Alert June 17, 2014

SEC Settles Enforcement Proceeding Against Former Portfolio Manager over Prohibited Joint Transaction Involving Registered Closed-End Fund

The SEC settled administrative proceedings against Christopher B. Ruffle (the “Portfolio Manager”) over his role in causing The China Fund, Inc., a U.S. registered closed-end fund (the “Registered Fund”),  to engage in a securities transaction that benefited an affiliated hedge fund (the “Hedge Fund”).   At the time, the Portfolio Manager served as lead portfolio manager of both funds.   This article provides a brief description of the settlement order (the “Order”), whose findings the Portfolio Manager neither admitted nor denied.  The Order contains the same basic findings of fact as a 2012 settlement entered into by the affiliated registered investment advisers (the “Advisers”) that employed the Portfolio Manager and served as investment advisers to the Registered Fund and the Hedge Fund.  See the June 5, 2012 Financial Services Alert for a detailed description of the transaction the Order addresses.

In the Order, the SEC found  that the Portfolio Manager willfully aided, abetted, and caused violations by the Hedge Fund of Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 thereunder which prohibit an affiliated person of a registered investment company or any affiliated person of such affiliated person, from participating in any joint enterprise, other joint arrangement, or profit-sharing plan (a “joint  arrangement”) unless it obtains an order from the SEC permitting the joint arrangement.  As the basis for this determination, the SEC cited the fact that the Portfolio Manager knew that the transaction in question involved the specific benefit provided to the Hedge Fund “and knew (or was reckless in not knowing) that the transaction raised affiliation concerns.”

In addition to being subject to a cease and desist order, the Portfolio Manager is prohibited for 12 months from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter.  The Portfolio Manager also agreed to pay a $150,000 civil money penalty.

In the Matter of Christophe B. Ruffle, SEC Release No. ICA-31066 (June 2, 2104).