Fund Democracy Loses Appeal

Court Upholds SEC Ruling on Multimanager exemptive order

By John M. Baker, Esq.

The U.S. Court of Appeals for the D.C. Circuit on Friday rejected an appeal by Fund Democracy, LLC from an order of the Securities and Exchange Commission denying Fund Democracy’s request for a hearing on a multimanager exemptive order. Fund Democracy v. SEC, No. 01-1367 (D.C. Cir. Feb. 1, 2002).

The SEC in recent years has granted dozens of “multimanager” or “manager of managers” exemptive orders allowing a single investment manager in a mutual fund complex to select and retain subadvisers to the various funds in the complex. Fund Democracy last year submitted a hearing request in opposition to one of these exemptive orders, which normally are granted without a hearing by the SEC staff under authority delegated to them by the Commission.

The D.C. Circuit ruled that Fund Democracy, a one-person business run by its principal, Mercer Bullard, did not have standing to bring an action challenging the SEC’s granting of the order to Hillview Investment Trust II or its refusal to hold a hearing. The court stated that the only people who will be directly affected by the SEC’s order granting Hillview’s request for an exemption are those who have purchased shares in Hillview or are at least considering doing so. Fund Democracy presented no evidence that it or any of its “members” own, intend to purchase, or are even considering purchasing shares in Hillview. The court noted that the SEC may permit persons to intervene in the agency proceedings who would not have standing to seek judicial review of the agency action. Judge Edwards, concurring in the result, was of the opinion that Fund Democracy did have standing to challenge as arbitrary the SEC’s denial of its request for a hearing, though he believed that the SEC was justified on these facts in denying the request for a hearing and agreed that Fund Democracy has no standing to seek judicial review of the merits of the SEC’s order.

The court’s opinion is available online at

For my prior post on the SEC’s ruling, see

Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.