Nuveen accused of hurting shareholders

Nuveen Investments Inc., the largest manager of closed-end funds, was accused of harming common shareholders by buying out preferred shareholders caught in the collapse of the auction-rate market.

An unnamed law firm sent "demand letters" on April 9 on behalf of common shareholders of 26 Nuveen closed-end funds saying the Chicago-based company breached its fiduciary duty by redeeming auction-rate preferred shares at par, the company said in a statement today. Nuveen will delay the redemption of additional auction-rate preferred shares while it evaluates the letter, according to the statement.

Closed-end funds used to sell preferred shares on the auction-rate market to increase the amount of money they could invest by as much as 50 percent, boosting returns for common shareholders. The auction-rate market collapsed in February 2008 during the early stages of the credit crisis, leaving preferred shareholders frozen. Nuveen has since redeemed 57 percent of its $15.4 billion in outstanding preferred shares by replacing them with various forms of financing.

"The question is whether over the long term the refinancing turns out to be economical or not," Cecilia Gondor, a closed-end fund analyst for Thomas J. Herzfeld Advisors Inc. in Miami, said today in an interview.

Nuveen, which managed $145 billion as of Dec. 31, is a unit of private-equity firm Madison Dearborn Partners LLC in Chicago.