The U.S. Chamber of Commerce has won the latest skirmish in its protracted legal battle with the SEC over the composition of mutual fund boards.

On Friday, the U.S. Court of Appeals in Washington issued a 33-page opinion agreeing with the Chamber's claim that the SEC's mutual fund governance rule was improperly implemented. It ordered the SEC to undertake its second reconsideration of the rule -- meaning the Commission must open the matter for public comment and report back to the court in 90 days.

The rule requires that 75 percent of a mutual fund's board of directors must be individuals with no direct ties to fund managers, and that board chairs can have no such ties. It was adopted in 2004 as part of the SEC's response to industry trading scandals, but after a challenge from the Chamber last year, the court decided there were "deficiencies" in the way the rule had been developed. Ordered to address these problems, the SEC reaffirmed the rule in a divided vote under former chairman William Donaldson.

This time around, the Chamber claimed the rule had been reaffirmed in violation of federal procedures. The court has agreed that the SEC failed to solicit public comment.

Pending this latest review, the rule will not be in effect.  

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