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News August 14, 2006 Issue

Mandate Issued in Chamber Case

On July 20, the U.S. Court of Appeals for the District of Columbia quietly issued the mandate in the U.S. Chamber of Commerce v. SEC litigation. The mandate officially vacates the SECís fund governance rulemaking, which had required an independent chair and 75 percent independent board of directors.

The SEC could still start anew ó from a tabula rasa, so to speak ó and propose a new round of fund governance rules. Chances are, though, that it wonít. The fact that the SEC did not ask the court for a further stay of the mandate while it goes about collecting additional public comments may indicate that Chairman Christopher Cox does not have an appetite for pursuing the rulemaking.

In April, the court ruled against the Commission, but stated that it would stay the issuance of its mandate for 90 days. It directed the SEC to file a response with the court. In June, the Commission filed that response, announcing that it would reopen the comment period on the costs and benefits of the rulemaking until August 21. Notably, however, the SEC did not ask the court to postpone the issuance of its mandate. The ninety days came and went, and, on July 20, the court issued the mandate. As a result, the controversial independent chair and 75 percent independent provisions are officially off the SECís books.

Stephen Bokat, senior vice president and general counsel of the U.S. Chamber of Commerce, explained that the court had agreed to postpone the ninety days "thinking it would give the Commission enough time to correct the problems" that the court had identified. However, he said, it was "overly optimistic" of the court to think that SEC "could go through a whole rulemaking in ninety days," he said. "Clearly, they were unable to do so."

Why didnít the SEC petition the court to further extend the issuance of the mandate while it collected comments on the fund governance rulemaking? Bokat speculated that the SEC decided not to contest the issuance of the mandate, so that they could work through the issues surrounding the rule in a thoughtful manner "rather than fiddle with it" and "get into more litigation."

Now that the mandate has issued, he explained, if the Commission "did nothing," there would never be a requirement for an independent chair and 75 percent independent board. "Itís up to the Commission to do something," he said. "Itís fully back in the Commissionís court." That, he said, "is clearly a victory" from the Chamberís perspective. "We sued to get rid of the rule" he said, and the court "put it aside."