SEC Reaffirms Contested Mutual Fund Independence Rules

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

01 July 2005

Yesterday the SEC reaffirmed contentious mutual fund rules sent back by the courts for review; and today Chairman William Donaldson leaves office.

The US Court of Appeals for the District of Columbia Circuit had voted unanimously just 10 days ago to send back to the SEC its ruling requiring at least 75% of a mutual fund's board, including the chairman, to be independent, demanding that the SEC should give thorough consideration to the rule's costs and alternatives.

The United States Chamber of Commerce, which had filed the suit against the SEC's rules last year, is furious, "The SEC didn't meet its legal requirements the first time around, and today's effort is no different," said Thomas Donohue, the chamber's president and chief executive. "It's outrageous that a regulatory agency would deliberately ignore the orders of a US Court of Appeals and disregard calls for a reasoned rule-making process."

The original 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.

Donaldson's triumph may be short-lived. The Chamber of Commerce has threatened to return to Court; and Donaldson's chosen replacement, congressman Christopher Cox, R-Calif., is a free-market conservative who is unlikely to support the mandate for independent fund chairmen.

The rule passed yesterday by the same 3-2 vote it received last year, with Democrats Harvey Goldschmid and Roel Campos supporting Mr. Donaldson. Dissenting Republican commissioners Paul Atkins and Cynthia Glassman said they were surprised that Mr. Donaldson would consider one week of study to be adequate to comply with the court-ordered review. "This is one of the saddest days in the 71-year history of the SEC," Mr. Atkins said at the meeting.

The vote may in fact complicate Congressman Cox's confirmation hearing, since Democrats will know that he is likely to want to rescind it, and may try harder than they otherwise might have done to resist the nomination. Had it not been for the vote, it's likely that Democrats would have accepted Mr. Cox in return for Republican acceptance of Democratic proposals to reappointment Mr. Campos and to nominate Annette Nazareth, currently director of the agency's division of market regulation.

Recommended