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Who might be interested?: Closed-end fund; investment advisor
quick take: An investment manager and an offshore fund sue a closed-end fund that adopted a “poison pill” clause that prevented shareholders owning 15% or more of the fund from acquiring additional common shares at a discount available to other shareholders. Ta.
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Saba Capital Management, LP, a New York-based investment management company, and Saba Capital Master Fund, Ltd., a Cayman Islands fund (together, “Saba”), filed suit in the Southern District Court on January 31, 2024. filed a lawsuit. The State of New York seeks a rescission and declaratory judgment of provisions under the Investment Company Act of 1940 (“40 Act”) against Maine-based ASA Gold and Precious Metals, Ltd. (“ASA”) and its directors. Ta.
In December 2023, ASA, a closed-end precious metals and mining fund registered under Act 40, will offer common shareholders one share of ASA common stock at $1.00 per common share owned. The company adopted a clause that gives shareholders rights, but it says they cannot acquire the shares owned by shareholders. His beneficial ownership of more than 15% of ASA will result from the participation. In announcing the poison pill, ASA said it was adopted “in response to the rapid and significant accumulation of ASA stock by Saba Capital Management, LP.” Sabah holds 16.9% of ASA. The poison pill will be triggered if Saba purchases an additional 0.25% of ASA common stock.
Sabah argues that the poison pill violates Section 18(d) of the 40th Act because stock acquisition rights are not valued by the entire class of common stockholders. Mr Saba said the provision was contrary to the objectives set out in the Article 40 Act, including preventing discrimination among shareholders, entrenched insider control and unfair distribution of control.
Saba previously obtained a declaratory judgment that the controlling share provisions of another closed-end fund violated Section 18(i) of the 40 Act.1
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1 Saba Capital CEF Opportunities 1, Ltd. v. Nuveen Floating Rate Income Fund, 2022 U.S. District. LEXIS 29252 (SDNY, February 17, 2022); Worried, 99 F.4th 103 (2d Cir. 2023), previously https://40actblog.sewkis.com/us-district-court-rules-that-control-share-acquisition-provision-of 40 Act Reported on blog. – Violates the terms of a closed-end fund and violates the Investment Company Act of 1940.
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