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News October 11, 2004 Issue

SEC, U.S. Chamber Battle Over Emergency Stay

On September 30, the SEC filed a motion opposing the U.S. Chamber of Commerce’s request for an emergency stay to the fund governance rules. It noted that the SEC already has provided for a 16-month delay in the compliance date, until January 16, 2006. "[A] stay, if granted, would substantially harm the interests of investors, allowing fund managers to engage in otherwise prohibited transactions without needed protections," said the SEC. It characterized the fund governance changes as "a key component" of a broad SEC initiative to "correct serious problems and restore investor confidence" in the mutual fund industry.

The Chamber, in its October 7 response, said its suit shows that the SEC conducted the fund governance rulemaking "as if the agency were unaccountable — unaccountable to statutory limits on its authority, unaccountable to procedural requirements for rulemaking, unaccountable to the public’s comments and empirical date in the record." It urged the court to grant the stay. "The very identity of thousands of mutual fund boards will be changed, with new leaders installed who — even if the rule is invalidated — cannot be expected to return the reins to their improperly ousted predecessors." The group argued that the process of searching for new board members is already imposing immediate and irretrievable costs. The Chamber, claiming that the SEC "seriously misapprehends the limits on its authority," said that a stay is necessary to assure "that this important agency wields its considerable power within lawfully-prescribed limits."