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News September 19, 2005 Issue

Court Denies Chamber’s Petition for Reconsideration

Score one for the SEC.

The U.S. Court of Appeals for the District of Columbia has denied the U.S. Chamber of Commerceís petition asking the court to reconsider its decision to uphold the SECís judgment that the independent chair and 75 percent independent director requirements were reasonable prophylactic responses to perceived risks in the fund industry.

"Upon consideration of petitionerís petition for rehearing filed July 28, 2005, it is ordered that the petition be denied," said the courtís September 9 order.

The Chamber had argued that the SEC had inappropriately used the various ICA exemptive rules to bootstrap its fund governance rulemaking. The "sine qua non" of the SECís rulemaking "was to use the exemptive rules collaterally to regulate matters that the rules themselves ó and the statutory authority on which they rest ó do not reach," said the Chamber. If allowed to stand, it argued, the courtís decision would enable the SEC "to leverage a narrow statutory grant of deregulatory authority to implement sweeping regulatory changes in a widely-noticed case."

While the Chamber lost the battle, the war is far from over.

Last month, in response to the Chamberís request in a separate case, the court granted an emergency stay of the fund governance rule. The Chamberís opening brief in that case is due this week. The SECís brief is due October 21, and the Chamberís reply brief is due November 7. Final briefs in the case are due November 14. Oral argument has not yet been scheduled.

Among other things, the Chamberís and SECís briefs will address the procedural issue of whether the SEC acted prematurely in rushing to put out a revised cost-benefit analysis the day before Chairman William Donaldson left the SEC.