The U.S. Chamber of Commerce filed a legal brief with the U.S. Court of Appeals for the District of Columbia Circuit Monday against the Securities and Exchange Commission's 2004 rule requiring independent chairman, Dow Jones reports. The Chamber says the SEC failed to adequately consider the costs and alternatives and did not follow federal procedures in adopting the rule.
The Chamber accuses the SEC of acting prematurely, even before the appellate court had issued its mandate in the case. The SEC reaffirmed the rule only eight days after the court's decision, by a slim vote of 2-3.
The Chamber also claims that SEC's supposed pre-ruling research is not sufficient ground for the speedy vote and that it failed to seek additional public comment. The SEC countered that it had, in fact, done adequate research to determine that the cost of installing independent chairmen at fund firms would be minimal.
However, in the Chamber's eyes, the SEC "did too little" preceding the adoption of the rule, and again during the reconsideration process. The Chamber alleges that the final product was unchanged because SEC did a "slap-dash, superficial" job and that the SEC could not point to a similar agency ruling granting it the authority to impose a new rule of this extent, as "there is no such case."
As to the SEC's argument that the Chamber lacks the standing to sue it, the Chamber pointed to a previous ruling by the D.C. Circuit Court allowing it to sue the SEC on behalf of its mutual fund members, and as an investor in funds. The Chamber also argued that it does not have to specify which of its members would be harmed by the independent rule and that the SEC's reference to a case involving DH2 in the Seventh Circuit, whereby the court said DH2 could not challenge the SEC, is irrelevant.
Originally slated for Jan. 16, the new rule would require that 75% of fund directors, including the chairman, to be free from ties to the fund management company. The rule is now on hold, pending further arguments in the Chamber's lawsuit in early January.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.