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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