The United States Court of Appeals for the District of Columbia has vacated the SEC's proxy access rule (14a-11) that would have required public companies including investment companies to include shareholder director nomination in proxy materials.  The Court ruled that the SEC acted in an arbitrary and capricious manner in violation of the Administrative Procedure Act because it failed to adequately "consider the rule's effect upon efficiency, competition, and capital formation" as required by the Exchange Act and the Investment Company Act.  The Court opined that the SEC failed to quantify or justify the potential costs of the Rule, including the costs of proxy battles and the impact of special interests, and failed to offer empirical evidence of its benefits. 

 

OUR TAKE: This decision, along with last year's decision vacating the rule regulating equity indexed annuities, will make it much more difficult for the SEC to promulgate regulations because the Court is mandating empirical and economic analysis.  Expect challenges to the raft of Dodd-Frank rules.