SEC Files Status Report on Fund Governance Rule with US Court of Appeals and Issues Release Soliciting Comment
The SEC filed a status report with the U.S. Court of Appeals for the District of Columbia yesterday in connection with its rules requiring a mutual fund’s board of directors to have an independent chair and 75 percent of the board be composed of disinterested directors. In April, the court held that the SEC violated the Administrative Procedure Act by failing to seek comment on the data used to estimate the costs of implementing the two rules. Instead of vacating the rules, the court ordered the SEC to file a status report with the court within 90 days and reopen the rulemaking record for comments on the costs of implementing the two rules.
The SEC in its release solicits comment on: (i) the adequacy of the estimates assigned in adopting the rules and other appropriate measures of costs; (ii) the monetary and non-monetary costs that funds have experienced relating to compliance with the rules, particularly those costs incurred by small fund groups; (iii) any other costs that funds may incur to comply with the rules; and (iv) suggestions for additional provisions designed to achieve the protection of funds and fund shareholders.
The SEC emphasized that the underlying purpose of the two rules was, and remains, "the protection of funds and fund shareholders" and that the SEC is obligated to consider whether the proposed rule amendments will promote efficiency, competition, and capital formation.
Comments are due by August 21, 2006.
For the discussion about the April ruling by the court, please refer to our previous FYI
Investment Management FYI is a service of the Investment Management Practice of Morgan Lewis. If you have any questions concerning these important legal developments reflected herein, please contact the following Morgan Lewis attorney:
Philadelphia
Sohee Yun
215.963.5538
syun@morganlewis.com