Appeals Court Upholds Ruling Against Saddle Brook Hedge Fund

A federal appeals court upheld a decision challenged by Saddle Brook-based Bulldog Investors alleging the hedge fund made improper trades.

Saddle Brook-based hedge fund Bulldog Investors violated a section of the Securities Exchange Act intended to prevent insider trading, a federal appeals court ruled Monday.

The court's ruling upheld a March 31, 2011 decision handed down by the New York district court in favor of an investor who had sued Bulldog over alleged "short-swing" trading on behalf of Invesco High Yield Investments Fund, Inc.

In April 2010, Deborah Donoghue sued Bulldog after the hedge fund purchased and sold 200,000 shares of Invesco stock on the open market at a profit of $85,491, despite owning more than 10 percent of Invesco's stock.

Under the Securities Exchange Act, investors who own more than 10 percent of a company or fund's stock are prohibited from buying and selling those shares for a profit in a six-month period, a process known as short-swing trading.

The rule is intended to guard against insider trading.

Bulldog previously argued that because Invesco suffered no actual harm from the hedge fund's short-swing trades the complaint should be dismissed. A federal judge saw things differently last March and ruled that Bulldog must give up its more than $85,000 in profits from the trades.

A U.S. appeals court upheld that decision Monday, ruling that the injury suffered to Invesco from Bulldog's short-swing trading was sufficient for constitutional standing.

A lawyer for Bulldog told the Wall Street Journal that his client plans to ask the U.S. Supreme Court to hear the case.


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