SEC Chief Aims to Save Fund Rule 1 Day Before He Leaves Next Week

Securities and Exchange Commission Chairman William H. Donaldson, ordered by a federal appeals court to reconsider a rule on mutual fund governance, will try to save the measure at a meeting next week, one day before he leaves the agency.

A three-judge panel said Tuesday that the SEC failed to properly review the costs of the rule requiring mutual fund boards to be composed of 75% independent directors, including the chairman. On Wednesday, Donaldson scheduled a new vote on the rule for June 29, provoking a threat of legal action from the U.S. Chamber of Commerce, which filed the suit that yielded the decision by the U.S. Court of Appeals for the D.C. Circuit.

“We think it’s outrageous, just an outrageous attempt to short-circuit the administrative process,” said Stephen 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 last June. The departing chairman has touted the rule as one of his most important initiatives for curbing the trading abuses that rocked the $8-trillion fund industry during the last 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 scheduled 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.”

SEC Commissioner Harvey J. Goldschmid, who backed the rule, said following the court’s mandate would be easy since it asked the agency to reconsider two procedural matters that were 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.”