Court Criticizes SEC Over Governance Rule

by Glen Shapiro, LawAndTax-News.com, New York

11 April 2006

Ruling last week, an US appeals court argued that the Securities and Exchange Commission's decision to force through a rule on mutual fund board independence was flawed, as the agency had not properly re-evaluated the law following its initial appeals court rejection.

The US Court of Appeals for the District of Columbia Circuit voted unanimously last June to send back to the SEC its ruling that chairmen of mutual funds should be independent from the companies managing the funds, and that 75% of fund boards be comprised of independent directors, who must hold separate meetings without the presence of fund management.

The United States Chamber of Commerce had filed a suit against the SEC's rules the previous year.

The SEC vote to introduce the rule was only the second non-unanimous vote since the appointment of William Donaldson as chairman of the US regulator in 2003.

Mr Donaldson went on to cause outrage when, one day before stepping down as head of the SEC, he forced the matter to a vote again.

Commenting on this week's appeal court decision, Steve Bokat, executive vice president of the US Chamber of Commerce's National Chamber Litigation Center observed that:

"The court had a simple message for the SEC today: you can't run roughshod over the rulemaking process."

The Chamber called the court's decision to allow the SEC 90-days to reconsider the rule in light of additional public comments "appropriate", and pledged to work with the commission.

"We look forward to sharing our views with the SEC as they decide how to address the issues raised during these proceedings," added Bokat.

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