Cutting Through the Gordian Knot: It’s Time to Revise Rule 17d-1 Under the Investment Company Act of 1940

Abstract

This article reviews the legislative and administrative history of Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 under that Section, which broadly prohibit any affiliated person or principal underwriter of a mutual fund or other registered investment company (a “Fund”) or any affiliated person of such a person or underwriter, from participating in a joint transaction with the Fund unless an application regarding the transaction has been filed with and approved by the SEC. The author maintains that the Rule’s scope is far broader than what is necessary to achieve the statutory purpose of protecting Funds and their shareholders from being unfairly taken advantage of by Fund insiders. The article proposes that the SEC amend to the Rule to allow transactions with affiliated persons who are not connected with management of the Fund, relying on a Fund’s independent directors to protect the interests of the Fund and its shareholders