The Investment Company Institute and the U.S. Chamber of Commerce today filed a legal challenge to the Commodity Futures Trading Commission’s final rule imposing redundant regulations on registered investment companies, such as mutual funds and exchange traded funds, without satisfying the agency’s obligation to weigh the costs or benefits of the rule. Eugene Scalia and Daniel J. Davis of Gibson, Dunn, and Crutcher LLP will be counsel to ICI and the Chamber on this litigation, which was filed in the federal district court for the District of Columbia.
In their complaint, the ICI and the Chamber charge that the CFTC’s Rule 4.5 amendment, which requires advisers to registered investment companies already regulated by SEC, to be dually regulated by the CFTC as commodity pool operators, violates the Commodity Exchange Act and the Administrative Procedure Act on multiple counts. The complaint states the rule is arbitrary and capricious and requests injunctive relief to prevent the CFTC from implementing the Rule.
The rule layers the CFTC’s regulatory regime atop that already applied to funds by the SEC under all the major federal securities laws. The CFTC in its rulemaking process did not remotely justify such regulatory excess, said ICI president and CEO Paul Schott Stevens, adding that the rule will impose significant compliance costs on mutual fund advisers and, ultimately, these costs will come out of shareholders’ pockets.
The ICI and Chamber allege that investment companies and their advisers already are among the most highly regulated entities in the financial industry. In clear disregard for the most basic requirements of reasoned agency action, posited the complaint, the CFTC simply ignored and declined to mention key elements of the reasoning it had previously followed in lowering barriers to participation in the commodities markets by investment companies that it has now raised again. The CFTC nowhere explained or determined in any manner that SEC regulation was proving to be insufficient, they said. In addition, at critical junctions in its decision-making leading to adoption of the Rule, the [CFTC failed to perform the most basic tasks of an appropriate cost-benefit analysis.”