A U.S. federal judge ruled that Nuveen and trustees of its closed-end funds violated the Investment Company Act by stripping hedge fund Saba Capital of its full voting rights at an annual meeting.Saba filed litigation against Nuveen funds and their trustees in early 2021, arguing the asset management company illegally amended fund bylaws to prevent large shareholders from voting all of their shares. The changes resulted in shareholders only being able to vote the first 10% of their stake unless they received approval to vote the rest.

The $280 billion closed-end fund market is dominated by Nuveen, BlackRock and other investment firms, who earn fees based on a fund's levered assets. Other closed-end fund firms also amended their bylaws and this ruling could have a knock-on effect for these funds, experts said.

"Saba has the better argument on Section 18(i)'s requirement that all stock be 'voting stock'," wrote Judge Paul Oetken in a rare summary judgment order on Thursday. "Section 18(i)'s requirements that every stock be voting and have equal voting rights are clear and unambiguous," he wrote.

Saba, run by Boaz Weinstein, has launched more proxy fights at closed-end funds than any other activist in recent years.

"The court recognized Nuveen's self-serving actions for what they are: an illegal attempt to get around the 1940 Act's clear requirement of equal voting rights," Weinstein told Reuters.

Nuveen is a wholly owned subsidiary of investment firm TIAA. A spokeswoman said Nuveen disagrees with the ruling and will "determine next steps that protect long term interests of our shareholders."

Saba has nominated director candidates at many prominent investment firms, arguing shareholders are harmed because the funds often trade at large discounts to their underlying holdings and have poor corporate governance.

Its Saba Capital Closed-End Opportunities Fund was launched in 2015 and has returned an average 12.5% per year.

The court rejected Nuveen's argument that the U.S. Securities and Exchange Commission effectively allowed closed-end funds to adopt so-called control share provisions.