The fund manager Martin Currie Investment Management has today announced that its directors and shareholders have invested a further £25 million into the company, following the record fine – also announced today – of £3.5 million imposed on Martin Currie by the Financial Services Authority.
The FSA fine is the largest the regulator has ever imposed in a conflict of interest case. The SEC also fined Martin Currie around £5.1 million in a related action.
The FSA and SEC fines were the penalty for Martin Currie’s failure to manage a conflict of interest between two of its clients. Those clients were Martin Currie-managed funds. The FSA press release is here and the Final Notice is here. The SEC Order is here.
The conflict of interest was caused by Martin Currie causing one fund (Fund B) to invest in a unlisted bond issued by an offshore Chinese fund. This investment was unsuitable for, and detrimental to, Fund B. The proceeds of the bond issue were used to repay illiquid investments held by another fund (Fund A). Fund A therefore benefited to Fund B’s disadvantage.
The FSA press release states that this disadvantaging of Fund B:
“helped Martin Currie to avoid any reputational damage which may have arisen if Fund A’s liquidity problems had continued and it had been unable to meet pending redemptions by investors”.
The FSA found that Martin Currie had breached FSA Principle 2 (skill, care and diligence), Principle 3(management and control) and Principle 8 (conflicts of interest).
The FSA has not named either fund in its public releases. The SEC has not been so squeamish, naming Fund B as The China Fund Inc.