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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23308 / July 20, 2015

Securities and Exchange Commission v. Donald L. Koch and Koch Asset Management, LLC, Civil Action No. 14-1134 (D.C. Cir.)

D.C. Circuit Court of Appeals Affirms Commission Order Finding Investment Advisers Donald L. Koch and Koch Asset Management, LLC Violated Anti-Fraud Provisions by Marking the Close

In a July 14, 2015 decision, the United States Court of Appeals for the District of Columbia Circuit largely affirmed a May 16, 2014 Order of the Securities and Exchange Commission that found that investment advisers Donald L. Koch and Koch Asset Management, LLC (KAM) violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and (2) of the Investment Advisers Act of 1940 by "marking the close," thereby manipulating the closing price of certain stocks held in client portfolios on the last trading date of consecutive quarters. The Court also affirmed the Commission's finding that Koch and KAM violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder by failing to implement policies and procedures reasonably designed to prevent violations of that Act. In reaching its decision, the Court rejected Petitioners' claims that the Commission's Order was not supported by substantial evidence and that Koch could not be charged as a primary violator of the Advisers Act. Finally, while upholding all other remedies, including investment adviser, broker, dealer, municipal securities dealer, and transfer agent bars, the Court vacated the Commission Order's imposition of municipal advisor and rating agency bars, holding that the Commission impermissibly applied the 2010 Dodd-Frank Act retroactively because Koch's misconduct pre-dated that Act.

The Commission's investigation was conducted by Adam S. Aderton. Suzanne J. Romajas led the trial and subsequent appeal to the Commission. Dominick V. Freda, Michael A. Conley, John W. Avery and Theodore J. Weiman handled the appeal to the D.C. Circuit.

For further information, see Release No. 34-72179 (May 16, 2014).

 

http://www.sec.gov/litigation/litreleases/2015/lr23308.htm


Modified: 07/20/2015