The financial regulator has again come under fire after one of Scotland’s biggest investment trusts fell under the control of a New York predator seeking to cash in on its lucrative holding in Elon Musk’s SpaceX.

Five board members seeking re-election to Edinburgh Worldwide Investment Trust, including the chairman, were forced to step down after receiving support from just under 40% of votes cast.

Chairman Jonathan Simpson-Dent, Mary Gunn, Jane McCracken, Caroline Roxburgh and Gregory Eckersley were turfed out of the Baillie Gifford managed company while a sixth director, Mungo Wilson, was already retiring.

Saba Capital Management’s three nominees to the board, Gabriel Gliksberg, Jassen Trenkow and Michael Joseph, were approved by just under 63% of votes cast.

The new directors will now decide whether to retain Baillie Gifford as manager, as they eye a huge windfall from the trust’s 20% holding in SpaceX which is seeking to list in New York with a valuation of more than $1.75 trillion.

Mr Simpson-Dent described the vote as a “wake-up call” for the investment trust sector which has been under constant attack from Saba.

“This is a disappointing day for our long-standing shareholders who are set to lose exposure to this exciting mandate focused on next-generation technology, seemingly in favour of Saba’s plan to invest in other UK investment trusts.

“Retail and private wealth shareholders have been ground down by Saba’s repeated attacks. A significant number have already chosen to exit the company, replaced by institutions seeking to capture the upside potential in EWIT’s substantial SpaceX exposure.

“I expect many more retail and private wealth shareholders to follow. This should represent a wake-up call for the investment trust sector and its regulators.

After the AGM at Baillie Gifford’s offices in Edinburgh, he told the media: “Look around the room. These are people who want a safe place for their savings. They have been dragged into something they haven’t chosen.

“The FCA [Financial Conduct Authority] needs to get its skates on. There is clearly a flaw in the regulations that allows this to happen. Shareholders must be properly protected or this will happen again.”

Asked if this development signals the slow death of the investment trust sector, he said: “I hope not. It has been around a long time and has been a force for good.”

He added: “I anticipate being a cheer leader for the sector and anything I can do to make it a safer environment for investors I will do.”

None of the nominated directors attended the meeting. Sir James Waterlow, managing director of Saba UK, was present, but chose not to speak to the media.

EWIT said the outcome of today’s vote primarily reflects a material reduction in ownership by private wealth and retail shareholders facing the reality of Saba’s effective control of the company.

Notably, the recent selling from these groups has largely come from previously engaged shareholders who had previously voted in support of the board.

As a result, voting in favour of the board from private wealth and retail holders has declined since Saba’s previous requisitions both in absolute terms and as a proportion of their remaining shareholdings.

In addition, a further US investment fund with a material holding voted against the board. This brings the number of US investment fund shareholders not supporting the board to four, including Saba, collectively representing more than 40% of the company’s issued share capital.

Mr Simpson-Dent added: “Throughout the period since the implementation of our path to growth strategy 18 months ago, the board has maintained its focus on governance and performance, delivering strong NAV returns of 44% and a 21% outperformance relative to its benchmark.

“I would like to thank shareholders for their engagement and support, as well as my fellow board members and the many other stakeholders, including the media, who have worked to highlight the risks associated with Saba’s proposals and to encourage retail shareholder participation.”

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “Thousands of shareholders will be disappointed by this announcement, having twice rejected directors nominated by Saba only to see them appointed to the board at the third attempt.

“The new board of Edinburgh Worldwide has important legal and regulatory responsibilities to act independently and in the interests of all shareholders. There will be intense scrutiny of their actions and we expect them to follow a proper process if seeking to change the manager or the mandate.

“The new directors will need to bear in mind that non-Saba shareholders have resoundingly supported the existing mandate, turning out in record numbers to back the board on two previous occasions. Before any changes of manager or mandate are even considered, shareholders should be given opportunities to exit, both before and after a potential SpaceX IPO.

“Saba has made various proposals about what should happen if its nominated directors are appointed. However, these are matters for the board. We call on the new board to make clear their intentions and plans as soon as possible so that all shareholders can have confidence in their approach.

“The bigger picture here is that a minority shareholder has been able to control the future direction of an investment trust against the wishes of the vast majority of other investors who did not want this outcome.

“We are seeking changes to the Listing Rules to address gaps that Saba has exposed, and it’s imperative that the government puts in place voting legislation to make sure all shareholders get the information and voting rights they are entitled to.

“Though the end result will not be what retail shareholders wanted, the commitment that they have shown to supporting their trust is extraordinary – turning out in record numbers to back the existing board and mandate.

“This would not have been possible without the support of the British media, voting agencies, wealth managers and many others who care deeply about the investment trust sector.”