Investment Company Institute v. Camp National Association of Securities Dealers, Inc v. Securities and Exchange Commission

• Decision Date: 05 April 1971
• Docket Number: 59,Nos. 61,s. 61
• Citation: 91 S.Ct. 1091,28 L.Ed.2d 367,401 U.S. 617
• Parties: INVESTMENT COMPANY INSTITUTE et al., Petitioners, v. William B. CAMP, Comptroller of the Currency, et al. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., Petitioner, v. SECURITIES AND EXCHANGE COMMISSION et al
• Court: U.S. Supreme Court

401 U.S. 617

91 S.Ct. 1091

28 L.Ed.2d 367

INVESTMENT COMPANY INSTITUTE et al., Petitioners,

v William B. CAMP, Comptroller of the Currency, et al.

NATIONAL ASSOCIATION OF SECURITIES DEALERS,

INC., Petitioner,

v. SECURITIES AND EXCHANGE COMMISSION et al.

Nos. 61, 59.

Argued Dec. 14 and 15, 1970.

Decided April 5, 1971.

Syllabus

Petitioners in No. 61, an association of open-end investment companies and several individual such companies, attack (1) portions of the Comptroller of the Currency's Regulation 9, purporting to authorize banks to operate collective investment funds, as violative of the Glass-Steagall Banking Act of 1933 and (2) the Comptroller's approval given First National City Bank to operate a collective investment fund. Petitioner in No. 59 seeks review of a Securities and Exchange Commission (SEC) order exempting that fund from certain provisions of the Investment Company Act of 1940. The District Court concluded in No. 61 that the challenged provisions of Regulation 9 were invalid. The Court of Appeals, after consolidating the cases, held that the Comptroller's and the SEC's actions were consonant with the relevant statutes, and affirmed the SEC's order and reversed the District Court. Held:

1. Petitioners in No. 61 do not lack standing to challenge whether national banks may legally enter a field in competition with them. Association of Data Processing Service v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184. Pp. 620—621.

2. The operation of a collective investment fund of the kind approved by the Comptroller, that is in direct competition with the mutual fund industry, involves a bank in the underwriting, issuing, selling, and distributing of securities in violation of §§ 16 and 21 of the Glass-Steagall Act. Pp. 621—639.

420 F.2d 83, judgment reversed in No. 61, and vacated in No. 59 G. Duane Vieth, Washington, D.C., for petitioners Investment Co. Institute, and others.

Daniel M. Friedman, Washington, D.C., for respondent William B. Camp, Comptroller of the Currency.

Joseph B. Levin, Washington, D.C., for petitioner National Assn. of Securities Dealers, Inc.

Archibald Cox, Washington, D.C., for respondent First National City Bank.

Daniel M. Friedman, Washington, D.C., for the United States, as amicus curiae, by special leave of Court.

Mr. Justice STEWART delivered the opinion of the Court.

These companion cases involve a double-barreled assault upon the efforts of a national bank to go into the business of operating a mutual investment fund. The petitioners in No. 61 are an association of open-end investment companies and several individual such companies. They brought an action in the United States District Court for the District of Columbia, attacking portions of Regulation 9 issued by the Comptroller of the Currency,¹ on the ground that this Regulation, in purporting to authorize banks to establish and operate collective investment funds, sought to permit activities prohibited to national banks or their affiliates by various provisions of the Glass-Steagall Banking Act of 1933, 48 Stat. 162.² The petitioners also specifically attacked the Comptroller's approval of the application of First National City Bank of New York for permission to establish and operate a collective investment fund. In No. 59 the National Association of Securities Dealers filed a petition in the United States Court of Appeals for the District of Columbia Circuit seeking review of an order of the Securities and Exchange Commission that partially exempted the collective investment fund of First National City Bank of New York from various provisions of the Investment Company Act of 1940.³

In No. 61 the District Court concluded that the challenged provisions of Regulation 9 were invalid under the Glass-Steagall Act.⁴ The Comptroller and First National City Bank appealed from this decision, and the appeal was consolidated with the petition for review in No. 59. The Court of Appeals held that the actions taken by the Securities and Exchange Commission and the Comptroller were fully consonant with the statutes committed to their regulatory supervision. Accordingly, it affirmed the order of the Commission and reversed the judgment of the District Court.⁵ We granted certiorari to consider important questions presented under federal regu- latory statutes.⁶ For the reasons that follow, we hold Regulation 9 invalid insofar as it authorizes the sale of interests in an investment fund of the type established by First National City Bank pursuant to the Comptroller's approval. This disposition makes it unnecessary to consider the propriety of the action of the Securities and Exchange Commission in affording this fund exemption from certain of the provisions of the Investment Company Act of 1940.

