Initially I thought this was a bug from the Jetty HttpClient Java library, after I filled out a bug report and things were checked into we found out that Fiddler proxy replies to the CONNECT with a response that contains Connection: close.
I tried to capture the same traffic in Charles and it's working with no issues. Here is the link to my Jetty bug report page.
Here is the link to the log file http://dropcanvas.com/11ltw
Any idea why it's working fine in Charles but not in Fiddler?