Initial Decision Release No. 1360

Administrative Proceeding

File No. 3-18454

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

In the Matter of

Christopher M. Lee, a/k/a Rashid 

K. Khalfani

Initial Decision

March 4, 2019

Appearance: Amy Jane Longo, Douglas M. Miller, and Junling Ma

for the Division of Enforcement,

Securities and Exchange Commission

Rashid K. Khalfani, pro se

Before: James E. Grimes, Administrative Law Judge

Summary

I grant the Division of Enforcement’s motion for summary disposition. 

Respondent Christopher M. Lee, also known as Rashid K. Khalfani,1 is 

barred from associating with an investment adviser, broker, dealer, 

municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization.

Procedural Background

The Securities and Exchange Commission initiated this proceeding in 

April 2018, when it issued an order instituting proceedings (OIP) under 

 

1 Respondent used the name Rashid K. Khalfani in his filings in this 

proceeding, and I will refer to him by that name in this initial decision except 

when citing judicial proceedings and other documents that refer to 

Respondent as Christopher M. Lee.
2

Section 203(f) of the Investment Advisers Act of 1940.

2 This is a follow-on 

proceeding based on a permanent injunction entered by the United States 

District Court for the Central District of California in March 2018.

3 The 

injunction was based on Khalfani’s misrepresentations to investors,

misappropriation of investor funds, sale of unregistered securities, signing

and filing false Forms ADV for Capital Cove Bancorp LLC, and aiding and 

abetting Capital Cove’s improper registration with the Commission as an 

investment adviser.

A different administrative law judge originally presided over this 

proceeding, but the matter was reassigned to me following the Supreme 

Court’s decision in Lucia v. SEC.

4 Khalfani was directed to propose how 

further proceedings should be conducted,5 but he never submitted a proposal. 

Only the Division of Enforcement participated in the telephonic prehearing 

conference that I held on October 17, 2018.6 The Division then filed a motion 

for summary disposition, supported by eight exhibits.

7 In response, on 

December 27, 2018, Khalfani updated the brief he filed in response to the 

prior administrative law judge’s order to show cause.

8 Khalfani seeks a 

hearing, but has not offered evidence sufficient to create a genuine issue as to 

 

2 OIP at 1; see 15 U.S.C. § 80b-3(f).

3 See SEC v. Capital Cove Bancorp LLC, No. 8:15-cv-980 (C.D. Cal.).

4 138 S. Ct. 2044 (2018); see Pending Admin. Proc., Securities Act of 1933 

Release No. 10536, 2018 SEC LEXIS 2058, at *2–3 (Aug. 22, 2018); Pending 

Admin. Proc., Admin. Proc. Rulings Release No. 5955, 2018 SEC LEXIS 2264,

at *2–3 (ALJ Sept. 12, 2018).

5 Christopher M. Lee, Admin. Proc. Rulings Release No. 6003, 2018 SEC 

LEXIS 2383, at *1 (ALJ Sept. 18, 2018).

6 Christopher M. Lee, Admin. Proc. Rulings Release No. 6211, 2018 SEC 

LEXIS 2880 (ALJ Oct. 18, 2018).

7 The exhibits are cited as “Div. Ex. _” using the documents’ internal 

pagination.

