Fund accuses Saba Capital of secretly swaying board election

An empty conference room is seen in Philadelphia, Pennsylvania, U.S., June 14, 2021. REUTERS/Hannah Beier

(Reuters) – Templeton Global Income Fund has sued shareholder Saba Capital, alleging the hedge fund secretly incentivized other shareholders to vote for its preferred board candidates in a bid for control of the closed-end fund.

The lawsuit filed in Manhattan federal court on Sunday seeks to block four Saba-backed directors from assuming seats they won in a June 6 election. The hedge fund should have disclosed before the vote that it had agreed to buy some investors’ shares at a higher premium if its candidates won, the fund said.

GIM holds $525 million in assets, primarily government bonds, and is advised by Franklin Templeton.

Saba said in a statement on Monday that it “always abides” by the rules governing shareholder votes, and “did so in the campaign at GIM.” The hedge fund called the lawsuit a “last ditch effort” by the advisor to hold on to GIM despite poor performance.

The lawsuit was filed by GIM and former Franklin Resources Inc Chief Executive Charles Johnson, whose family trust invested in the fund.

They said that if the election were certified, Saba would gain majority control over the board. The hedge fund could then fire Franklin Templeton and pivot the fund to a riskier strategy or liquidate it.

GIM and Johnson said that Saba has employed similar arbitrage strategies at other closed-end funds formerly managed by Voya and Eaton Vance.

“Saba’s aim to reap a quick profit is fundamentally opposed to that of retail shareholders, who invest in closed-end funds to obtain an ongoing steady income stream over the long-term,” they wrote.

The case is Johnson et al. v. Saba Capital Management LP et al., No. 22-cv-04915, U.S. District Court, Southern District of New York.

For GIM: Scott Musoff and Eben Colby of Skadden, Arps, Slate, Meagher & Flom.

Read more: U.S. judge rules for Saba Capital in closed-end fund voting litigation

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