Comments on Martin Lybecker\u27s Enhanced Corporate Governance

Martin Lybecker’s article, Enhanced Governance for Mutual Funds: A Flawed Concept that Deserves Serious Reconsideration, raises significant issues regarding the Securities and Exchange Commission’s (“Commission” or “SEC”) exercise of its exemptive authority. Under that authority, the Commission amended a number of exemptive rules under the Investment Company Act of 1940 (“’40 Act”) to require that mutual funds relying on those rules conform to enumerated governance practices (“fund governance reforms”). Lybecker argues that the fund governance reforms deserve serious reconsideration primarily because, in his opinion, they (1) were unauthorized, (2) were not adequately justified, and (3) will be of “questionable efficacy.” To the contrary, the Commission has ample authority to adopt the fund governance reforms, and the recent mutual fund scandal provided more than adequate justification for them. The Commission has broad exemptive authority under the ’40 Act, and the incorporation ofgovernance conditions into rules adopted under that authority mirrors the way in which Congress has used governance requirements in the Act. Both Congress and the Commission have long used governance requirements to protect investors, generally for the purpose of monitoring and managing conflicts of interest between funds and their sponsors. The recent mutual fund scandal confirmed the risks to shareholders presented by these conflicts of interest and accordingly provided more than adequate justification for strengthening the governance conditions in the exemptive rules. Whereas Lybecker is unpersuasive regarding the lack of authority and justification for the fund governance reforms, he may be correct that their efficacy is questionable. He essentially argues that the reforms will fail because independent directors lack the ability to serve in the watchdog capacity that the exemptive rules assign to them. It is hard to know the answer to the efficacy question, however, not only because it is inherently predictive, but also because the Commission has never explained exactly what it expects independent directors to do in the context of the exemptive rules. Indeed, Lybecker’s argument is partly that the Commission has failed to make the case as to its authority or the justification or efficacy of the reforms. The relevant proposing and adopting releases appear to base the fund governance reforms more on a general disagreement with Congress’s decisions—for example, not to require an independent fund chairman and to require only a forty percent independent board—than on the view that the reforms are necessary to protect investors specifically in the context of the exemptive rules into which the reforms have been incorporated. There is no evidence that the Commission knows whether the independent directors have been effective in the context of the operation of the exemptive rules in the past, or that it has any way of measuring their effectiveness in the future. The problem may be more serious, as there also is no evidence that the Commission knows if the exemptive rules themselves have been effective in protecting investors. Perhaps it is not the fund governance reforms alone that deserve serious reconsideration, but also the authority

Insider Trading in Mutual Funds

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RNA-Seq of Human Neurons Derived from iPS Cells Reveals Candidate Long Non-Coding RNAs Involved in Neurogenesis and Neuropsychiatric Disorders

Genome-wide expression analysis using next generation sequencing (RNA-Seq) provides an opportunity for in-depth molecular profiling of fundamental biological processes, such as cellular differentiation and malignant transformation. Differentiating human neurons derived from induced pluripotent stem cells (iPSCs) provide an ideal system for RNA-Seq since defective neurogenesis caused by abnormalities in transcription factors, DNA methylation, and chromatin modifiers lie at the heart of some neuropsychiatric disorders. As a preliminary step towards applying next generation sequencing using neurons derived from patient-specific iPSCs, we have carried out an RNA-Seq analysis on control human neurons. Dramatic changes in the expression of coding genes, long non-coding RNAs (lncRNAs), pseudogenes, and splice isoforms were seen during the transition from pluripotent stem cells to early differentiating neurons. A number of genes that undergo radical changes in expression during this transition include candidates for schizophrenia (SZ), bipolar disorder (BD) and autism spectrum disorders (ASD) that function as transcription factors and chromatin modifiers, such as POU3F2 and ZNF804A, and genes coding for cell adhesion proteins implicated in these conditions including NRXN1 and NLGN1. In addition, a number of novel lncRNAs were found to undergo dramatic changes in expression, one of which is HOTAIRM1, a regulator of several HOXA genes during myelopoiesis. The increase we observed in differentiating neurons suggests a role in neurogenesis as well. Finally, several lncRNAs that map near SNPs associated with SZ in genome wide association studies also increase during neuronal differentiation, suggesting that these novel transcripts may be abnormally regulated in a subgroup of patients

Matrix metalloproteinases in lung biology

Despite much information on their catalytic properties and gene regulation, we actually know very little of what matrix metalloproteinases (MMPs) do in tissues. The catalytic activity of these enzymes has been implicated to function in normal lung biology by participating in branching morphogenesis, homeostasis, and repair, among other events. Overexpression of MMPs, however, has also been blamed for much of the tissue destruction associated with lung inflammation and disease. Beyond their role in the turnover and degradation of extracellular matrix proteins, MMPs also process, activate, and deactivate a variety of soluble factors, and seldom is it readily apparent by presence alone if a specific proteinase in an inflammatory setting is contributing to a reparative or disease process. An important goal of MMP research will be to identify the actual substrates upon which specific enzymes act. This information, in turn, will lead to a clearer understanding of how these extracellular proteinases function in lung development, repair, and disease

Isoform Diversity and Regulation in Peripheral and Central Neurons Revealed through RNA-Seq

To fully understand cell type identity and function in the nervous system there is a need to understand neuronal gene expression at the level of isoform diversity. Here we applied Next Generation Sequencing of the transcriptome (RNA-Seq) to purified sensory neurons and cerebellar granular neurons (CGNs) grown on an axonal growth permissive substrate. The goal of the analysis was to uncover neuronal type specific isoforms as a prelude to understanding patterns of gene expression underlying their intrinsic growth abilities. Global gene expression patterns were comparable to those found for other cell types, in that a vast majority of genes were expressed at low abundance. Nearly 18% of gene loci produced more than one transcript. More than 8000 isoforms were differentially expressed, either to different degrees in different neuronal types or uniquely expressed in one or the other. Sensory neurons expressed a larger number of genes and gene isoforms than did CGNs. To begin to understand the mechanisms responsible for the differential gene/isoform expression we identified transcription factor binding sites present specifically in the upstream genomic sequences of differentially expressed isoforms, and analyzed the 3′ untranslated regions (3′ UTRs) for microRNA (miRNA) target sites. Our analysis defines isoform diversity for two neuronal types with diverse axon growth capabilities and begins to elucidate the complex transcriptional landscape in two neuronal populations

Panel 7. Recovery for Investors Through Ombudservices

This panel discusses OBSI’s role in facilitating investor recovery. The panel compares OBSI’s mandate, legislative and operating framework with other ombudsman’s offices internationally, and discusses how OBSI could be made more effective as well as barriers to potential reforms