CEI Case Cited in Key Decision on Financial Regulation

CEI Case Cited in Key Decision on Financial Regulation

Appeals Court Reaffirms Findings of CEI v. NHTSA
June 23, 2005

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<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Washington, D.C., June 23, 2005—In an important decision for consumers, the U.S. Court of Appeals for the District of Columbia ruled this week that the Securities and Exchange Commission violated the law by not taking into account the costs of rules regulating the management of mutual funds. More importantly, it reaffirmed the rights of consumers to sue the federal government when they are harmed by the effects of regulation.

 

In a unanimous decision, the court held that the SEC’s rulemaking had violated the Administrative Procedures Act by failing consider the costs to mutual funds and their clients and giving inadequate consideration to alternatives to the proposed rule. The court was petitioned by the U.S. Chamber of Commerce, which presented its case as a consumer of mutual funds that had been disadvantaged by the SEC’s management rules.

 

“With stocks and mutual funds, there is little evidence to suggest that so-called independent directors produce better returns for shareholders. There is, in fact, some data that super-majority independent boards perform worse than other boards,” said Journalism Fellow John Berlau. “Feel good corporate governance measure do not help investors if they raise fees or reduce returns. Corporate governance should not be one-size-fits-all. Individual companies and their shareholders should decide what the best structures are for their boards, and ultimately the free market will determine what the best governance structures are. That's the way capitalism works.”

 

The court also cited the precedent of CEI v. NHTSA, in which the Competitive Enterprise Institute sued the National Highway Traffic Safety Administration for not acknowledging the deadly impact of the federal government’s vehicle fuel efficiency regulations.

 

“It's important that the rights of consumers to show they have been harmed by the adverse effects of regulations have been upheld. The decision affirms the rights of consumers.” Frances B. Smith, Competitive Enterprise Institute Adjunct Scholar and former Executive Director of Consumer Alert, which joined CEI in the NHTSA case.