8 This response is cited as “Opp’n.” Khalfani raises objections to service of 

documents in this proceeding. Opp’n at 3–4, 7. I have already found that he 

was properly served with the OIP. Christopher M. Lee, Admin. Proc. Rulings 

Release No. 6160, 2018 SEC LEXIS 2782, at *1 (ALJ Oct. 10, 2018). Based on 

Division counsel’s declaration on January 9, 2019, I am satisfied that 

Khalfani has been served with the Division’s motion, supporting papers, and 

reply.
3

any material fact. In conducting this proceeding and considering the 

Division’s motion, I gave no weight to the opinions, orders, or rulings issued 

by the prior administrative law judge.9

Findings of Fact

The findings and conclusions in this initial decision are based on the 

record and on facts officially noticed.10 In making the findings below, I have 

applied preponderance of the evidence as the standard of proof.11 

In 2004, Khalfani, under the name Christopher M. Lee, pleaded guilty to 

six counts of felony grand theft and was ordered to pay more than $1 million 

in restitution and serve two years in prison.12 Nine years later—in the midst 

of the conduct underlying this proceeding—Khalfani, again as Lee, pleaded 

guilty to misdemeanor forgery, receiving a sentence including jail time, 

probation, and a fine.13

Khalfani incorporated Capital Cove in September 2010.14 He owned all of 

the company and was its sole managing member.15 Capital Cove filed a Form 

ADV on November 26, 2010, registering it with the Commission as an 

investment adviser.

16 Khalfani was only able to register Capital Cove under 

Advisers Act Section 203A because he misstated the amount of assets it had 

 

9 See Pending Admin. Proc., 2018 SEC LEXIS 2058, at *4.

10 17 C.F.R. § 201.323. 

11 See John Francis D’Acquisto, Advisers Act Release No. 1696, 1998 WL 

34300389, at *2 (Jan. 21, 1998).

12 Div. Ex. 3 at 3. Division Exhibit 3 is an order granting summary 

judgment against Khalfani in the Commission’s civil case against him and 

Capital Cove. Capital Cove, No. 8:15-cv-980, ECF No. 407 (Aug. 31, 2016). 

The district court’s findings on summary judgment are entitled to preclusive 

effective in this proceeding. Shreyans Desai, Advisers Act Release No. 4656, 

2017 WL 782152, at *3 (Mar. 1, 2017).

13 Div. Ex. 3 at 3.

14 Id. at 2.

15 Id.

16 Id. 
4

under management by tens of millions of dollars.17 Capital Cove continued to 

file Forms ADV annually through 2013.18 Notably, the forms did not mention 

Khalfani’s alias or his criminal convictions under that alias. In addition, two 

of the forms contained the signature of Capital Cove’s outside counsel, but 

that counsel stated that she neither signed the forms nor knew her signature 

was being used.19

In 2012, Khalfani founded two funds: the Rittenhouse Square Trust LLC 

and the Capital Cove REO Opportunities Fund II LLC.20 Khalfani was listed 

as key management in the private placement memorandum for the 

Rittenhouse fund and as managing director and CEO of the REO fund.21

Capital Cove was a co-manager of the REO fund.22 Both private placement 

memoranda stated that money invested would be used to acquire real 

properties.23 Capital Cove advertised the REO fund on its website and 

through a marketing flyer Khalfani handed out to investors.24 Those 

materials described the REO fund as having been “vetted, qualified and 

registered,” and described Capital Cove as an “SEC-registered Fund 

Manager” and “FINRA member.”25 Khalfani also orally represented to 

potential investors that their money would be used to buy real estate.26 In 

2014, Capital Cove filed a Form D with the Commission, signed by Khalfani, 

which described the REO fund as an unregistered offering.27

 

17 Id. at 13–14.

18 Id. at 2; see Capital Cove Bancorp LLC (CRD# 155705), Investment 

Adviser Public Disclosure, SEC, https://adviserinfo.sec.gov/Firm/155705.

