Martin Currie Investment Management and parent Martin Currie Inc. have settled with U.S. and U.K. regulators over charges that the firm gave preferential treatment to a China-focused hedge fund struggling with an investment, at the expense of a U.S. fund client.
The firm agreed to pay $8.3 million in penalties to the SEC, without admitting or denying the charges, and £3.5 million ($5.6 million) to the U.K.'s Financial Services Authority, which conducted a parallel investigation.
The FSA fine is the largest levied by the agency for failing to manage a conflict of interest, the British regulator said.
The U.S.-registered client, The China Fund Inc., “was led to believe it was making a routine investment in a Chinese company. But in reality, the investment proved harmful to fund shareholders while sparing an affiliated hedge fund (the Martin Currie China Hedge Fund) from its own problems during the financial crisis,” said Bruce Karpati, co-chief of the SEC's asset management unit, in a statement.
A company statement said Martin Currie self-reported the problems, which began in 2007, and has since compensated the affected client and returned all fees. “It is good to reach the end of the regulatory process, and put this behind us,” Martin Currie CEO Willie Watt said in a statement.
SEC officials say their investigation is ongoing.
“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 a statement.