Securities & Exchange Commission v. World Capital Market, Inc.

We address an issue of first impression involving the Securities and Exchange Commission’s ability to disgorge ill-gotten funds from so-called “relief defendants.” Victor Messina and International Market Ventures (“IMV”), contest their liability as relief defendants in the SEC’s enforcement action against Phil Ming Xu and various Xu-related entities for federal securities law violations arising out of a fraudulent investment scheme. The SEC claims that Messina and IMV received $5 million of the tens of millions of dollars Xu unlawfully raised through investor deposits worldwide, but Messina and IMV assert that they received those funds as a loan.

The question presented is whether putative relief defendants may divest a district court of jurisdiction to proceed against them using summary procedures simply by asserting a claim of entitlement to the disputed funds in their possession. Messina and IMV argue'that a facially colorable claim is sufficient to destroy relief defendant jurisdiction, and that to seek disgorgement from them, due process requires the SEC either to join them as party defendants or bring a separate action against them. Messina and IMV also argue that…