The SEC's rush to re-approve the mutual fund rule is disgusting. Last week the DC Circuit ordered the SEC to consider disclosure rather than substantive regulation. Instead of seeking more information, via public comment or otherwise, Chairman Donaldson and his Democrat cronies voted to approve the regulation based on the existing record -- one day prior to Donaldson's departure (his last day is today). Let's just shuffle this one back to court.

Consider the following highlights from Commissioner Cynthia A. Glassman's dissenting remarks (thanks to Caroline for linking below):

• Procedure: "On the same day that the Court issued its decision, I received an e-mail message from the Chairman's chief of staff informing me, without prior consultation, that the staff had reviewed the Court's opinion and 'concluded that the court's concerns can be addressed on the basis of the record already before the Commission.' As such, the Chairman determined that this matter would be on today's open meeting agenda - a mere week following the Court's remand. While the Commission has an excellent and hardworking staff, it is simply not possible to conduct a thorough review 'of the record' in this time frame. The fact that the decision to hold today's meeting was made just hours after the issuance of the Court's decision further demonstrates the cursory nature of the 'review.'"

• Costs: "[T]he Commission cannot address the Court's concerns on the basis of the record already before the Commission. It cannot address the costs because, contrary to whatever representations the staff makes today, the Commission has repeatedly and consistently represented to the Court, to Congress and to the public that it has 'no reliable basis for estimating' the costs. This statement, both in connection with the costs associated with electing independent directors, and with the costs incurred by an independent chair hiring staff, appears repeatedly in the proposing and adopting release, in the Commission's brief to the Court, and most recently, in the April 2005 staff report submitted to the Congress which submission was mandated by the Consolidated Appropriations Act of 2005. It strains all credibility to believe that the Commission, professing for the past year and a half its lack of a reliable basis, has mystically within the past week been able conclusively to estimate costs associated with the rule."

• The Disclosure Alternative: "[T]he Commission cannot on the basis of the record before it address the alternative proposal identified by the Court that each fund be required prominently to disclose whether it has an inside or an independent chair and thereby allow investors to make an informed choice. When the Commission initially sought comment at the proposal stage, it did not seek specific comment on whether disclosure was a viable alternative. Rather, the Commission only asked generally for comment on alternatives, followed by a series of specific alternatives that did not include disclosure. Nonetheless, today's proposed release attempts to suggest that robust comment on a disclosure alternative was solicited, citing two comment letters that briefly mention -- and I might add support -- disclosure as an alternative. It is noteworthy that the staff, in compiling for us a summary of the 200 plus comment letters to this rulemaking, did not include any reference to disclosure as alternative. This is because this issue simply was not addressed in more than a handful of these letters."

I am particularly struck by the last issue. Since when does the SEC so lightly discard disclosure as a regulatory strategy? This sort of radical rulemaking merely confirms that Donaldson had to go.

UPDATE: I notice that Larry Ribstein has similar thoughts on the disclosure issue:

And it's interesting that Donaldson and the Democrats on the Commission were willing to summarily conclude that disclosure of governance is ineffective.  Isn't this what the state/federal configuration in corporate law is all about -- the states handle substantive governance rules, and federal law requires disclosure?  Maybe this doesn't work for mutual funds, but it's very odd that the SEC is willing to assume that it doesn't work despite 70 years of experience with this approach for other firms, and despite being explicitly ordered by the DC Circuit to consider this alternative.

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