SEC Staff Says that 1940 Act Trumps State Takeover Statute
SEC Staff Says that 1940 Act Trumps State Takeover Statute (11/17/10)
In a recent letter, the staff of the Division of Investment Management opined that a closed-end investment company could not utilize a state anti-takeover statute to deny voting rights to certain shareholders. The fund had requested guidance whether the Maryland anti-takeover statute, which allows the denial of voting rights to shareholders of control shares, would violate Section 18(i) of the Investment Company Act, which requires equal voting rights. The Staff stressed the importance of voting rights as a “check on investment company insiders,” noting that the voting rights under the Investment Company Act “exist in addition to voting rights that are provided under applicable state law.”
OUR TAKE: The letter shows that the SEC will not allow state law to affect its regulatory hegemony. This tension will play out further as more advisers move to state regulation pursuant to Dodd-Frank.