WASHINGTON - The chairman of the Securities and Exchange Commission, whose agency was ordered by a federal appeals court to reconsider its rule on mutual-fund governance, will try to save the measure at a meeting next week, one day before he's to leave the agency.
On Tuesday, a three-judge panel said the SEC failed to properly review the costs the rule would impose. The rule requires boards of mutual funds to have an independent chairman and at least 75 percent of directors who are independent.
The rule sought to address a potential conflict raised by the fact that many mutual fund boards are controlled by directors and chairmen appointed by their advisory companies.
SEC Chairman William H. Donaldson scheduled the new vote on the rule yesterday, provoking a threat of legal action from the U.S. Chamber of Commerce.
The chamber's suit yielded Tuesday's decision by the U.S. Court of Appeals for the District of Columbia Circuit. Donaldson, who favors the rule, is scheduled to leave the SEC June 30.
"We think it's outrageous, just an outrageous attempt to short-circuit the administrative process," said Stephen A. Bokat, executive vice president of the chamber's legal center.
"They will see us back in court if they are going to give the instructions from the D.C. Circuit short shrift."
Donaldson's decision to set the vote next week means the regulation probably will be approved, since it is being considered by the five commissioners who adopted it 3-2 a year ago.
The departing chairman has touted the rule as one of his most important initiatives for curbing the trading abuses that rocked the $7.9 trillion fund industry in the past two years.
SEC Commissioner Cynthia A. Glassman, who voted against the rule along with her Republican colleague Paul S. Atkins, expressed disbelief that a vote would be set so quickly.
"The court raised very serious questions which we should be investigating in full. How could we possibly do that in a week?" she said. "We owe respect to the court and to investors to make an informed decision."
'Right thing to do'
SEC Commissioner Harvey J. Goldschmid, who supported the rule, said following the court's mandate would be easy, since it asked the agency to reconsider two procedural matters that are well understood.
"There is no need to take a great deal of time for reconsideration," he said. "This is clearly the right thing to do."
Next week's vote also will take away the opportunity for Donaldson's successor to review the ruling.
Earlier this month, President Bush named California Republican Rep. Christopher Cox, whose views on the independent chairman rule aren't known, to replace Donaldson.
Cox's spokesman Paul Wilkinson declined to comment.
At the same meeting next week, the SEC also will consider rules designed to modernize securities offerings and prevent the fraudulent use of shell companies.