Initiated By
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Allegations
IA Release 5416, December 10, 2019: The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), against Kornitzer Capital Management, Inc. ("KCM") and John C. Kornitzer ("Kornitzer" and, collectively with KCM, "Respondents"). This matter arises from KCM's, and its president, CEO, and majority owner, Kornitzer's, repeated failures to follow client instructions to reduce high concentrations in securities of a single company ("Company A") held by four collective investment trusts ("CITs"). As manager of the CITs, KCM began purchasing the securities of Company A in 2011 and, as of December 2015, Company A securities were between 30% to 89% of the CITs' assets. The board members of the CITs repeatedly requested that Respondents reduce concentration levels in Company A securities to 10% in order to bring the CITs into compliance with new investment policies put in place and to provide a specific plan to bring the CITs into compliance. Respondents did not provide a plan, but told the board that they would reduce the concentrations to 10% within 12 to 18 months. However, Respondents failed to do so and concentrations remained high until late 2018. A plan was finally put in place which brought the concentration levels into compliance as of December31, 2018. As a result of Respondents' failures to follow client directions and investment policies, the CITs incurred significant losses after Company A's stock price dropped significantly in 2018. Additionally, prior to February 2018, KCM failed to adopt or implement, and after February 2018, KCM failed to implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with adhering to client objectives and restrictions. As a result Kornitzer and KCM willfully violated Section 206(2) and KCM willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-7, and Kornitzer caused KCM's violations of these provisions.
Resolution
Order
Sanctions
Cease and Desist
Sanctions
Censure
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$2,700,000.00
Broker Comment
The Adviser and Mr. Kornitzer, without admitting or denying the allegations, agreed to the entry by the SEC of an order imposing the following: (1) the Adviser and Mr. Kornitzer shall cease and desist from committing or causing future violations of Section 206(2) and Section 206(4) of the Investment Advisers Act and Rule 206(4)-7 thereunder, (2) the Adviser and Mr. Kornitzer are censured, (3) the Adviser shall pay disgorgement of $4,978,448 of which $4,132,132 was paid prior to the order for a balance of $846,316 and prejudgment interest of $80,679, and (4) the Adviser and Mr. Kornitzer shall pay, joint and severally, a civil money penalty of $2,700,000. The Adviser and Mr. Kornitzer shall pay the referenced amounts on or before December 20, 2019.