In the Matter of Kathryn Jane Meredith, d/b/a KM Advisory Services Admin. Proc. File No. 3-20881
Jan. 19, 2023
In the Matter of John Paul Harnish, d/b/a KM Advisory Services
Admin. Proc. File No. 3-20882
On June 6, 2022, the Commission instituted and simultaneously settled separate, but related, administrative and cease-and-desist proceedings (the “Orders”) against Kathryn Jane Meredith d/b/a KM Advisory Services and John Paul Harnish d/b/a KM Advisory Services (collectively, the “Respondents”). In the Orders, the Commission found that former registered investment adviser KM Advisory Services (“KMA”), an unincorporated sole-proprietorship owned by Kathryn Jane Meredith (“Meredith”) from 1994 through February 2020 and purchased by John Paul Harnish (“Harnish”) in February 2020, breached fiduciary duties in connection with KMA’s and Harnish’s receipt of mutual fund fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”) and commissions in the form of sales “loads” from advisory client investments without fully and fairly disclosing its related conflicts of interest. Since at least January 2016 through December 2020, KMA invested the vast majority of clients’ assets in certain mutual funds that paid 12b-1 fees and charged sales load commissions exclusively through an introducing broker-dealer (the “Introducing Broker-Dealer”), with whom Meredith and later Harnish was a registered representative. As a result, KMA’s clients paid 12b-1 fees and commissions to the Introducing Broker-Dealer, a portion of which were shared with KMA and Harnish.
KMA, although eligible to do so, did not self-report to the Commission, pursuant to the Division of Enforcement’s (the “Division”) Share Class Selection Disclosure Initiative (“SCSD Initiative”). Furthermore, KMA failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its mutual fund share class and broker-dealer selection practices.
In total, the Commission ordered the Respondents to pay $574,743.53 in disgorgement, $77,252.39 in prejudgment interest, and a $100,000.00 civil money penalty, for a collective total of $1,052,642.91, to the Commission. In each of the Orders, the Commission created a Fair Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, and further ordered the Fair Funds be combined to form the KM Advisory Fair Fund (the “Fair Fund”), so the penalty paid, along with the disgorgement and interest paid, can be distributed to harmed investors. See the Commission’s Orders: Release Nos. 34-95046 and 34-95047.
The Fair Fund includes the $1,052,641.99 paid by the Respondents. The Fair Fund and has been deposited in an interest-bearing account at the U.S. Department of the Treasury, and any interest accrued will be added to the Fair Fund.
On June 5, 2023, the Commission issued an order appointing Miller Kaplan Arase LLP, as the Tax Administrator of the Fair Fund. See the Commission’s Order: Release No. 34-97646.
On July 31, 2023, the Commission issued an order appointing KCC Class Action Services, LLC, as the Fund Administrator to oversee the administration and distribution of the Fair Fund and, set the administrator’s bond amount. See the Commission’s Order: Release No. 34-98024.
On August 3, 2023, the Commission published a notice of the proposed plan of distribution and opportunity for comment and simultaneously published the proposed plan of distribution (“Proposed Plan”). The notice provides the public with 30 days to submit their comments on the Proposed Plan. See the Commission’s Notice: Release No. 34-98049 and the Proposed Plan.
The Proposed Plan provides that the distribution of the Fair Fund shall be made to those injured investors identified by Commission staff during its investigation of the underlying securities violation in accordance with the methodology detailed in the Proposed Plan.
On September 28, 2023, the Commission issued an order approving the Proposed Plan and simultaneously posted the approved plan of distribution (the “Plan”). See the Commission’s Order: Release No. 34-98594 and the approved Plan.
For more information, please contact the Commission:
Office of Distributions