SEC Backs Mutual Fund Director Rule
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission on Wednesday attempted to bolster rules requiring mutual fund directors to be more independent of mutual fund managers, responding swiftly to concerns expressed last week by a federal court.
The SEC voted 3-2 after bitter debate to add details about compliance costs and other matters to the rules in an effort to fix procedural flaws cited by the U.S. Court of Appeals in Washington in a ruling on a U.S. Chamber of Commerce lawsuit brought against the SEC over the rule.
The chamber, a business lobbying group, has threatened to take the SEC to court again over the rule, raising questions about whether it will take full effect as expected in January 2006.
Written to reduce conflicts of interest in the $8-trillion fund industry, the rule was adopted a year ago by the SEC amid a wave of scandals in the trading of mutual fund shares that cheated average investors out of profits.
In an usually acrimonious struggle occurring one day before the resignation of SEC Chairman William Donaldson, rule supporters pushed through the added details before the chairman's departure tilts the panel against the rule, while opponents unsuccessfully sought to delay action.
"The governance rules are a critical component of our reform efforts, and any further delay or ambiguity surrounding their implementation would disadvantage not only investors but fund boards and management companies," said Donaldson in backing the rule. He is scheduled to resign on Thursday.
SEC Commissioner Cynthia Glassman said, "I disagree with this rush to respond to the court's remand of the 'independent chair' rulemaking in the strongest possible terms."
She called the material being added to the rule "an assembly of false statements, unsupported assumptions, flawed analysis and misinterpretations."
Some fund companies, including industry leader Fidelity Investments, have resisted the rule. The chamber sued the SEC over it and partially won last week when the appeals court found fault with how the SEC developed the rule.
The court said the SEC did not give enough consideration to compliance costs and possible alternative approaches.
The SEC voted at an open meeting to append the rule in both areas. Republican Chairman Donaldson voted in favor, along with Democrats Harvey Goldschmid and Roel Campos.
Republican commissioners Glassman and Paul Atkins voted against the additions to the rule, arguing that the SEC should have taken more time to evaluate the court's objections.