Peter H. Huang Harold E. Kohn Chair Professor of Law James ...

Emotional Impact Analysis
SEC estimated the costs of compliance per mutual fund would be “extremely small relative to the fund
assets for which fund boards are responsible, and are also small relative to the expected benefits.” 43 Both
of the dissenting Commissioners, eight Senators, former SEC Commissioner Joseph A. Grundfest, and
former SEC Chair Harvey Pitt all made pleas for a more deliberative approach. 44
On April 7, 2006, the U.S. Court of Appeals for the D.C. Circuit unanimously vacated both
requirements, 45 holding that the SEC violated the comment requirement of section 553(c) of the
Administrative Procedure Act, because the SEC “relied on extra-record material critical to its costs
estimates without affording an opportunity for comment to the prejudice of the Chamber.” 46 The court,
however, suspended issuance of its mandate for 90 days, giving the SEC an opportunity to “reopen the
record for comment on the costs of implementing the two conditions.” 47 On June 13, 2006, the SEC
issued a request for additional comments until August 21, 2006 regarding these rules. 48 One can view
these comments on-line. 49
One securities law scholar believes that new mutual fund regulation is likely to have unknowable
costs, but few knowable benefits. 50 A recent empirical study finds that strengthened corporate
governance controls have no statistically significant impact on mutual fund outflows. 51 Three additional
recent empirical studies find that when directors and managers of mutual funds personally own shares in
126.htm; and U.S. Chamber Files Suit Against New Mutual Fund Rules; Charges SEC Overstepped Authority in
Independent Boards (Sept. 2, 2005), available at http://www.uschamber.com/press/releases/2004/september/04-
118.htm.
43 Investment Company Governance, supra note 41, at 39,395.
44 Id., at 39,408. See also http://www.sec.gov/rules/final/glassman062905.pdf;
http://www.sec.gov/rules/final/atkins062905.pdf; http://www.sec.gov/rules/final/icgletters/senate062205.pdf;
http://www.sec.gov/rules/final/icgletters/jagrundfest062305.pdf; and
http://www.sec.gov/rules/final/icgletters/hpitt062305.pdf.
45 U.S. Chamber of Commerce v. SEC, No. 05-1240 (D.C. Cir. April 7, 2006), available at
http://pacer.cadc.uscourts.gov/docs/common/opinions/200604/05-1240a.pdf.
46 Id., at 31.
47 Id., at 33.
48 SEC Release No. IC-27395, File No. S7-03-04, available at http://www.sec.gov/rules/proposed/2006/ic-
27395.pdf.
49 http://www.sec.gov/rules/proposed/s70304.shtml .
50 Larry E. Ribstein, Do the Mutuals Need More Law?, Spring REG. 4, 5 (2004).
51 Stephen Choi & Marcel Kahan, The Market Penalty for Mutual Fund Scandals 25-27 (Jan. 1, 2006). New York
University Law School Law and Economics Working Paper 43, available at
http://lsr.nellco.org/nyu/lewp/papers/43/.
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