Skip to comments.SEC passes fund-governance rule again~~Chamber of Commerce vows to sue agency over vote
Posted on 06/29/2005 1:06:42 PM PDT by Ernest_at_the_Beach
|SEC passes fund-governance rule again
Chamber of Commerce vows to sue agency over vote
WASHINGTON (MarketWatch) -- A split Securities and Exchange Commission on Wednesday approved for the second time in a year rules intended to curb conflicts of interest in the mutual-fund industry, angering critics who had sued to fight the measures.
In a 3-to-2 vote, the panel passed rules that compel funds' boards of directors to have independent chairmen, and for 75% of board directors to have no ties to management.
Wednesday's vote was taken eight days after the rule, which commissioners approved for the first time last year, was remanded back to the agency by a federal court.
It also comes one day before Chairman William Donaldson, a longtime champion of the measure and a fund-reform advocate since the scandals of 2003, is scheduled to step down as the nation's top securities-industry watchdog. The timing of the vote earned Donaldson a barrage of criticism from Republican lawmakers and current and former SEC officials.
"We've done the right thing," Donaldson said at a press conference after the meeting.
The U.S. Chamber of Commerce, which had gone to court to challenge the rule, immediately said it would sue the agency again. An appeals court hearing the original lawsuit had said the SEC didn't adequately weigh how much the rules would cost for fund companies to adopt.
"The SEC didn't meet their legal requirements the first time around and today's effort is no different," said Thomas Donohue, president of the Chamber of Commerce. "It's outrageous that a regulatory agency would deliberately ignore the orders of a U.S. Court of Appeals and disregard calls for a reasoned rulemaking process."
In an opening statement, Donaldson asserted that the staff of the SEC has laid out in detail what costs fund companies would incur to implement the rules. The agency's analysis also concluded that merely requiring a fund board to disclose to shareholders whether its chairman was independent or not was not an adequate safeguard.
"Relying solely on disclosure ... would allow a flawed governance structure to continue in many funds to the detriment of fund shareholders," Donaldson said.
Those two issues go to the heart of a June 21 ruling by the U.S. Court of Appeals for the D.C. Circuit, which sided with the Chamber of Commerce and sent the rule back to the SEC for further review.
Commissioner Roel Campos, a Democrat, said the total costs to the $8 trillion fund industry "are minimal under any measure."
Wednesday's roll call was identical to the first one on the matter, with Donaldson joining Democratic Commissioners Harvey Goldschmidt and Campos in approving the measures. The panel's two Republicans, Cynthia Glassman and Paul Atkins, voting against it.
The benefits of the rule, said Goldschmidt, "plainly and overwhelmingly outweigh the costs."
Glassman and Atkins went on the attack, slamming Donaldson for what they regarded as a hastily scheduled meeting.
"The majority's action today demonstrates a profound disrespect for the rule of law," said Atkins, who began his opening statement by reciting a blow-by-blow recap of the actions taken by the SEC since the court's decision.
Glassman objected to what she called a "rush to judgment" about the vote "in the strongest possible terms."
Wednesday's vote, she said, "violates the spirit, if not the letter, of the court's opinion."
Donaldson, however, argued the vote was fully consistent with the court's order to review the rule.
"Our failure to act would, I fear, throw the future of this rulemaking into an uncertain limbo until a new chairman is confirmed and the new chairman is able to familiarize himself with the rulemaking record," Donaldson said.
Rep. Christopher Cox, nominated by President Bush to be Donaldson's successor., is awaiting Senate confirmation.
Back to court
Now the SEC is facing another legal challenge from the Chamber.
"This attempt to circumvent our legal and regulatory process will not stand up in court," Donohue said.
"After a seven-day secret process, the SEC has recklessly re-adopted its flawed rule," he said.
Donaldson pressed ahead with Wednesday's vote despite a torrent of criticism from former SEC staffers and others who say the agency is moving too quickly and setting a dangerous precedent on the independent-chairman issue.
Former SEC Chairman Harvey Pitt, for example, urged the commissioners to delay the new vote. Although he said he initially supported the measure in the wake of widespread abuses in the fund industry, Pitt appealed to Donaldson to take more time to consider the court's decision and the costs associated with implementing the rule.
Also last week, eight Republican senators in a letter asked the SEC to delay the vote until a new chairman is in office.
In the letter, they wrote "it is tradition that an outgoing chairman not finalize pending controversial matters immediately before his, or her, successor takes office."
Robert Schroeder is a reporter for MarketWatch in Washington.
Got any background on this?
No! And I wish I did, cause I smell something rotten in here!!!
My guess is that this here is the crux of the matter. The Chamber is pist because no one will count the cost of this added regulation to consumers buying MF's! (typical GovernMental/Consumerist screwythink)
But I'm just not certain. (unusual for me, huh?)
Well normally the Chamber of Commerce worries about small merchants....I don't see Mutual Funds falling in that category!
I think your guess is correct. What I want to know is why the SEC had a 3-2 Democrat advantage 5 years into Bush's presidency.
Well, with Cox coming on board, that is getting fixed.
Now he and daddy, along with a buncha other lame-brain Repellicans are rehabing Hitlery and Bilbo Cliton!!! It's makin my heart hurt real bad!!! Can you make it stop???
I'm just surprised that he couldn't name Cox until now for the SEC. It must a six year term thingie that I'm just not familiar with.
Finally, Ford leaned over and spoke right into Jimmy's face and said: "Jimmy! They won't let you!"
He's doing his best to enjoy the few remaining years, and playing golf with the charming, yet disgusting, Clinton just doesn't ring the same political bells it would for you and me. He's playing golf with a been there, done that, guy and there are not very many of them around.
I don't see the political harm. If anything, Bill has shut up lately, and pappy Bush has never tried to interfere. If anything, it's a strategy that's moved Bill from the headlines into the senior golf circuit and charity fundraiser status.
Maybe there is a plan in there.
I just didn't think daddy was into the christian "turn the other cheek" thang as big as "W" appears to be and it has really surprised me after he soared so high, then fell so low in losing to the Arkie Gubernor and his bichen commie bride!!!
Yep! That's a purdy small, exclusive club them two belongs to!!! One deserved membership. The other desecrated the oval office and should have been bannished to the Falklands forever!!! (or some other far away place)