SEC Acted Hastily, U.S. Chamber Argues

The Securities and Exchange Commission rushed to judgment on the independent chairman rule, failed to research how much the new requirement would cost the industry and relied on new data from multiple sources without seeking the public's input.

That was the primary argument the U.S. Chamber of Commerce made Friday before a three-judge panel of the Washington Circuit court, in an appeal to overturn the new rule, Dow Jones reported.

The SEC's General Counsel Giovanni Prezioso countered that the SEC acted "properly, professionally and responsibly" in passing the rule a second time. The Commission saw "real risks" in delaying its second vote on the rule and has "a long tradition of moving quickly" to protect the public interest, Prezioso told the court. He also noted that another reason the Commission took the matter to vote so quickly after the court's decision was because it wanted to give former SEC Chairman William Donaldson and Commissioner Harvey Goldschmid an opportunity to vote on it before their pending departures, given their familiarity with the issue.

Prezioso further argued that when the SEC took the matter to vote the second time, it deliberately didn't want to "start from scratch," and, thus, looked at its earlier research while also weighing new information on the impact an independent majority of a mutual fund board, along with the chairman, would have on fund governance. As to why it didn't seek public comment, the SEC determined it had already sought adequate input, Prezioso continued.

But the Chamber's lawyer, Eugene Scalia, a partner with Gibson Dunn & Crutcher, called the SEC's second vote to approve the rule eight days after the court ruling "a rush to judgment," particularly in light of the fact that the court previously ruled the SEC acted in an arbitrary manner in adopting the rule the first time. Scalia also said that the SEC should have waited for the appellate court to issue a mandate on the case before voting, even though that mandate could take several months.

But one judge seemed to show more sympathy for the SEC than for the Chamber.

"Most of the time, this court is hearing from industry that agencies aren't moving fast enough," Judge Judith Rogers said, adding that it was important for the court to defer to the expertise of such agencies as the SEC. With respect to whether the SEC should have waited for the appellate decision before voting, she added that there doesn't appear to be any rule precluding an agency from taking a vote before receiving a mandate from an appeals court.