, 17 C.F.R. Sec.Sec. 201.210, 221, 222, 230, 231, 232, 233, and 250, shall be directed to and, as appropriate, decided by the Commission, and that any motion for summary disposition shall be filed under Rule 250(a) or (b).
The Commission also finds that it would serve the interests of justice and not result in prejudice to any party to provide, pursuant to Rule 100(c) of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.100(c), that the Commission shall issue a decision on the basis of the record in this proceeding, which shall consist of the items listed at Rule 350(a) of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.350(a), and any other document or item filed with the Office of the Secretary and accepted into the record by the Commission. The provisions of Rule 351 of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.351, relating to preparation and certification of a record index by the Office of the Secretary or the hearing officer are not applicable to this proceeding.
The Commission will issue a final order resolving the proceeding after one of the following: (A) the completion of post-hearing briefing in a proceeding where the public hearing has been completed; (B) the completion of briefing on a motion for summary disposition pursuant to Rule 250 of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.250, where the Commission has determined that no public hearing is necessary; or (C) the determination that a party is deemed to be in default under Rule 155 of the Commission's Rules of Practice, 17 C.F.R. Sec. 201.155, and no public hearing is necessary.
In the absence of an appropriate waiver, no officer or employee of the Commission engaged in the performance of investigative or prosecuting functions in this or any factually related proceeding will be permitted to participate or advise in the decision of this matter, except as witness or counsel in proceedings held pursuant to notice. Since this proceeding is not "rule making" within the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the provisions of Section 553 delaying the effective date of any final Commission action.
The parties' attention is directed to the e-filing requirements in the Rules of Practice./40
By the Commission (Chair GENSLER and Commissioners PEIRCE, CRENSHAW, UYEDA and LIZARRAGA).