The SEC Division of Investment Management withdrew 2010 guidance which reviewed the permissibility of an SEC-registered, closed-end fund determining to opt in to a control share acquisition statute ("control share statutes") authorized under state law.
Such control share statutes generally remove voting rights from shares owned or controlled by a single person who holds more than a specified percentage of the shares of the company, thereby making it more difficult for a new shareholder to take control. In the withdrawn staff guidance (see "Boulder Letter"), SEC staff had taken the position that opting in to such statute was inconsistent with the voting requirements of ICA Section 18(i) ("Capital structure of investment companies").
In withdrawing the Boulder Letter, the Staff stated that it would not recommend enforcement action against any ICA Section 18(i) closed-end fund for opting in to and triggering a control share statute if the board of the fund made the decision with "reasonable care" and followed other applicable duties and laws.
The Staff requested feedback on this action to help inform future recommendations. Specifically, the Staff asked for comment on, among other things:
the practical and functional effects on closed-end funds, their management, and their shareholders when funds opt in to and trigger control share statutes;
what a fund's board would consider when debating whether to opt in to and trigger a control share statute;
how the ability to opt in to and trigger a control share statute would have a practical or functional effect on a fund's compliance with federal securities laws other than ICA Section 18(i); and
whether the SEC should address the ability of a closed-end fund to opt in to and trigger a control share statute under ICA Section 18(i).
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