On June 2, 2014, the SEC settled charges against Christopher Ruffle, a portfolio manager and head of China operations for the UK-based Martin Currie group of institutional money managers, for structuring a prohibited joint transaction between a U.S.-registered investment company client and a hedge fund client.
According to the SEC’s order, in April 2009, in the midst of the financial crisis, Martin Currie used its U.S.-registered investment company client, The China Fund, Inc., to invest in a convertible bond transaction which directly benefited a Martin Currie hedge fund client. The SEC’s order states that the hedge fund client, an affiliated person of the China Fund, had previously acquired significant amounts of illiquid bonds of a single Chinese company and needed liquidity to meet increasing redemption requests from its investors.
According to the SEC’s order, Mr. Ruffle negotiated a convertible bond transaction and, together with others at Martin Currie, caused the China Fund to invest in convertible bonds issued by a subsidiary of the Chinese company in which the hedge fund client was invested. The SEC’s order states that the Chinese company used 44% of the investment proceeds to redeem a significant portion of the pre-existing bonds held by the hedge fund client, which alleviated the hedge fund’s liquidity concerns. Nevertheless, according to the SEC order, the China Fund’s board wrote down the value of the convertible bonds to zero in November 2010 and the China Fund sold the bonds for 55% of their face value in April 2011.
The SEC’s order found that Mr. Ruffle willfully aided and abetted and caused violations of Section 17(d) of the 1940 Act and Rule 17d 1 thereunder. Mr. Ruffle agreed to a one-year industry bar and to pay a $150,000 penalty.