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News October 31, 2005 Issue

Round 7? Or is it 8? SEC Fights Back (Again) in Chamber Case

We didnít have to wait for the mandate to issue.

Not surprisingly, that was one of the arguments made by the SEC in its October 21 response to the U.S. Chamber of Commerceís lawsuit seeking to derail the SECís fund governance rules.

The SEC again attacked the Chamberís standing to bring the suit. This time, however, the SEC was able to cite the Seventh Circuitís September 7 decision in DH2 v. SEC. In that case, the court held that DH2, a market timer, did not show the "concrete harm" necessary to have standing. Being deprived of the opportunity to invest in mutual funds that did not fair value their shares, said that court, was not enough. Similarly, the SEC claimed that the Chamber asserted injury "on the theory that it has lost the opportunity to invest in shares of funds that do not satisfy the two conditions [of the fund governance rule], even if no concrete harm results from that lost choice." If the court were to confer standing on that ground, said the SEC, it would "directly conflict" with the Seventh Circuitís decision in the DH2 case.

The SEC also challenged the Chamberís assertion that then-Chairman William Donaldson and the Democratic commissioners "rammed" the revised cost-benefit release out the door before new Chairman Christopher Cox took the reins at the SEC. That argument, said the SEC, was "absurd." Donaldson, they said, "is one of the most distinguished members of the securities community, with a long and exemplary career in business, academia, and government. There was nothing in it for him to use the occasion of his last open meeting as Chairman of the Commission to tackle this highly contentious matter. He could simply have left it to his successor. In fact, the promptness of the Commissionís response was laudable, an example of good government in the finest traditions of the Commission."

The agency argued that it had good reason to act quickly, citing investor protection and the value in having the same group of Commissioners consider the revised cost-benefit analysis. "The Chamberís feigned outrage and inflammatory rhetoric are based on a fundamentally false depiction of the process employed by the Commission to respond promptly to the Courtís remand," said the agency.

On a final note: the SEC couldnít resist pointing out that it wasnít the only one acting quickly: The Chamber, it said, "announced its intention to sue the Commission even before the Commission had acted in response to the remand."