The Securities and Exchange Commission's independent director and independent chairman rules hit another roadblock Friday, when a federal court of appeals sent them back to the commission, giving the agency 90 days either to collect more public comment, or to let the rules become invalid, according to Marketwatch.

This is the second time in less than 12 months that a federal court has told the SEC that the rules, which were adopted in 2004 in an effort to tighten fund governance in the wake of recent market-timing and late-trading scandals, lacked adequate input.  

As passed, the rules require that 75% of all mutual fund board directors be unaffiliated with the fund or fund complex, and that all board chairmen also be independent.

The 3-0 ruling by the U.S. Court of Appeals for the District of Columbia comes in response to a lawsuit filed by the U.S. Chamber of Commerce, which has fiercely fought  the rules since 2004, claiming they place undue burden on the $8 trillion mutual fund industry and result in "inconsistent governance practices." Chamber of Commerce lawsuits have indefinitely stalled implementation of the rules, which were scheduled to take effect this year.

The court "did what we hoped they would do," said Stephen Bokat, executive vice president and general counsel for the Chamber.

Former SEC Chairman William Donaldson lauded the rules as great progress in fund governance during his tenure.

Current Chairman Christopher Cox said Friday, "The Commission will comply with the court's decision in every respect."

Mercer Bullard, president of Oxford, Miss.-based shareholder advocacy group Fund Democracy filed a brief in support of the SEC. Most mutual funds already have independent directors and have met the 75% board requirement, he said. Independent oversight is important, he added, because the scandals that rocked the industry in 2003 were, in large part, due to a lack of scrutiny on the part of perhaps too-interested fund boards.

The Friday ruling maintains that the SEC relied upon non-public information about industry compensation in drafting these guidelines.

Eugene Scalia, an attorney representing the Chamber of Commerce, said it is time for the SEC to give up attempts at passing the rule.

"One hopes that rather than continue to be embroiled in this controversial rulemaking, the commission will accept the court's judgment and move on to other important items on its agenda," he said.

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.

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