WASHINGTON - The U.S. Chamber of Commerce, which represents 3 million businesses, sued to overturn a new Securities and Exchange Commission rule requiring mutual fund boards to have independent chairmen.
The lawsuit, filed in federal court in Washington, also challenges the agency's requirement that fund boards have 75 percent outside directors. The rule was passed by a divided SEC in June.
"We just feel it's time to let the SEC know that somebody's watching to make sure they're not overregulating," said Stephen Bokat, the chamber's general counsel. "This is something that ought to be left up to the market to decide."
The rule, which requires hundreds of fund companies to appoint new leaders, was adopted over the opposition of most of the $7.4 trillion industry, including Fidelity Investments and Vanguard Group. The SEC is trying to curb conflicts of interest at the funds, beset by a yearlong trading scandal.
"The commission carefully complied with its legal obligation in adopting these rules, and we expect to defend them vigorously in court," Giovanni Prezioso, the SEC's general counsel, said in a statement.
The SEC rule takes effect next week, and mutual funds must comply with the new requirements by January 2006.
The lawsuit contends that the SEC rule exceeds the power Congress gave it in 1940 to oversee mutual funds. It also contends that the SEC failed to show that the requirement would help investors.
Bokat said his group "worked with many major players in the mutual fund industry" on the lawsuit, although he wouldn't name any. About 80 percent of mutual funds aren't in compliance with the new governance rule, Bokat said.
Fidelity said it discussed the lawsuit with the Chamber of Commerce before it was filed, and "this is not a Fidelity lawsuit." A Vanguard spokeswoman declined to comment.