In a setback for the Securities and Exchange Commission and a major win for the mutual fund industry, the U.S. Court of Appeals told the SEC yesterday to hold off on its rule that would require all fund boards to be overseen by an independent chairman as of Jan. 16, 2006.

The U.S. Chamber of Commerce won its first appeal in June on the controversial rule, which will also require all boards to be 75% comprised of independent directors--sending the directive back to the SEC for a second vote.

A mere week later, former SEC Chairman William Donaldson put the measure to a second vote, which the two other Republican Commissioners voted against, but which passed a second time, again by a 3-2 margin.

Yesterday, the federal appeals court agreed with the U.S. Chamber, in its second lawsuit, that the rule should be at least temporarily shelved, based on cost, unsubstantiated shareholder benefits and what the Chamber views as the SEC overstepping its jurisdictional bounds.


Eugene Scalia, a lawyer for the U.S. Chamber of Commerce and a partner with Gibson, Dunn & Crutcher in Washington, told The Wall Street Journal yesterday's decision "should prompt the Commission to reconsider its decision to hastily rubber-stamp the provisions without the benefit of public comment."

Both sides must now provide the court with additional legal briefs, with a final decision now slated for mid-November.

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