Court Dismisses DH2 Lawsuit

U.S. market regulators scored a victory when a court dismissed a lawsuit that tried to challenge the Securities and Exchange Commission over its stance on the pricing of mutual fund shares, according to a recent report from Reuters.

The U.S. Court of Appeals for the Seventh Circuit in Chicago ruled that investment partnership DH2 Inc. - called by the court as a mutual fund "market timer" - lacked legal standing to challenge the SEC.

The lawsuit followed a wave of scandals as state and federal regulators at the time alleged rampant abuses by fund managers for market timing. In response to the market timing, which is only illegal if a mutual fund's prospectus states that it prohibits the practice, the SEC issued statement that if a fund's price becomes too volatile due to frequent trading, it must issue a "fair value" estimate.

"DH2 brought this petition challenging the SEC's actions. 1/4We conclude that DH2 lacks standing to challenge the SEC's releases and accordingly dismiss," the court ruling said.

The SEC was pleased with the decision, Reuters reported, but DH2 officials couldn't be reached for comment.