19 Div. Ex. 3 at 3.

20 Id.

21 Id.

22 Id.

23 Id.

24 Id. at 3–4.

25 Id. at 4. 

26 Id.

27 Id. at 5.
5

From March 2012 to January 2014, at least seventeen investors 

purchased membership interests worth nearly $2 million in the funds.28

Khalfani transferred investors’ funds from their IRA accounts to accounts in 

the name of the funds.29 He had sole control over the funds’ and Capital 

Cove’s bank and brokerage accounts—some of which were in the name of 

Christopher M. Lee—and was the accounts’ sole authorized signatory.30 On 

multiple occasions, Khalfani altered Capital Cove’s books and records to show 

more cash on hand than it really had.31 More than ninety percent of the 

investors’ funds were (1) used to purchase real properties, but in the name of 

Capital Cove, not the Rittenhouse or REO funds; (2) deposited into Capital 

Cove’s bank and brokerage accounts; (3) transferred to Khalfani’s other 

accounts or entities; or (4) used for Capital Cove’s business operations.32 Most 

of the returns paid to investors came from new money coming in from 

investors and not the flipping of real properties that was the purported 

business of the funds.33

In December 2014, the Commission notified Khalfani of its preliminary 

determination to charge him with certain violations of the securities laws.34

In response to a subpoena, Khalfani stated that the REO fund had not 

received any subscriptions and was not operative.35 He repeated similar 

assertions during his investigative testimony.36 Throughout the 

investigation, Khalfani denied being the subject of any past criminal 

investigation, prosecution, or proceeding.37

 

28 Id. at 4.

29 Id.

30 Id. at 3–4.

31 Id. at 5.

32 Id. at 4.

33 Id. at 5.

34 Id.

35 Id.

36 Id.

37 Id. at 6.
6

Capital Cove filed for Chapter 11 bankruptcy in May 2015, but Khalfani 

continued to solicit investors, one of whom was an undercover FBI agent.38

Khalfani told the agent that a $100,000 investment in the REO fund would 

yield a twelve percent return and that Capital Cove put one hundred percent 

of investor funds into real estate.39 Khalfani continued speaking to investors 

even after the Commission obtained a temporary restraining order enjoining 

Capital Cove’s operations.40

The Commission filed its complaint against Capital Cove and Khalfani 

on June 8, 2015, alleging multiple violations of the Securities Act of 1933, 

Securities Exchange Act of 1934, and Advisers Act.41 The district court 

entered a final judgment against Khalfani and Capital Cove in March 2018, 

permanently enjoining both from violating Exchange Act Section 10(b) and 

Rule 10b-5, Securities Act Sections 5 and 17(a), and Advisers Act Section 

207.42 Khalfani was also enjoined from soliciting, accepting or depositing any 

monies from actual or prospective investors in connection with any offering of 

securities and from aiding and abetting violations of Section 203A of the 

Advisers Act.43 The court ordered disgorgement and prejudgment interest of 

more than $2 million jointly and severally against Capital Cove and 

Khalfani.44 The court also imposed a civil penalty of $1.8 million against 

Khalfani.45

After this administrative proceeding was initiated, Khalfani was indicted 

on six counts of wire fraud, in violation of 18 U.S.C. § 1343, for conduct 

overlapping with the conduct underlying this proceeding.46

 

38 Id.

39 Id.

40 Id.

41 Id. at 6–7.

42 Div. Ex. 4 at 2–4.

43 Id. at 4.

44 Id. at 5.

45 Id. at 6.

46 Div. Ex. 8.
7

Conclusions of Law

Under Rule 250(b), an administrative law judge may grant a motion for 

summary disposition if “there is no genuine issue with regard to any material 

fact and . . . the movant is entitled to summary disposition as a matter of 

law.”47 The Commission has repeatedly upheld the use of summary 

disposition in cases such as this one, where the respondent has been enjoined 

or convicted and the sole determination concerns the appropriate sanction.48

Khalfani contests the allegations against him, but only by assertion—he 

has not provided evidence to rebut the fact of the district court’s injunction 

against him or the facts contained in the district court’s summary judgment 

order.

49 There is thus no genuine issue of material fact, and the record 

contains sufficient evidence to decide this matter in the Division’s favor on 

the papers.

50

The Advisers Act gives the Commission authority to impose a collateral 

bar51 against Khalfani if, as is relevant here, (1) he was associated with or 

seeking to become associated with an investment adviser at the time of his 

misconduct; (2) he was enjoined “from engaging in or continuing any conduct 

 

47 17 C.F.R. § 201.250(b).

