Securities and Exchange Commission v. Chen

Background

The SEC alleges that certain defendants violated federal securities laws by acting as brokers and receiving undisclosed commissions in connection with investment offerings under the federal EB-5 Immigrant Investor Program. According to the allegations described in the order, Jean Chen filed EB-5 petitions for legal clients and, with her husband Tony Ye, introduced those clients to regional centers for EB-5 projects. The SEC alleges that Chen and Ye received $12 million in commissions that they did not disclose to Chen’s legal clients and later tried to conceal the scheme with help from Kuansheng Chen.

This order addressed only the location of Jean Chen’s deposition. Chen is a U.S. citizen who previously lived in the Northern District of California. The order states that she has been criminally charged and fled the United States. She was living in China, had recently suffered a bone fracture that required a wheelchair, and cared for her dependent mother there. She said she could testify remotely or in person in China if the Chinese government permitted it, or in Japan, Hong Kong, Taiwan, Singapore, or Korea. She sought a protective order—a court order limiting discovery to prevent undue burden or expense—that would allow the deposition to occur remotely or in person in Asia. The SEC sought an in-person deposition in San Francisco.

Legal standard

Federal Rule of Civil Procedure 26(c)(1) allows a court, for good cause, to protect a person from annoyance, embarrassment, oppression, or undue burden or expense, including by limiting or forbidding a deposition. The person seeking protection must show the harm or prejudice that would result from the discovery. Courts also consider factors relevant to depositions of defendants living overseas, including the location of counsel, the likelihood that discovery disputes will require the forum court’s involvement, and the equities concerning the claims and the parties’ relationship.

The court also considered whether Chen’s criminal proceedings should affect the deposition location. Relying on reasoning from an earlier Northern District of California case and another federal case, the court concluded that criminal difficulties should not be treated either as a reason to use the civil deposition to apprehend a defendant or as a reason to make the deposition location more convenient for that defendant.

Ruling

The court held that the deposition should take place in San Francisco. It relied on Chen’s prior residence there, the location of the events underlying the lawsuit, the planned trial location, and the efficiency of resolving deposition disputes there. The court also stated that Chen’s U.S. citizenship includes an obligation to return home and testify at a deposition, and that the SEC was entitled to an in-person deposition.

The court found that Chen had not demonstrated the required good cause for a protective order. It stated that her criminal difficulties were not appropriately considered and authorized the SEC to re-notice the deposition to take place in person in San Francisco. The order did not decide the merits of the SEC’s securities-law allegations.