Chamber Scores Victory in Mutual Fund Case

WASHINGTON, D.C.—The U.S. Chamber's National Chamber Litigation Center (NCLC) won a significant victory today when a federal appeals court struck down a Securities and Exchange Commission rule that would have required the boards of mutual funds to be comprised of 75 percent independent directors and that they have an independent chair as well.

"The SEC failed to satisfy basic rulemaking requirements by ignoring important information about the costs – and the consequences – of the rule," said NCLC Executive Vice President Stephen A. Bokat.

The decision today in the U.S. Court of Appeals for the District of Columbia Circuit – in agreement with NCLC's filing – held that the SEC violated the Administrative Procedure Act (APA) "by failing adequately to consider the costs mutual funds would incur in order to comply" with the rule and remanded the rule to the Commission "to address the deficiencies with the 75% independent director condition."

The court also noted that the Commission's failure to consider alternatives presented by two dissenting SEC commissioners – in which each fund would be required to prominently disclose whether it has an inside or an independent chairman and thereby allow investors to make an informed choice – also violated the APA.

"We applaud the court's decision to stop regulatory overreach by the SEC," said Bokat. "Regulatory agencies must give serious consideration to public comments during rulemakings and cannot ignore important information about the costs – and the consequences – of their rules."

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.

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