48 Gary M. Kornman, Exchange Act Release No. 59403, 2009 WL 367635, 

at *10 (Feb. 13, 2009), pet. denied, 592 F.3d 173 (D.C. Cir. 2010); Jeffrey L. 

Gibson, Exchange Act Release No. 57266, 2008 WL 294717, at *5 & n.21 

(Feb. 4, 2008) (collecting cases), pet. denied, 561 F.3d 548 (6th Cir. 2009).

49 See Div. Exs. 3–4; Kornman, 2009 WL 367635, at *8; James E. Franklin, 

Exchange Act Release No. 56649, 2007 WL 2974200, at *4 & nn. 13–14 (Oct. 

12, 2007).

50 See James S. Tagliaferri, Exchange Act Release No. 80047, 2017 WL 

632134, at *7 (Feb. 15, 2017) (“The party opposing summary disposition may 

not rely on bare allegations or denials but instead must present specific facts 

showing a genuine issue of material fact for resolution at a hearing.” 

(internal quotation marks omitted)).

51 A collateral bar, also referred to as an industry bar, is a bar that 

prevents an individual from participating in the securities industry in 

capacities in addition to those in which the person was participating at the 

time of his or her misconduct. See Toby G. Scammell, Advisers Act Release 

No. 3961, 2014 WL 5493265, at *1 & n.1 (Oct. 29, 2014).
8

or practice . . . in connection with the purchase or sale of any security”; and 

(3) imposing a bar is in the public interest.52

The record shows that the first element is satisfied. Khalfani denies that 

he has ever been an investment adviser, and argues that “according to the 

SEC’s own documentation, no proper SEC registration was ever completed 

and no actual completed registration took place.”

53 But the evidence shows 

that Capital Cove was registered with the Commission as an investment 

adviser—albeit improperly—for much of the time of Khalfani’s misconduct 

and that he was associated with Capital Cove. Indeed, he created Capital 

Cove and was listed as its managing director, control person, and chief 

compliance officer. And it would be absurd to allow a respondent to disclaim 

the Advisers Act’s applicability to an entity because he registered it as an 

investment adviser under false pretenses.

As to the second element, Section 203(e)(4) requires that the respondent 

have been enjoined from “engaging in or continuing any conduct or practice 

. . . in connection with the purchase or sale of any security.”54 Khalfani 

asserts that Capital Cove “did not engage in securities activities as any 

noticeable function of its core businesses,” because it was “real estate related, 

and dealt with real property” as its business model.55 However, the statute 

simply requires that the respondent have been enjoined from conduct or 

practices in connection with the purchase or sale of securities. The terms of 

the district court’s injunction satisfy that requirement.56

Having found the first two elements satisfied, I must consider the publicinterest factors discussed in Steadman v. SEC.

57 The public-interest factors 

include: 

 

52 15 U.S.C. § 80b-3(e)(4), (f).

53 Opp’n at 2, 5–6.

54 15 U.S.C. § 80b-3(e)(4).

55 Opp’n at 2, 5.

56 See, e.g., Div. Ex. 4 at 1–2 (ordering that “Khalfani [is] permanently 

restrained and enjoined from violating . . . Section 10(b) of the . . . Exchange 

Act . . . and Rule 10b-5 . . . in connection with the purchase or sale of any

security” and “Section 17(a) of the Securities Act . . . in the offer or sale of any 

security”).

57 603 F.2d 1126, 1140 (5th Cir. 1979), aff’d on other grounds, 450 U.S. 91 

(1981); see Scammell, 2014 WL 5493265, at *5. 
9

the egregiousness of the respondent’s actions, the 

isolated or recurrent nature of the infraction, the degree 

of scienter involved, the sincerity of the respondent’s 

assurances against future violations, the respondent’s 

recognition of the wrongful nature of his conduct, and 

the likelihood that the respondent’s occupation will 

present opportunities for future violations.58

The Commission also considers the deterrent effect of administrative 

sanctions.59 This public interest inquiry is “flexible . . . and no one factor is 

dispositive.”60 Before imposing a bar, an administrative law judge must 

specifically determine why the Commission’s interests in protecting the 

investing public would be served by imposing an industry bar.

