Kornitzer Capital Management (KCM) and its CEO, John Kornitzer, were sanctioned by the SEC on Dec 10 for failing to reduce high concentrations in securities of a single company held by four funds managed by KCM. The following timeline illustrates the severity of the mismanagement:

2011

John Kornitzer, portfolio manager at the time for the four affected funds, began making large investments in equity and debt securities in the Lions Gate Entertainment company.

2015

2015 – By the end of 2015, the four affected funds had become highly concentrated in Lions Gate securities in the following amounts:

  • Common Equity Fund – 30%
  • Retirement Equity Fund – 30%
  • Retirement Fixed Fund – 79%
  • Common Fixed Fund – 89%

February, 2016

Lions Gate stock dropped sharply and board members responsible for oversight of KCM on behalf of the funds instructed KCM to reduce concentrations of Lions Gate to 10% in 12 to 18 months. KCM and John Kornitzer agreed to do so.

May, 2016

Board members formally adopted new investment policies that restricted investment in a single issuer of debt and equity securities to 10% and advised KCM of the policy.

April, 2017

Some progress was made in reducing impact of Lions Gate in 2016, but concentrations were still high in the following amounts:

  • Common Equity Fund – 28%
  • Retirement Equity Fund – 28%
  • Common Fixed Fund – 39%
  • Retirement Fixed Fund – 53%

The board requested a plan from KCM and Kornitzer for how they planned to meet the policy goal. KCM and Kornitzer failed to provide any plan in response to this request.

July, 2017

The Board sent a memo requesting a written plan from KCM to bring concentrations of Lions Gate into policy compliance. KCM and Kornitzer again failed to provide a plan to the board and extended the timeframe for reducing concentration to Feb 2018.

August, 2017

The Board sent a letter requesting confirmation from KCM that all funds would be brought into compliance by February 1, 2018. KCM refused to guarantee a timeframe and did not confirm that they planned to begin making adjustments in the near term. Concentration of Lions Gate Entertainment securities actually increased in 2017, due to appreciation, to the following amounts:

  • Common Equity Fund – 36%
  • Retirement Equity Fund – 37%
  • Common Fixed Fund – 61%
  • Retirement Fixed Fund – 74%

2018

The board continued to engage KCM in discussions over the concentration of Lions Gate held, but KCM and Kornitzer continued to fail to reduce concentrations and comply with the 10% limit. By June, 2018, Lions Gate securities still well exceeded the limit set by board policy and Kornitzer was asked to step down in August of 2018.

New portfolio managers submitted a plan to reduce concentrations that same month and had brought the funds into compliance by December 31, within 5 months of submitting the plan.

Millions Lost

The price of Lions Gate Entertainment equity securities dropped from $33.81 as of December 29, 2017 to $16.10 as of December 31, 2018, resulting in millions of dollars in losses suffered as a result of overconcentrations during 2018 that could easily have been corrected by August, 2017 as originally promised.

If you are a client of KCM and invested in any of the four affected funds during the timeframe of this willful breach of fiduciary duty, Contact Us right away to find out if you have a case that could help you recover losses.