Martin Currie Fined by SEC, U.K. FSA for Client Manipulation
Martin Currie Investment Management Ltd., an Edinburgh-based fund management group, was fined about $14 million by finance regulators in the U.S. and U.K. for manipulating a client to aid a hedge fund the firm managed.
The U.S. Securities and Exchange Commission accused Martin Currie Investment Management Ltd. and Martin Currie Inc. with advising The China Fund Inc. (CHN) to invest in its struggling hedge fund with a “largely illiquid exposure” to a Chinese company, the regulator said today.
“The misconduct in this case strikes at the heart of the fiduciary relationship between an investment adviser and its client,” said Robert Khuzami, SEC enforcement director, in the agency’s statement. “Advisers must treat each client with undivided and disinterested loyalty, and must make full and fair disclosure of all material conflicts of interest.”
The SEC investigation into individuals is continuing.
Martin Currie settled the charges with the SEC for $8.3 million and was fined 3.5 million pounds ($5.7 million) by the U.K. Financial Services Authority. It is the largest fine levied by the FSA for failing to manage a conflict of interest, the British regulator said.
Since it disclosed the conflict of interest in July, Martin Currie’s assets under management have fallen to about 5 billion pounds, according to its website, compared with 10.1 billion pounds in mid-2011.
The firm gave preferential treatment to its client, the Martin Currie China Hedge Fund LP, which had invested heavily in a Chinese printer-cartridge recycling company, Jackin International Holdings, and was facing increasing requests for redemptions from its investors, the SEC said.
Martin Currie fraudulently used The China Fund to rescue the hedge fund by advising it to make “a hasty, ill-advised $22.8 million convertible bond investment in a Jackin subsidiary” in April 2009, the regulator said. As part of the deal, Jackin used the investment to redeem $10 million of the hedge fund’s bonds at face value, giving them liquidity to pay investors.
The China Fund sold the bonds in April 2011 for about half of their face value. The investments were made under the direction of two portfolio managers, the SEC said, without identifying them.
Chris Ruffle, who was overseeing about 3 billion pounds for clients when he left Martin Currie in July, invested about 15 million pounds on behalf of one client in an unlisted convertible bond, the FSA has said. The bond was issued in 2009 by Ugent Holdings Ltd., the Jackin affiliate.
Left the Firm
Ruffle, who was responsible for co-managing 31 percent of Martin Currie’s assets, left the firm after an examination of transactions in the bond issued by the Jackin subsidiary, the firm said at the time. Ruffle, now the chairman of Heartland Capital Management, couldn’t be reached at his office in Shanghai after regular business hours.
Martin Currie’s unlisted investments division has now been closed, the firm said in a statement.
“The FSA and SEC investigations related to historic investments in a series of three unlisted bonds, the first of which took place five years ago,” the firm said. “Those investments gave rise to a conflict of interest between two client accounts, which also exposed certain weaknesses in Martin Currie’s systems and controls.”
The firm said it compensated the client and returned all related fees.
Martin Currie’s directors and external shareholders have also invested about 25 million pounds in the company, which gave it more than 300 percent of its regulatory capital requirement, the money manager said.
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