Sometimes even the Investment Company Institute (ICI) loses a case to the regulators.

Yesterday, a U.S. district court threw out a challenge from the ICI and the U.S. Chamber of Commerce to a rule that would require mutual funds that trade in commodity futures to register as "commodity pool operators" with the Commodities Futures Trading Commission (CFTC). In a 93-page opinion, Judge Beryl A. Howell of the U.S. District Court for Washington, D.C., dismissed the ICI's claims that the CFTC had been "arbitrary and capricious" in enacting the rule and had done so without the cost-benefit analysis the law requires.

Judge Howell's opinion is, in parts, a stinging rebuke to the ICI's argument. She writes that the plaintiffs "get carried away with their own rhetoric" in arguing against the rule, that some of the groups' complaints "amount[] to crocodile tears," and that they "have thrown everything in the proverbial kitchen sink at the CFTC." She concludes that "[t]he CFTC fulfilled its obligation… to consider the costs and benefits of its proposed rule," and that "there was nothing arbitrary of capricious about the CFTC's actions" in proposing it.

The case was argued in late October, with Eugene Scalia, son of Supreme Court justice Antonin Scalia and the owner of a 5-and-0 record -- now 5-and-1 -- arguing cases against the government, representing the ICI and the Chamber.

The rule will require funds that trade in commodity futures to file reports with the CFTC on their leverage and counterparty risk. The ICI argued that the CFTC's oversight is not necessary, since the SEC already regulates mutual funds.

It is not clear if the ICI intends to appeal this decision. An ICI spokeswoman sent MFWire the following statement on the ruling: “We are disappointed with the court's ruling. We are reviewing the decision now and evaluating our options.”

Regulators and their supporters, meanwhile, are crowing about a rare legal victory over the financial services industry.

Dennis Kelleher, the head of Better Markets, a pro-reform advocacy group, told the New York Times, “This is a total victory not just for the C.F.T.C., but also for financial reform. Hopefully, the industry will see this as a sign to call off their war on regulation and the regulators.”

The news was also covered by Bloomberg. The Bloomberg reporter spoke with ICI president Paul Schott Stevens, who said that the rule, "if allowed to stand, will impose enormous costs and burdens" on fund firms and their shareholders.  

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