Trade organization the Chamber of Commerce has won a partial victory in its lawsuit against the SEC. On Tuesday, D.C. Appellate court Judge Douglas Ginsburg ruled that the SEC did not overstep its bounds when setting fund board rules, but that it also failed to consider the costs of the proposed regulations.

The SEC "did violate the APA [Administrative Procedure Act] by failing adequately to consider the costs mutual funds would incur in order to comply with the conditions and by failing adequately to consider a proposed alternative to the independent chairman condition," wrote Judge Ginsburg in the case's opinion.

The SEC will now have to "address the deficiencies" with the proposed rules to require 75 percent of a fund's board made up of independent trustees and to chair a fund board with an independent trustee. According to the ruling, the Commissioners will likely have to consider the costs of the requirements and possible alternatives to the rules.

The Chamber had argued that the SEC did not have the authority under the Investment Company Act to create the rules, which the court dismissed.

Although the Chamber had also argued that the Commissioners did not adequately consider empirical evidence in making its decisions, Judge Ginsburg disagreed. Where the agency failed, however, was in considering costs of and alternatives to the rules, wrote Judge Ginsburg.

"Two dissenting Commissioners raised, as an alternative to prescription, reliance upon disclosure … the disclosure alternative was neither frivolous nor out of bounds and the Commission had an obligation to consider it," wrote Judge Ginsburg.  

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