Updated CHOICE Act Proposes to Impose Heightened Pleading Requirement and Raise Burden of Proof for Plaintiffs in Section 36(b) Cases Against Mutual Fund Advisers

April 28, 2017

The Chairman of the Financial Services Committee of the U.S. House of Representatives, Jeb Hensarling (R-TX), on April 19, 2017 released an updated discussion draft of the Financial CHOICE Act (Bill), and the Committee held a public hearing on the Bill on Wednesday, April 26, 2017. Title VIII, Section 831, of the Bill (Title VIII) proposes to impose a heightened pleading requirement, and to raise the burden of proof that a plaintiff must meet to pursue a claim against an investment adviser under Section 36(b) of the Investment Company Act of 1940 (1940 Act). The Bill is only at the Committee stage, and whether it will become law is uncertain. If Title VIII passes as drafted and works as intended, however, it is likely both to disincentivize plaintiffs’ firms from bringing Section 36(b) cases in the first instance and to improve defendants’ chances of obtaining dismissal or a favorable judgment earlier in the litigation.

Read "Updated CHOICE Act Proposes to Impose Heightened Pleading Requirement and Raise Burden of Proof for Plaintiffs in Section 36(b) Cases Against Mutual Fund Advisers."