Bulldog Loses Mutual-Fund Lawsuit Appeal

Oct 2 2012 | 1:10pm ET

Activist hedge fund Bulldog Investors has run into a string of bad luck in the courts.

The New Jersey firm recently lost a bid to have the U.S. Supreme Court hear its appeal of a fine levied by Massachusetts that it said violated its First Amendment free-speech rights. Now, a federal appeals court has rejected its appeal in a case involving allegedly improper mutual-fund trading.

Bulldog lost a lawsuit filed by an investor in Invesco's High Yield Investment Fund last year which accused the hedge fund of improper "short-swing" trades in the closed-end fund after its stake in the fund topped 10%. Now, the U.S. Court of Appeals in New York has upheld that verdict, which resulted in an order for Bulldog to disgorge $85,000 in profits.

"We conclude that short-swing trading in an issuer's stock by a 10% beneficial owner in violation of Section 16(b) of the Securities Exchange Act causes injury to the issuer sufficient for constitutional standing," the court wrote.

Bulldog's lawyer said it would appeal the decision to the Supreme Court.

The hedge fund had argued that the investor who filed the lawsuit had no standing because Bulldog's trading did not actually harm the mutual fund.

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