Twin Rivers Paper Company filed a petition for review in federal court, along with a broad and diverse group of concerned parties, challenging the recently finalized SEC rule (30e-3). The new rule reverses existing practice and will force investors who wish to continue receiving paper-based shareholder reports to take affirmative steps to preserve that ability. The petition challenges the final rule as arbitrary, capricious, and not otherwise in accordance with law. It flies in the face of investor preferences, limits access to information, particularly for the elderly, less affluent, and rural communities without access to broadband internet, and runs counter to recommendations from the Commission’s own Investment Advisory Committee to address critical shortcomings in the rule. Groups joining the petition include Consumer Action, American Forest & Paper Association, the Coalition for Paper Options, and Printing Industries Alliance.
We believe the rule limits access to information and harms the elderly and needy.
“The current dual system of information delivery works. It effectively combines print with electronic options and ensures efficient and effective access to information.” Stated Ken Winterhalter, President of Twin Rivers, “The changes indicated in this rule represent a step backward and fail to address a wide range of shortcomings that will make it more difficult for vulnerable demographic groups to access critical investor information.”
The SEC has found a solution in search of a problem. The Commission states the purpose of the rule is to permit electronic delivery of fund shareholder reports, while maintaining the ability of shareholders who prefer paper to receive reports in that form. The current system already allows for electronic delivery where investors prefer, an option that has been in place for over a decade.
•The SEC rule is inherently unfair. The SEC rule will allow mutual funds to stop mailing printed reports to shareholders if a shareholder does not respond to the notice by applying a fictitious theory of “implied consent.” Said another way, if after the shareholder receives the notice but does not respond, the shareholder will be deemed to have provided “implied consent” to stop mail delivery of reports. The proposed “implied consent” to E-delivery ignores studies indicating that investors prefer printed communications to electronic versions and constitutes an unnecessary regulatory intervention.
•92% of the public comments submitted to the SEC were in opposition to the proposed rule. The proposed rule will undoubtedly make it more difficult for mutual fund shareholders, especially the elderly, rural and lower-income groups, to access important information as it is extremely confusing…and ironically, does nothing to improve disclosure. The SEC’s own investigation determined a significant portion of the affected class still lack access to high-speed internet.
•Support for a change is lacking. The final rule fails to address key areas of concerns identified by consumer groups and the SEC’s own investment advisory committee, which in fact recommended a different course of action altogether.