Bankruptcy trustee loses Kokesh-based challenge to settlement

By Anne Sherry, J.D. The federal district court in Massachusetts held that it lacked subject matter jurisdiction to revisit a 2014 settlement of an SEC administrative proceeding against F-Squared Investments. The bankruptcy trustee in charge of winding down F-Squared challenged the settlement in light of Kokesh v. SEC (U.S. 2017), which held that disgorgement in a civil enforcement proceeding constitutes a penalty. However, the court concluded that F-Squared validly waived judicial review, and the statutory process for review of SEC orders in administrative proceedings does not involve the federal courts (Jalbert v. SEC, August 22, 2018, Saylor, F.). F-Squared was the largest actively managed ETF strategist when, in December 2014, it agreed to pay a $5 million civil penalty and $30 million in disgorgement to settle an SEC administrative proceeding alleging that the firm falsely advertised its flagship portfolio. In 2015, F-Squared filed for bankruptcy, and Craig Jalbert was…

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