The SEC issued an Order Instituting Administrative Proceedings on September 15, 2009 against KHF Advisors, LLC (KHF Advisors) and against Appalachia Asset Management, Inc (Appalachia Asset), pursuant to Section 203(e) of the Investment Advisers Act of 1940. Both KHF Advisors and Appalachia Asset are registered investment advisers based in West Virginia and were created and controlled by Knox H. Fuqua. The SEC claims KHF Advisors and Appalachia Asset misappropriated client funds and failed to invest the client funds in the manner directed by the client, specifically with regard to risk. The order further contends that Mr. Fuqua and the investment advisers used the clients' money to pay for Mr. Fuqua's business expenses and to pay off other defrauded investors.
Mr. Fuqua and KHF Advisors failed to appear in federal court to answer these charges. As a result, the SEC was awarded a default judgment. KHF Advisors has been permanently enjoined from violating Sections 206(1) and (2) of the Investment Advisers Act of 1940; Section 17(a) of the Securities Act of 1933; and Section 10(b) of the Securities and Exchange Act. The hearing is still pending on the Appalachia Asset case.