I

In No. 61 it is urged at the outset that petitioners lack standing to question whether national banks may legally enter a field in competition with them. This contention is foreclosed by Association of Data Processing Service v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184. There we held that companies that offered data processing services to the general business community had standing to seek judicial review of a ruling by the Comptroller that national banks could make data processing services available to other banks and to bank customers. We held that data processing companies were sufficiently injured by the competition that the Comptroller had authorized to creata a case or controversy. The injury to the petitioners in the instant case is indistinguishable. We also concluded that Congress did not intend 'to preclude judicial review of administrative rulings by the Comptroller as to the legitimate scope of activities available to national banks under (the National Bank Act).' 397 U.S., at 157, 90 S.Ct., at 832. This is precisely the review that the petitioners have sought in this case. Finally, we concluded that Congress had arguably legislated against the competition that the petitioners sought to challenge, and from which flowed their injury. We noted that whether Congress had indeed prohibited such competition was a question for the merits. In the discussion that follows in the balance of this opinion we deal with the merits of the petitioners' contentions and conclude that Congress did legislate against the competition that the petitioners challenge. There can be no real question, therefore, of the petitioners' standing in the light of the Data Processing case. See also Arnold Tours v. Camp, 400 U.S. 45, 91 S.Ct. 158, 27 L.Ed.2d 179.

II

The issue before us is whether the Comptroller of the Currency may, consistently with the banking laws, authorize a national bank to offer its customers the opportunity to invest in a stock fund created and maintained by the bank. Before 1963 national banks were prohibited by administrative regulation from offering this service. The Board of Governors of the Federal Reserve System which until 1962 had regulatory jurisdiction over all the trust activities of national banks, allowed the collective investment of trust assets only for 'the investment of funds held for true fiduciary purposes.' The applicable regulation, Regulation F, specified that 'the operation of such Common Trust Funds as investment trusts for other than strictly fiduciary purposes is hereby prohibited.' The Board consistently ruled that it was improper for a bank to use 'a Common Trust Fund as an investment trust attracting money seeking investment alone and to embark upon what would be in effect the sale of participations in a Common Trust Fund to the public as investments.' 26 Fed.Reserve Bull. 393 (1940); see also 42 Fed.Reserve Bull. 228 (1956); 41 Fed.Reserve Bull. 142 (1955).

In 1962 Congress transferred jurisdiction over most of the trust activities of national banks from the Board of Governors of the Federal Reserve System to the Comptroller of the Currency, without modifying any provision of substantive law. Pub.L. 87—722, 76 Stat. 668, 12 U.S.C. § 92a. The Comptroller thereupon solicited suggestions for improving the regulations applicable to trust activities. Subsequently, new regulations were proposed which expressly authorized the collective investment of monies delivered to the bank for investment management, so-called managing agency accounts. These proposed regulations were officially promulgated in 1963 with changes not material here. ⁷ In 1965 the First National City Bank of New York submitted for the Comptroller's approval a plan for the collective investment of managing agency accounts. The Comptroller promptly approved the plan, and it is now in operation. This plan, which departs in some respects from the plan envisaged by the Comptroller's Regulation, is expected, the briefs tell us, to be a model for other banks which decide to offer their customers a collective investment service.⁸

Under the plan the bank customer tenders between $10,000 and $50,000 to the bank, together with an authorization making the bank the customer's managing agent. The customer's investment is added to the fund, and a written evidence of participation is issued which expresses in 'units of participation' the customer's proportionate interest in fund assets. Units of participation are freely redeemable, and transferable to anyone who has executed a managing agency agreement with the bank. The fund is registered as an investment company under the Investment Company Act of 1940. The bank is the underwriter of the fund's units of participation within the meaning of that Act. The fund has filed a registration statement pursuant to the Securities Act of 1933. The fund is supervised by a five-member committee elected annually by the participants pursuant to the Investment Company Act of 1940. The Securities and Exchange Commission has exempted the fund from the Investment Company Act to the extent that a majority of this committee may be affiliated with the bank, and it is expected that a majority always will be...