Investment Company Institute v. Conover

In 1974, Congress made investments in individual retirement accounts (IRAs) deductible from income taxes. In 1982, Citibank sought to establish a collective-investment trust (Citibank trust) for investors in IRAs. The Citibank trust fund would commingle the assets of Citibank’s IRA investors. The Citibank trust would then invest the commingled funds in essentially the same way that a mutual fund would. Citibank applied to Comptroller of the Currency C. T. Conover (defendant) for a determination that its trust would not violate the Glass-Steagall Act, which disallowed banks from engaging in investment-banking activities. The comptroller thoroughly analyzed the act’s applicability to the Citibank trust. The comptroller noted that national banks traditionally have had the authority to commingle funds held in trust. The comptroller concluded that the Citibank trust would be essentially a manifestation of a traditional banking service and that the trust fund did not present any of the potential hazards or abuses that Congress intended to prevent with the Glass-Steagall Act. Many of the risks inherent to mutual funds were mitigated by the differences between the Citibank trust and a traditional mutual fund. First, investments in IRAs were limited to $2,000 per year. Second, units of the Citibank trust fund could not be used as collateral. Third, units of the trust fund were nontransferable. Fourth, investors could not redeem their units in the fund early without incurring a 10-percent tax penalty. The Investment Institute Company (the institute) (plaintiff) sued the comptroller, arguing that the Citibank trust was functionally equivalent to a mutual fund in violation of the act. The district court granted summary judgment for the comptroller. The institute appealed.