* See Strougo v. Padegs, 964 F. Supp. 783 (S.D.N.Y. 1997)
[9922]
May 12, 1998
TO: BOARD OF GOVERNORS No. 26-98
CLOSED-END INVESTMENT COMPANY MEMBERS No. 13-98
INVESTMENT COMPANY DIRECTORS No. 3-98
PRIMARY CONTACTS - MEMBER COMPLEX No. 34-98
SEC RULES MEMBERS No. 33-98
RE: MARYLAND ENACTS INDEPENDENT DIRECTORS LEGISLATION
______________________________________________________________________________
I am pleased to report that the Governor of Maryland today signed into law legislation that will
reaffirm for purposes of Maryland corporate law that the Investment Company Act of 1940 governs the
determination of whether a director of an investment company is an “interested person.” This new law,
which applies to all cases filed on or after January 30, 1998 (the date the bill was originally introduced),
will only impact those investment companies that are organized under Maryland law.
This legislation was introduced in response to a decision entered by the United States District
Court for the Southern District of New York in May 1997 in the Strougo case.*. This decision held that,
for purposes of Maryland law, receipt of directors’ fees for service on the boards of several investment
companies with the same investment adviser called into question the independence of those directors.
Based on this ruling, the court excused a plaintiff-stockholder from making demand on the board of
directors of an investment company prior to filing a derivative action challenging a decision by the
directors. Enactment of this legislation was actively supported by the Institute and, in particular, its
Maryland members, as well as by the Maryland Bar Association and the Maryland Securities Association.
A copy of this new law is attached.
Matthew P. Fink
President
Attachment