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The U.S. Securities and Exchange Commission (SEC) recently ruled that The Children's Investment Fund Management L.L.P. (TCI) did not violate reporting requirements by failing to disclose beneficial ownership during swap transactions with CSX Corp. shares.

In March, CSX filed a lawsuit claiming TCI and its investment partner 3G Capital Partners Ltd. violated Section 13(d) of the Securities Exchange Act of 1934 because TCI employed swap agreements to evade filing requirements. In December, TCI formed a group with 3G, whose members own 8.7 percent of CSX's outstanding common shares. The group has nominated five independent directors for election to CSX's board; an election will be held June 25 at CSX's annual shareholders meeting.

TCI's disclosures concerning an 11.5 percent share swap position were "materially misleading" to shareholders because they failed to disclose that "swap counterparties" intend to vote CSX shares in accordance with TCI's wishes, CSX claimed in the lawsuit.

The SEC disagreed with CSX's interpretation of disclosure rules concerning equity swap transactions and determined the swaps weren't sufficient to create beneficial ownership under federal securities laws.

Meanwhile, six U.S. senators recently sent a letter to the Bush Administration urging the U.S. Treasury Department to investigate TCI's purchases of CSX stock. The legislators expressed concerns about a "foreign owner" gaining greater control of CSX and that TCI could be a front for foreign governments and investors seeking to assume control of the Class I. TCI is a London-based asset manager founded in 2003.