The Investment Company Institute and the Independent Directors Council have filed a friends-of-the-court brief in support of the lawsuit the Business Roundtable and the U.S. Chamber of Commerce have filed to vacate the new SEC proxy access rules as they apply to registered investment companies.
The new proxy rules would permit shareholders to place director nominees on a company’s proxy statement. The ICI and IDC maintain that funds operate far differently than operating companies and that the new provisions would raise fund operating costs.
“The SEC’s ill-conceived regulation of the $11.5 trillion fund industry was arbitrary and capricious,” the brief says. “The fund industry is simply too important, and its structure too distinct, for the SEC to regulate as an afterthought. The petition for review should be granted, and the rule vacated to the extent that it applies to funds.”
The brief also notes that federal law requires 40% of a board to be independent, thus providing unique protection to fund shareholders. Further, funds typically have boards that oversee multiple funds, and this structure would be threatened by the rule.
In addition, the SEC failed to study the impact of this rule on fund companies, only examining operating companies.
A three-judge panel of the D.C. Circuit Court of Appeals is slated to hear oral arguments in the case on a date to be determined by the Court.