Thank you for sharing!

Your article was successfully shared with the contacts you provided.
A federal appeals court in Washington handed a significant win to the nation’s largest business lobby Tuesday in a decision that affects who sits on mutual fund boards and how independent they should be from the funds’ managers. The U.S. Court of Appeals for the D.C. Circuit directed the Securities and Exchange Commission to reconsider rules passed in June 2004 requiring the chairman and 75 percent of most mutual fund boards to be independent of fund managers. In a unanimous decision, the three-judge panel found that the SEC violated rule-making procedures by failing to take into account how much the reforms would cost the industry. The court also criticized the agency for improperly rejecting an alternative proposal from two of its commissioners. The court, however, took no position on whether the rules governing independence were proper. The U.S. Chamber of Commerce sued the SEC in September 2004, claiming that Congress did not give the commission the authority to mandate mutual fund board composition and that the rules were arbitrary and capricious. The 19-page opinion was authored by Chief Judge Douglas Ginsburg, a Republican appointee, and joined by Judges Judith Rogers and David Tatel, both appointed by Democrats. The appellate panel heard oral arguments on April 15. Eugene Scalia of Gibson, Dunn & Crutcher represented the chamber; SEC General Counsel Giovanni Prezioso argued for the government. The SEC rules, scheduled to go into effect in January 2006, were drafted in response to discoveries of misconduct in the more than $7 trillion mutual fund industry, including late trading and market timing that benefited fund companies and brokerages but could have hurt shareholders. While the SEC could try to replace the rejected rule with something similar, industry lawyers say that is unlikely, given a June 30 leadership change at the commission. Earlier this month, President George W. Bush nominated Rep. Christopher Cox, R-Calif., to replace outgoing Chairman William Donaldson. Cox, who as a congressman authored legislation that sought to curb shareholder lawsuits, is widely expected to be more pro-business than his predecessor. Mutual fund companies that opposed the rules, such as Fidelity Investments and Vanguard Group, could see a more favorable result the second time around, says Stephen Bokat, senior vice president and general counsel of the Chamber of Commerce. “There are already two dissenters,” says Bokat, referring to two commissioners who voted against the rules in 2004. “If [Cox's] view is different from the chairman’s [Donaldson], this could certainly result in a very different outcome.” SEC spokesman John Nester says that the commission is reviewing “how best to respond to the concerns identified by the court regarding the analysis of costs and the consideration of alternatives.”

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.