Kornitzer Capital Management hit with fine from Securities and Exchange Commission

With about $11.3 billion in assets under management, Mission, Kansas-based Kornitzer Capital Management is one of the largest, if not the largest, fee-based investment advisers in the metro area. 

Two weeks ago, the firm was fined by the Securities and Exchange Commission for misrepresenting financial information to the board of Buffalo Funds, a mutual fund that Kornitzer Capital Management advises (and of which KCM chief executive officer John Kornitzer is also CEO). 

The fine relates to actions by Kornitzer’s chief financial officer and chief compliance officer, Barry Koster. He’s accused of violating Section 15(c) of the Investment Company Act, which “makes it the duty of an investment adviser to a registered investment company to furnish such information as may reasonably be necessary for the investment company’s directors to evaluate the terms of any contract whereby a person undertakes regularly to serve or act as investment adviser to such company.”

Here, Koster is accused of fudging internal salary expenses in reports to the Buffalo Funds board. From the administrative proceeding:

Contrary to what KCM had stated in its profitability analyses furnished to the Board, each year during the Relevant Period, Koster did not allocate the CEO’s compensation to the Funds based solely upon the CEO’s estimated labor hours, but also took into account other factors. Specifically, each year, Koster:

a. Reviewed KCM’s total revenue, total operating expenses, and reported profitability from the prior fiscal year;

b. Considered KCM’s revenue growth in the latest fiscal year;

c. Considered what profit margin would result from the proposed allocation of the CEO’s compensation; and then

d. Allocated a percentage of the CEO’s compensation to the Funds in a manner in part designed to achieve consistency of KCM’s reported profitability in managing the Funds.

Among other things, Koster sought to portray that KCM maintained consistent pre-tax net profit margins from year to year.

Neither Buffalo Funds nor Kornitzer Capital Management responded to requests for comment last week. The SEC administrative proceeding notes that Koster “relinquished his CCO role with both KCM and the [Buffalo] Funds in April 2015.” Koster is not currently listed on Kornitzer Capital Management’s website.

The total fine amounts to $75,000. Representatives from the SEC declined to comment but noted that all the relevant information could be found in the proceeding. You can view that here.