Chamber Challenges SEC Mutual Fund Rule in Court

WASHINGTON, D.C. – The United States Chamber of Commerce today argued its case in federal court against two provisions of a Securities and Exchange Commission rule requiring mutual funds to have an independent board chair and that 75 percent of board members be independent.

"The SEC has exceeded the scope of its authority and usurped a deliberate decision by Congress on mutual fund governance," said Stephen Bokat, U.S. Chamber general counsel and head of the Chamber's legal arm, the National Chamber Litigation Center. "With this suit, the Chamber seeks to ensure choice for investors and to ensure rulemaking is done properly—not just to appear proactive."

The Chamber argued Congress specifically permitted mutual fund advisers to play a significant role in governing fund investments, mandating in the Investment Company Act that only 40 percent of directors be independent. The SEC's rule far exceeds the provisions laid out by Congress and two of its commissioners decried it as "acting by regulatory fiat."

The Chamber further argued the SEC failed to satisfy basic rulemaking requirements by not giving serious consideration to public comments; offered inadequate justification for the provisions; ignored important information about the costs and consequences of the rule; and

failed to consider evidence that an independent chair is likely to harm, rather than help, fund performance.

"The Chamber supports good corporate governance," Bokat added. "But these provisions will not achieve that end, and the compelling facts of this case offer substantial reason for the court to overturn them."

The case, U.S. Chamber of Commerce v. SEC, was heard by a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit. A decision is expected sometime this summer.

The National Chamber Litigation Center is the Chamber's public policy legal arm that advocates fair treatment of business in the courts and regulatory agencies. The U.S. Chamber of Commerce is the world's largest business federation representing more than three million businesses and organizations of every size, sector and region.

# # #

04-67