Case 8:10-cv-01299-AG -JCG Document 4 Filed 08/24/10 Page 11 of 17 Page ID #:164

The defendants' deceptive and misleading conduct in concealing Crisnic true

2 intentions of funding Yao's loan with proceeds ofYao's stock sale subject Yao to
3 irreparable damages.
4 First, Yao unwittingly participated in Crisnic and Gentile's scheme to
5 remove the legends from Yao's stock. If the Court fails to enjoin Crisnic from the
6 sale ofYao's shares, the SEC could prosecute Yao for his participation in the
7 violation of Section 5 of the Securities Act, a non-scienter based violation. Yao
8 would suffer irreparable reputation damage, including a permanent officer and
9 director bar that would end his chosen career. SEC v. M&A West, Inc., 538 F.3d
10 1043 (9th Cir. Cal. 2008) Further, Yao could be subject to civil penalties and held
11 jointly and severally liable for proceeds of the stock sales even though he did not
12 receive the proceeds. Id. Crisnic, an offshore entity, will be virtually immune from
13 the SEC disgorgement action.
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In addition, Yao would be irreparably injured if without the issuance ofa
15 temporary restraining order, the trustee defendants are free to transfer the proceeds
16 of the stock sales and/or stock off shore to Costa Rica for little or no value - and
17 thereby dissipate the trust res and defeat Yao's constructive trust claim. Fed. Savs.
18 and Loan Ins. Corp. v. Sahni, 868 F.2d 1096, 1097 (9th Cir. 1989) (asset freeze
19 warranted on constructive trust claim where defendants might dissipate their
20 assets); Heckmann v. Steinberg, 168 Cal. App. 3d 119, 137,214 Cal. Rptr. 177,
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189 (1985) (asset freeze appropriate to prevent defendants from rendering
22 constructive trust remedy ineffectual by dissipating their assets). Yao would have
23 no realistic chance of recovery from Crisnic, a Costa Rican entity. Further, Yao
24 would be obligated to file public reporting forms with the SEC announcing he had
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sold stock in China Armco, which would hurt the value of his and other
26 stockholders' interest with not recovery from a Costa Rican entity.
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MEMORANDUM OF POINTS AND AUTHORITIES - 11