61

In considering the public interest, I am mindful that “in most” cases 

involving fraud, the public-interest analysis will weigh in favor of a “severe 

sanction.”62 And because “[t]he securities industry presents continual 

opportunities for dishonesty and abuse,” it “depends heavily on the integrity 

 

58 David R. Wulf, Exchange Act Release No. 77411, 2016 WL 1085661, at 

*4 (Mar. 21, 2016).

59 Peter Siris, Exchange Act Release No. 71068, 2013 WL 6528874, at *11 

n.72 (Dec. 12, 2013), pet. denied, 773 F.3d 89 (D.C. Cir. 2014). Although 

relevant, general deterrence is not, by itself, determinative in assessing

whether the public interest weighs in favor of imposing a bar. PAZ Sec., Inc. 

v. SEC, 494 F.3d 1059, 1066 (D.C. Cir. 2007).

60 Gary M. Kornman, Exchange Act Release No. 59403, 2009 WL 367635, 

at *6 (Feb. 13, 2009) (quoting David Henry Disraeli, Securities Act Release 

No. 8880, 2007 WL 4481515, at *15 (Dec. 21, 2007), pet. denied, 334 F. App’x 

334 (D.C. Cir. 2009)), pet. denied, 592 F.3d 173 (D.C. Cir. 2010).

61 Mark Feathers, Exchange Act Release No. 73634, 2014 WL 6449870, at 

*1 (Nov. 18, 2014); see Ross Mandell, Exchange Act Release No. 71668, 2014 

WL 907416, at *2 (Mar. 7, 2014), vacated in part on other grounds, Exchange 

Act Release No. 77935, 2016 WL 3030883 (May 26, 2016).

62 Siris, 2013 WL 6528874, at *11 n.71 (quoting Jeffrey L. Gibson, 

Exchange Act Release No. 57266, 2008 WL 294717, at *7 (Feb. 4, 2008), pet. 

denied, 561 F.3d 548 (6th Cir. 2009)).
10

of its participants and on investors’ confidence.”63 Investment advisers, in 

particular, serve as fiduciaries who owe their clients “an affirmative duty of 

‘utmost good faith, and full and fair disclosure of all material facts,’ as well as 

an affirmative obligation to employ reasonable care to avoid misleading 

clients.”64 Given the industry’s dependence on the integrity of its 

participants, the duty investment advisers owe their clients, and the 

confidence and trust investors necessarily place in investment advisers, the 

Commission takes a dim view of investment advisers and associated persons

who defraud their clients.65

The public interest and the Commission’s interest in protecting the 

public weigh in favor of an industry bar. Khalfani’s conduct was egregious. 

He misstated Capital Cove’s assets under management so that he could 

unlawfully register it with the Commission as an investment adviser and 

promote Capital Cove as being an “SEC-registered Fund Manager” and 

“FINRA member” to attract investors. His scheme worked, as he 

misappropriated $1.8 million from at least seventeen investors. That the 

district court found that a civil penalty matching the $1.8 million that 

Khalfani was ordered to disgorge was appropriate further demonstrates the 

egregious nature of his conduct.

Khalfani’s conduct was also recurrent, as he solicited investors over 

nearly two years. And while the record appears to show that the last investor 

was solicited in January 2014, he continued communicating with investors 

and attempted to solicit new ones more than a year later, even after Capital 

Cove filed for bankruptcy and the Commission filed its complaint against it 

and Khalfani.

66

 

63 Feathers, 2014 WL 6449870, at *3 (alteration in original) (quoting 

Tzemach David Netzer Korem, Exchange Act Release No. 70044, 2013 WL 

3864511, at *6 & n.53 (July 26, 2013)).

