- Portfolio Manager Sanctioned for Prohibited Act
- July 8, 2014 | Authors: Peter D. Fetzer; Terry D. Nelson
- Law Firms: Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Madison Office
Christopher B. Ruffle, portfolio manager of The China Fund, Inc., a fund registered under the Investment Company Act of 1940 was recently sanctioned by the SEC for orchestrating a securities transaction when he knew that the transaction raised affiliation concerns and was a prohibited joint transaction, in violation of Sec. 17(d) and Rule 17d-1 under the Investment Company Act. The SEC issued a cease and desist order, imposed a one-year bar on acting as an officer or director of a registered fund, and ordered Mr. Ruffle to pay a civil penalty of $150,000 (also see SEC Investment Company Act Release No. 31066).
As portfolio manager of The China Fund, Inc. (the “Fund”), Mr. Ruffle was principally involved in arranging for the Fund’s April 2009 purchase of convertible bonds from a private hedge fund, an affiliate of the Fund. The hedge fund affiliate had previously acquired the convertible bonds which were generally illiquid and needed cash to satisfy redemption requests from its investors. The Fund’s investment in the convertible bonds turned out to be a poor investment as eventually the bonds were sold in October 2010 for 55 percent of their face value. By structuring an investment for the Fund which directly benefitted an affiliate without first obtaining an order from the SEC, Mr. Ruffle violated the joint transaction provision under the Investment Company Act.
The bar issued by the SEC against Mr. Ruffle in this matter includes, for a period of 12 months, serving 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 for a registered investment company.