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Investment Company Act of 1940

A law requiring that mutual funds register with the federal government. The Act's original intent was to protect the public from many of the abuses engaged in by mutual funds during the 1920s, many of which were responsible for the Wall Street Crash of 1929. On a more contemporary basis, the Act has assumed particular importance because it affords individuals who serve as fiduciaries of employee benefits plans a layer of insulation from liability. Specifically, if it can be shown that a fiduciary selected an investment adviser who is registered under the Investment Company Act of 1940, the fiduciary cannot be held liable for the investment adviser's imprudent investment decisions. Rather, liability can only attach when it can be shown that the fiduciary failed to select an adviser who is registered under the Act.

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