The U.S. Chamber of Commerce slapped another suit on the Securities and Exchange Commission, arguing that the agency was out of bounds when it voted for the second time last week to require mutual fund boards to be led by chairmen independent of management.
The suit might give the SEC a chance to reconsider and perhaps overturn the controversial rule once Rep. Christopher Cox (R-Calif.), who has been nominated but not confirmed as the new SEC chairman, takes over.
The chamber prevailed in its first lawsuit, arguing that the agency had not fully considered the costs. That forced the SEC to reconsider the measure after the agency's initial 3 to 2 approval in June 2004. Undeterred, then-Chairman William H. Donaldson directed his staff to release a report on costs and scheduled another vote for the week after the court ruling, on Donaldson's next-to-last day at the agency.
The initiative, designed to prevent conflicts of interest in the $8.1 trillion mutual fund industry after serious trading abuses, had been a subject of intense dispute, with Donaldson at odds with the two other Republican members of the SEC. They blasted Donaldson for racing to pass the measure and, in their view, giving short shrift to the appeals court.
Cox, whose confirmation hearing has not yet been scheduled, has not spoken publicly about the mutual fund initiative.
Eugene Scalia, a lawyer representing the U.S. Chamber, said in a prepared statement that the agency had engaged in "an unprecedented, headlong rush to rubber-stamp its earlier decision, without the thorough, deliberate and open-minded consideration demanded by the unanimous court of appeals, and by the law." The requirement affects about 80 percent of the industry, including giants Fidelity Investments and Vanguard Group Inc.
Lawyers for the chamber said they are seeking speedy review of the issue so that the rule may not take effect as planned in early 2006. Former SEC commissioners Bevis Longstreth, Joseph A. Grundfest and Harvey L. Pitt had sent letters to agency leaders before last week's vote, urging them not to move forward with the plan.
John Nester, an SEC spokesman, declined to comment. Donaldson, who has returned to the private sector, did not return e-mails. At a news conference last week, however, Donaldson criticized lobbying groups that drummed up opposition to the rule. Donaldson said adopting the measure is "the right thing to do."