SEC Staff Withdraws Prior No-Action Guidance on State Control Share Acquisition Statutes

On May 27, 2020, the SEC staff (Staff) issued a statement (Statement) withdrawing a prior no-action letter (Boulder Total Return Fund, SEC No-Action Letter (Nov. 15, 2010) (Boulder)) addressing certain aspects of the intersection of the voting requirements of Section 18(i) of the 1940 Act and state control share acquisition statutes (control share statutes).  Control share statutes have been adopted in approximately half of the states in the U.S. and typically permit a closed-end fund (fund) to opt-out or require the fund to opt-in to the statute’s protections.  The Statement also provided guidance for funds considering opting in to control share statutes and requested feedback on whether further SEC action is warranted.

In Boulder, the Staff stated its view that Maryland’s control share statute and similar state control share statutes were inconsistent with Section 18(i) of the 1940 Act (which generally requires that every share of stock issued by a fund have equal voting rights with every other outstanding voting stock).  After considering subsequent market developments, feedback from market participants and an SEC policy directive to review Staff guidance, the Staff determined to withdraw Boulder.

The Statement also provides no-action relief under Section 18(i) for a fund that opts in to a control share statute “if the decision to do so by the board of the fund was taken with reasonable care on a basis consistent with other applicable duties and laws and the duty to the fund and its shareholders generally,” and takes into account the fund’s particular facts and circumstances.  The Statement also requests feedback on such matters as the practical and functional consequences for a fund and its adviser, board and shareholders when the fund opts in to a control share statute.

In March 2020, the ICI released a whitepaper (available here: regarding recommendations concerning the availability of fund takeover defenses, which included withdrawal of Boulder and guidance permitting a fund to use available state law takeover defense measures.

The Statement is available here:

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