U.S. Court of Appeals rules That SEC Violated the Administrative Procedures Act When It Adopted the New Fund Governance Requirements
Today, the U.S. Court of Appeals for the District of Columbia ruled that the SEC violated the Administrative Procedures Act ("APA") when it adopted amendments to certain exemptive rules under the Investment Company Act of 1940 requiring mutual fund boards to be, among other things, led by an independent chairman and comprised of members 75% of whom are independent (the "independence requirements").
The independence requirements were challenged by the U.S. Chamber of Commerce, which petitioned the Court of Appeals for a review of the amendments arguing that the SEC did not adhere to the requirements of the APA when it promulgated them. The Court held, among other things, that the SEC violated the APA by failing to adequately consider the costs mutual funds would incur in order to comply with the independence requirements and by failing to adequately consider a proposed disclosure alternative to the independent chairman requirement. The Court remanded the matter to the SEC to address these deficiencies.