15 U.S.C. § 80a–35 — Breach of fiduciary duty

submitted 86 years ago by ch. 686 to r/title-15-COMMERCE-AND-TRADE · 823 words · no verdicts yet

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The SEC can sue officers, advisers, and similar people for breaching their fiduciary duty to a fund through personal misconduct. A fund's investment adviser also owes a fiduciary duty over its compensation, and shareholders can sue over that too. Only the person paid can be sued or owe damages.

(a) Civil actions by Commission. The SEC can sue in the proper U.S. district court, claiming that someone who serves, or served within the last five years, as (1) an officer, director, advisory-board member, investment adviser, or depositor, or (2) principal underwriter for an open-end company, unit investment trust, or face-amount certificate company, has engaged in, or is about to engage in, a breach of fiduciary duty involving personal misconduct toward the fund. If the SEC proves this, the court can bar the person from those roles, permanently or temporarily, and grant other relief that's reasonable for protecting investors and serving this law's goals. (b) Compensation or payments as basis of fiduciary duty. A fund's investment adviser is deemed to have a fiduciary duty over the compensation or payments it, or its affiliates, receive from the fund or its security holders. The SEC, or a security holder suing on the fund's behalf, can sue the adviser, its affiliate, or anyone else covered by (a) who has this fiduciary duty, for breaching it. Rules for these suits: (1) the plaintiff doesn't need to prove personal misconduct, only a breach of fiduciary duty, and carries that burden of proof; (2) the court should give appropriate weight to board and shareholder approval of the compensation; (3) the suit can only be brought against, and damages only recovered from, the person who actually received the compensation — no damages for any period more than a year before the suit started, and damages are capped at the amount that person actually received; (4) this subsection doesn't cover compensation tied to section 80a–17 transactions, or sales loads for buying fund securities; (5) these suits can only be filed in an appropriate U.S. district court; (6) a court's finding of a breach here can't be used (A) as a basis for finding a violation of this law elsewhere, or (B) to justify barring someone from the roles listed in (a). (c) Corporate or other trustees performing functions of investment advisers. "Investment adviser," for (a) and (b), also includes a corporate or other trustee acting as an investment adviser.

the actual law source: uscode.house.gov ↗public domain

(a) Civil actions by Commission; jurisdiction; allegations; injunctive or other relief

The Commission is authorized to bring an action in the proper district court of the United States, or in the United States court of any territory or other place subject to the jurisdiction of the United States, alleging that a person who is, or at the time of the alleged misconduct was, serving or acting in one or more of the following capacities has engaged within five years of the commencement of the action or is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any registered investment company for which such person so serves or acts, or at the time of the alleged misconduct, so served or acted—

(1)

as officer, director, member of any advisory board, investment adviser, or depositor; or

(2)

as principal underwriter, if such registered company is an open-end company, unit investment trust, or face-amount certificate company.

If such allegations are established, the court may enjoin such persons from acting in any or all such capacities either permanently or temporarily and award such injunctive or other relief against such person as may be reasonable and appropriate in the circumstances, having due regard to the protection of investors and to the effectuation of the policies declared in section 80a–1(b) of this title.

(b) Compensation or payments as basis of fiduciary duty; civil actions by Commission or security holder; burden of proof; judicial consideration of director or shareholder approval; persons liable; extent of liability; exempted transactions; jurisdiction; finding restriction

For the purposes of this subsection, the investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company or by the security holders thereof, to such investment adviser or any affiliated person of such investment adviser. An action may be brought under this subsection by the Commission, or by a security holder of such registered investment company on behalf of such company, against such investment adviser, or any affiliated person of such investment adviser, or any other person enumerated in subsection (a) of this section who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered investment company or by the security holders thereof to such investment adviser or person. With respect to any such action the following provisions shall apply:

(1)

It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty.

(2)

In any such action approval by the board of directors of such investment company of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such investment company, shall be given such consideration by the court as is deemed appropriate under all the circumstances.

(3)

No such action shall be brought or maintained against any person other than the recipient of such compensation or payments, and no damages or other relief shall be granted against any person other than the recipient of such compensation or payments. No award of damages shall be recoverable for any period prior to one year before the action was instituted. Any award of damages against such recipient shall be limited to the actual damages resulting from the breach of fiduciary duty and shall in no event exceed the amount of compensation or payment received from such investment company, or the security holders thereof, by such recipient.

(4)

This subsection shall not apply to compensation or payments made in connection with transactions subject to section 80a–17 of this title, or rules, regulations, or orders thereunder, or to sales loads for the acquisition of any security issued by a registered investment company.

(5)

Any action pursuant to this subsection may be brought only in an appropriate district court of the United States.

(6)

No finding by a court with respect to a breach of fiduciary duty under this subsection shall be made a basis (A) for a finding of a violation of this subchapter for the purposes of sections 80a–9 and 80a–48 of this title, section 78o of this title, or section 80b–3 of this title, or (B) for an injunction to prohibit any person from serving in any of the capacities enumerated in subsection (a) of this section.

For the purposes of subsections (a) and (b) of this section, the term “investment adviser” includes a corporate or other trustee performing the functions of an investment adviser.

Source credit: (Aug. 22, 1940, ch. 686, title I, § 36, 54 Stat. 841; Pub. L. 91–547, § 20, Dec. 14, 1970, 84 Stat. 1428; Pub. L. 94–29, § 28(7), June 4, 1975, 89 Stat. 166; Pub. L. 100–181, title VI, § 622, Dec. 4, 1987, 101 Stat. 1262; Pub. L. 111–203, title IX, § 929F(f), July 21, 2010, 124 Stat. 1854.)

history & why it existsrecord from the source credit

1940Enacted · Act of Aug. 22, 1940, ch. 686 · 54 Stat. 841
1970Amended · Pub. L. 91-547 · 84 Stat. 1428
1975Amended · Pub. L. 94-29 · 89 Stat. 166
1987Amended · Pub. L. 100-181 · 101 Stat. 1262
2010Amended · Pub. L. 111-203 · 124 Stat. 1854

A history note hasn’t been published yet. The record shows enactment by ch. 686 on 1940-08-22.

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