The sole employee of a former mutual fund advisor has pled guilty to embezzling funds from a 401(k) plan client. The court action marks an end of a chain of events that the SEC claims started in 2003.

Yesterday, Knox Harwell Fuqua, a 50-year-old former registered investment advisor baed in Charleston, West Virginia pled guilty to misappriating $600,000 from a 401(k) plan sponsored by Community Health Systems, Inc. (Beckely, West Virginia) in 2005.

Fuqua had advised the defined contribution plan through KHF Advisors, LLC, an SEC-registered advisory firm that he controlled.

Mutual fund industry insiders may better remember Fuqua as the principal of Appalachian Asset Management, another Charleston-based firm that he controlled.

As AAM's sole employee, Fuqua acted as portfolio manager to the AAM Equity fund thruogh 2006, when the SEC filed civil charges claiming that he had taken funds from clients, including Community Health Systems.

The mutual fund's assets were not involved in the decption that involved Appalachian Asset Management and another Fuqua-controlled company.

The SEC claimed that Fuqua used the funds for personal expenses, including the purchase of a beach house in South Carolina. The civil charges were settled in August, 2009 with Fuqua agreeing to an indefinite ban from acting as an investment advisor. He did not admit nor denynig wrongdoing as a part of the SEC settlement.

Wednesday, he pled guilty in West Virginia court to criminal misappropriation charges.

According to the West Virginia Gazette, Fuqua told U.S. District Judge John T. Copenhaver Jr. that he liquidated $500,000 of the defined contribution plan's assets then transferred $600,000 to a bank account opened by him in the company's name in June 2005.

He invested the cash to open two $300,000 certificates of deposit in the name of "Fixed Income Funds, Knox Fuqua-President."

He then used those cds as collateral to fund a $600,000 line of credit under the name "Fixed Income Fund LLC." That credit line was then used to payout one of his advisory clients.

Fuqua's sentencing is scheduled for September 28. The charges carry a possible five years prison sentence and restitution. 

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