Title 15 — Commerce and TradeRelease 119-73
§80a–35 Breach of fiduciary duty
Title 15 › Chapter CHAPTER 2D— - INVESTMENT COMPANIES AND ADVISERS › Subchapter SUBCHAPTER I— - INVESTMENT COMPANIES › § 80a–35
Summary
The SEC can sue in a U.S. district court if someone who now is, or was, an officer, director, advisory board member, investment adviser, depositor, or (for open-end companies, unit investment trusts, or face-amount certificate companies) a principal underwriter has, within five years before the lawsuit started or is about to, broken their legal duty to act in a registered investment company’s best interest through personal misconduct. The SEC or a shareholder suing for the company can also bring a case when an investment adviser or its affiliate gets fees or other important payments from the fund or its shareholders. When the case is about adviser fees, the plaintiff must prove the breach and does not have to show personal misconduct. Courts will consider any board approval or shareholder ratification. Only the person who received the payment can be sued or ordered to pay, and damages cannot go back further than one year before the lawsuit. Damages are limited to actual loss and cannot be more than the amount received. These rules do not apply to payments tied to section 80a–17 transactions or to sales loads. Suits must be in federal district court. A finding here cannot be used to prove violations under sections 80a–9, 80a–48, 78o, or 80b–3, nor to bar someone from serving in the listed roles. "Investment adviser" also includes a corporate or other trustee doing adviser work.
Full Legal Text
Title 15, §80a–35
Commerce and Trade — Source: USLM XML via OLRC
(a)The Commission is authorized to bring an action in the proper district court of the United States, or in the United States court of any territory or other place subject to the jurisdiction of the United States, alleging that a person who is, or at the time of the alleged misconduct was, serving or acting in one or more of the following capacities has engaged within five years of the commencement of the action or is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any registered investment company for which such person so serves or acts, or at the time of the alleged misconduct, so served or acted—
(1)as officer, director, member of any advisory board, investment adviser, or depositor; or
(2)as principal underwriter, if such registered company is an open-end company, unit investment trust, or face-amount certificate company.
(b)For the purposes of this subsection, the investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company or by the security holders thereof, to such investment adviser or any affiliated person of such investment adviser. An action may be brought under this subsection by the Commission, or by a security holder of such registered investment company on behalf of such company, against such investment adviser, or any affiliated person of such investment adviser, or any other person enumerated in subsection (a) of this section who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered investment company or by the security holders thereof to such investment adviser or person. With respect to any such action the following provisions shall apply:
(1)It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty.
(2)In any such action approval by the board of directors of such investment company of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such investment company, shall be given such consideration by the court as is deemed appropriate under all the circumstances.
(3)No such action shall be brought or maintained against any person other than the recipient of such compensation or payments, and no damages or other relief shall be granted against any person other than the recipient of such compensation or payments. No award of damages shall be recoverable for any period prior to one year before the action was instituted. Any award of damages against such recipient shall be limited to the actual damages resulting from the breach of fiduciary duty and shall in no event exceed the amount of compensation or payment received from such investment company, or the security holders thereof, by such recipient.
(4)This subsection shall not apply to compensation or payments made in connection with transactions subject to section 80a–17 of this title, or rules, regulations, or orders thereunder, or to sales loads for the acquisition of any security issued by a registered investment company.
(5)Any action pursuant to this subsection may be brought only in an appropriate district court of the United States.
(6)No finding by a court with respect to a breach of fiduciary duty under this subsection shall be made a basis (A) for a finding of a violation of this subchapter for the purposes of section 80a–9 and 80a–48 of this title, section 78o of this title, or section 80b–3 of this title, or (B) for an injunction to prohibit any person from serving in any of the capacities enumerated in subsection (a) of this section.
(c)For the purposes of subsections (a) and (b) of this section, the term “investment adviser” includes a corporate or other trustee performing the functions of an investment adviser.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2010—Subsec. (a). Pub. L. 111–203, in introductory provisions, substituted “a person who is, or at the time of the alleged misconduct was, serving or acting” for “a person serving or acting” and “for which such person so serves or acts, or at the time of the alleged misconduct, so served or acted” for “for which such person so serves or acts”. 1987—Subsec. (b)(4). Pub. L. 100–181, § 622(1), substituted “loads” for “loans”. Subsecs. (c), (d). Pub. L. 100–181, § 622(2), (3), redesignated as subsec. (c) provisions which were added and designated as subsec. (d) by Pub. L. 94–29, and substituted “subsections (a) and (b)” for “subsections (a) through (c)”. 1975—Subsec. (d). Pub. L. 94–29 added subsec. (d). 1970—Subsec. (a). Pub. L. 91–547 designated existing provisions as subsec. (a) and substituted in first sentence “has engaged within five years of the commencement of the action or is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct” for “has been guilty, after August 22, 1940, and within five years of the commencement of the action, of gross misconduct or gross abuse of trust” and second sentence reading “If such allegations are established, the court may enjoin such persons from acting in any or all such capacities either permanently or temporarily and award such injunctive or other relief against such person as may be reasonable and appropriate in the circumstances, having due regard to the protection of investors and to the effectuation of the policies declared in section 80a–1(b) of this title” for prior provision reading “If the Commission’s allegations of such gross misconduct or gross abuse of trust are established, the court shall enjoin such person from acting in such capacity or capacities either permanently or for such period of time as it in its discretion shall deem appropriate.” Subsec. (b). Pub. L. 91–547 added subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date
of 2010 AmendmentAmendment by Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an
Effective Date
note under section 5301 of Title 12, Banks and Banking.
Effective Date
of 1975 AmendmentAmendment by Pub. L. 94–29 effective June 4, 1975, see section 31(a) of Pub. L. 94–29, set out as a note under section 78b of this title.
Effective Date
of 1970 AmendmentAmendment by Pub. L. 91–547 effective Dec. 14, 1970, except that subsec. (b) of this section effective on expiration of eighteen months after Dec. 14, 1970, see section 30 (introductory text and par. (4)) of Pub. L. 91–547, set out as a note under section 80a–52 of this title.
Executive Documents
Transfer of Functions
For
Transfer of Functions
of Securities and Exchange Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title.
Reference
Citations & Metadata
Citation
15 U.S.C. § 80a–35
Title 15 — Commerce and Trade
Last Updated
Apr 6, 2026
Release point: 119-73