American Equity Investments v. SEC (D.C. Cir., July 21, 2009)
As any savvy investor knows, “annuity contracts” or “optional annuity contracts” that are the subject of State regulations are exempt from the Securities Act of 1993. See American Equity Investment Life Ins. Co. v. Securities Exchange Comm., Case No: 09-1021 (D.C. 2009). A hybrid annuity termed a “fixed index annuity” combined certain benefits of fixed annuities, along with the earning potential of a security. Subsequent to their introduction in the mid-1990’the sales volume of FIA’s had reached $24.8 billion with assets reaching $123 billion. Id. In an effort to bring these annuities within the scope of the Securities Act, the SEC proposed Rule 151A redefining “annuity contract” to exclude FIA’s.
The petitioners, composed of a number of insurance companies, filed suit and sought a review of the rule, contending that the SEC misinterpreted the term “annuity contract” by not including FIA’s and failed to take into account the new effect of the rule. Initially, the Court applied well established rules of deference to governmental agencies and held that the SEC’s rule was not arbitrary and capricious. That said, the Petitioners were not without some degree of victory. The Court did hold that “the Commission’s consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious.” Id. The Court flatly disregarded the SEC’s assertion that the rule would create “clarity in what has been an uncertain area of law.” Id. It is unclear whether the SEC will continue to pursue this litigation. Regardless, the petitioners have a reprieve, for now.
For a copy of the decision, click here
By Brian R. Biggie and Daniel W. Gerber
https://www.goldbergsegalla.com/attorneys/Biggie.html
https://www.goldbergsegalla.com/attorneys/Gerber.html