Appellate Judges Refuse Independent Director Rule Appeal

September 14, 2005 ( - Federal appellate judges have turned aside an appeal in a challenge to regulators' rule mandating more independence among mutual fund directors.

Judges on the US Circuit Court of Appeals for the District of Columbia Circuit refused to consider the latest challenge to the Securities and Exchange Commission (SEC) rule in a suit by the US Chamber of Commerce, Reuters reported.

The order does not alter a stay won last month from the court by the chamber delaying the rule’s implementation. The chamber, a business lobbying group, must file a brief in that case next week and oral arguments are still expected.

The SEC rule requires that mutual fund board chairmen, and 75% of fund directors, be independent, or free of direct ties to fund managers. It was first adopted in June 2004 amid a rash of scandals involving improper trading in fund shares. The chamber has been fighting the rule on behalf of large fund management groups, including Fidelity Investments.

The court gave the chamber a partial win in June when it sent the rule back to the SEC for reconsideration. The court ruled that, while the agency had authority to write the rule, it did not adequately consider public input, possible alternatives and costs of compliance.

The SEC responded on June 29 by readopting the rule with some changes meant to satisfy the court’s concerns (See  Chamber Again Battles SEC Fund Independence Rule  ). The chamber sued the SEC again and the court stayed the rule, throwing into question when and whether it will take effect.