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Second Circuit Affirms Dismissal of Mutual Fund Class Action, Applies SEC Guidance on Industry Concentration

In a decision ratifying the mutual fund industry’s long-standing treatment of portfolio concentration, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a putative class action against the Sequoia Fund on September 9. In Edwards v. Sequoia Fund, Inc., the shareholder-plaintiffs alleged that the Fund violated its industry concentration policy when healthcare stocks grew to comprise more than 25% of the Fund’s assets in 2015, due to strong growth in the value of its holdings in Valeant Pharmaceuticals, Inc. The Fund’s healthcare position grew to more than 25% due solely to increases in Valeant’s share price, not because of any additional share purchases. Applying SEC guidance from 1983, the Second Circuit affirmed the trial court’s holding that such “passive” increases in concentration cannot constitute a policy violation, defeating the plaintiffs’ claims. The Fund is represented by a Ropes & Gray litigation team.

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2017 ICI Mutual Funds and Investment Management Conference

Time to Read: 1 minutes Practices: Investment Management

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Ropes & Gray’s memorandum summarizing the 2017 ICI Mutual Funds and Investment Management Conference sponsored by the ICI and the FBA is available above. The Conference included sessions that discussed the following regulatory developments, among others:

  • The changing legislative and regulatory landscape in light of the new presidential administration and new Congress, including a discussion of how changes in legislative and regulatory priorities may affect the regulated fund industry and fund investors.
  • The SEC’s examination and enforcement focus areas over the past year, and expected focus areas in the coming year.
  • The preparations needed for the SEC’s liquidity risk management rule.
  • Dodd-Frank Act derivatives reform rulemaking, including congressional efforts to amend the Dodd-Frank Act, potential regulatory changes, and effects on the global derivatives markets.
  • The Department of Labor’s fiduciary rule, its implications for financial services providers, and the prospect for changes under the new administration.

If you would like to discuss a specific session, or any other aspect of the conference, please contact any of the lawyers listed on the back cover of the memorandum or the Ropes & Gray lawyer with whom you regularly work.

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