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Monday, April 6, 2015

SEC ANNOUNCES COURT IMPOSED JUDGEMENT OF $55 MILLION AGAINST INVESTMENT ADVISER CEO

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23228 / April 2, 2015
Securities and Exchange Commission v. Charles R. Kokesh, Civil Action No. 6:09-cv-1021
Federal Court Imposes $55 Million Final Judgment Against Investment Adviser CEO

On March 30, 2015, the United States District Court for the District of New Mexico entered a final judgment against Charles R. Kokesh, permanently enjoining him from violating federal securities laws and ordering him to pay a civil penalty of $2,354,593 as well as disgorgement and prejudgment interest totaling $53,004,432. The final judgment follows a five-day trial in November 2014, in which the jury found that Kokesh had committed securities fraud by misappropriating and misusing tens of millions of dollars at two registered investment advisers he controlled.

From at least 1995 through July 2007, Kokesh controlled two registered investment-adviser firms, though which he controlled and provided investment advice to four business-development companies ("BDCs"). Together, the BDCs had approximately 21,000 investors located throughout the United States. Through his control over the investment advisers, Kokesh was able to misappropriate investor funds by causing the BDCs to pay illegal distributions, performance fees, bonuses, and expense reimbursements to the investment advisers, which Kokesh then used for his own benefit. Kokesh tried to hide his scheme by directing the investment advisers to distribute misleading proxy statements to investors, and to have the BDCs file false reports with the Commission.

After short deliberations, the jury found that Kokesh had violated Section 37 of the Investment Company Act of 1940. The jury also found that Kokesh had aided and abetted violations of Sections 205, 206(1), and 206(2) of the Investment Advisers Act of 1940, and Sections 13(a) and 14(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.

The case was tried by David Reece, Jennifer Brandt, and Timothy McCole of the Commission's Fort Worth Regional Office. An examination by Kyle Holmberg of the Fort Worth Regional Office and Curtis Kolinek of the San Francisco Regional Office uncovered the misconduct.

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