64 Conrad P. Seghers, Advisers Act Release No. 2656, 2007 WL 2790633, at 

*7 (Sept. 26, 2007) (quoting Capital Gains Research Bureau v. SEC, 375 U.S. 

180, 194 (1963)), pet. denied, 548 F.3d 129 (D.C. Cir. 2008).

65 See James C. Dawson, Advisers Act Release No. 3057, 2010 WL 2886183, 

at *4 (July 23, 2010) (“[W]e have consistently viewed misconduct involving a 

breach of fiduciary duty or dishonest conduct on the part of a fiduciary . . . as 

egregious.”).

66 See Gordon Brent Pierce, Securities Act Release No. 9555, 2014 WL 

896757, *23 (Mar. 7, 2014) (considering “numerous sales” over eight months 

“recurrent and long-lasting”), pet. denied, 786 F.3d 1027 (D.C. Cir. 2015).
11

Khalfani’s conduct showed a high degree of scienter. The Forms ADV he 

submitted for Capital Cove did not disclose his use of an alias, or his criminal 

convictions under that alias, and inflated the assets under management by 

an order of magnitude. Some of the forms also contained a forged signature of 

outside counsel. Khalfani has also admitted that he altered a brokerage 

statement of Capital Cove to make it appear to have more cash on hand that 

it actually did, and the record shows that he altered several more statements.

Far from disclaiming any intent to commit future violations or 

recognizing the wrongful nature of his conduct, Khalfani refers to himself as 

the “wronged party” in this proceeding, which he calls “unwarranted, 

unjustified, and a total farce.”67 He accuses Division counsel of having a 

“personal vendetta” against him.68 Khalfani’s lack of remorse weighs in favor 

of barring him.

Moreover, allowing Khalfani to remain in the securities industry would 

present him with future opportunities for further misconduct and would put 

the investing public at risk.69

Finally, imposing a bar will serve the Commission’s interest in deterring 

others from engaging in similar misconduct. 

Order

The Division of Enforcement’s motion for summary disposition is 

GRANTED. 

Under Section 203(f) of the Investment Advisers Act of 1940, 

Christopher M. Lee, a/k/a Rashid K. Khalfani, is BARRED from associating 

with an investment adviser, broker, dealer, municipal securities dealer, 

municipal advisor, transfer agent, or nationally recognized statistical rating 

organization.

 

67 Opp’n at 1–2.

68 Id. at 7. 

69 See Warwick Capital Mgmt., Inc., Advisers Act Release No. 2694, 2008 

WL 149127, at *11 (Jan. 16, 2008) (“The existence of a violation raises an 

inference that the violation will be repeated, and where the misconduct 

resulting in the violation is egregious, the inference is justified.”); see also

Geiger v. SEC, 363 F.3d 481, 489 (D.C. Cir. 2004) (holding that a finding of 

egregiousness “justifies the inference” that misconduct will recur); Korem, 

2013 WL 3864511, at *6 n.50. 
12

This initial decision will become effective in accordance with and subject 

to the provisions of Rule 360.70 Under that rule, a party may file a petition for 

review of this initial decision within twenty-one days after service of the 

initial decision. A party may also file a motion to correct a manifest error of 

fact within ten days of the initial decision, pursuant to Rule 111.71 If a motion 

to correct a manifest error of fact is filed by a party, then a party shall have 

twenty-one days to file a petition for review from the date of the 

undersigned’s order resolving such motion to correct a manifest error of fact.

The initial decision will not become final until the Commission enters an 

order of finality. The Commission will enter an order of finality unless a 

party files a petition for review or motion to correct a manifest error of fact or 

the Commission determines on its own initiative to review the initial decision 

as to a party. If any of these events occurs, the initial decision shall not 

become final as to that party.

_______________________________

James E. Grimes

Administrative Law Judge

 

70 See 17 C.F.R. § 201.360.

71 See 17 C.F.R. § 201.111.