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Investment Company Institute Sued By Investors

Shareholders allege violatios of 17(d) and 36(b) of the 1940 Act

By John M. Baker, Esq.

Two fund shareholders have brought suit against the Investment Company Institute, alleging that although the majority of its funding comes from fees paid by investment companies the ICI is essentially run for the benefit of investment advisers, purportedly in violation of sections 17(d) and 36(b) of the 1940 Act.

According to plaintiffs, 39 of the 45 members of the ICI Board of Directors are principals or employees of investment advisers.

A news report from Mutual Fund Market News is available online at

It’s always interesting to speculate why a suit like this may have been brought. In view of the close relationships most investment companies have with their investment advisers, plaintiffs’ argument essentially would mean that investment companies could not belong to a trade association. The ICI, of course, is one of the most effective trade associations around, and it’s noteworthy that a large majority of investment companies choose to be members. And, of course, the ICI is unlikely to settle.

Some possible motives that come to mind: an interest in higher visibility, frustration at the ICI’s opposition to some shareholder suits, and the hope of a lottery-like big payoff against long odds.

Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  

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