SEC Charges Investment Adviser and CEO for Disregarding Client Instructions
Dec. 10, 2019
File No. 3-19615
December 10, 2019 - The Securities and Exchange Commission today announced settled charges against Kornitzer Capital Management, Inc. (KCM), a Kansas-based registered investment adviser, and its President, CEO, and majority owner John C. Kornitzer, for not following client instructions and for failing to adopt or implement reasonably designed written policies and procedures connected to client objectives and restrictions.
According to the SEC's order, KCM served as investment adviser to four collective investment trusts (CITs), and Kornitzer served as their portfolio manager. The order finds that as of December 2015, the securities of a single issuer constituted between 30% and 89% of the assets held by the CITs. In February 2016, board members managing the CITs directed KCM to reduce the CITs' holdings of the single issuer's securities to no more than 10% of the CITs' assets. KCM and Kornitzer told the board members that they would reduce the concentrations to 10% within 12 to 18 months. From 2016 to 2018, the board members repeatedly directed KCM and Kornitzer to provide and execute the requested plan to bring the CITs' concentration levels into compliance with the limit. KCM and Kornitzer, however, failed to do so, and the CITs incurred significant losses as a result. In addition, the order finds that prior to February 2018, KCM failed to adopt written policies and procedures reasonably designed to prevent violations of the Advisers Act in connection with adhering to client objectives and restrictions, and after February 2018 failed to implement such policies and procedures.
The SEC's order finds that KCM violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, and that Kornitzer violated Section 206(2) of the Advisers Act and caused KCM's violation of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the findings, KCM and Kornitzer agreed to be censured, to cease-and-desist orders, and to a joint and several penalty of $2.7 million. KCM also agreed to pay disgorgement of $4,978,448 and prejudgment interest of $80,670, for a total of $5,059,118, of which $4,132,132 is deemed satisfied by payments KCM previously made to two CITs and investors in those CITs. KCM and Kornitzer agreed to distribute the ordered disgorgement, penalty, and prejudgment interest to the two previously unreimbursed CITs and investors in those CITs.
The SEC's investigation was conducted by John H. Mulhern and Kimberly L. Frederick of the Asset Management Unit in the Denver Regional Office, and Daniel M. Konosky of the Denver Regional Office. The SEC's examination that led to this enforcement action was conducted by Susan Day, Stephanie Fischer Bennett, Tim Worthington, Lisa Byington, Craig Ellis, Nick Madsen, and Tom Piccone of the Denver Regional Office.