The U.S. Securities and Exchange Commission has filed a court brief defending its decision to regulate some indexed annuities as securities.
The SEC argues in the brief that its decision is based on a “reasonable interpretation” of the term “annuity contract” under the applicable section of federal securities laws.
The SEC submitted the brief in response to a federal court suit initiated by IA issuers and marketers, and by state regulators. The plaintiffs are challenging an SEC regulation, Rule 151A. The regulation, approved in December 2008 and set to take effect Jan. 12, 2011, would impose federal oversight on some IAs.
The suit, American Equity Investment Life Insurance Company, et al, vs. SEC, Number 09-102, was filed in January in the U.S. Court of Appeals for the D.C. Circuit. Oral arguments in the expedited case are scheduled for May 8.
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The brief submitted by the SEC refers in some places to the National Association of Insurance Commissioners, Kansas City, Mo., which filed a companion suit in February that has been consolidated with the suit by underwriters and marketers of the product.
The SEC charges that the NAIC “lacks standing” to be a party to the suit and has published a consumer guide that acknowledges that IAs expose holders to investment risk.
The petitioners claim in their lawsuit that the SEC is exceeding its authority in seeking to regulate certain IAs, because a provision of the Securities Act of 1933 specifies that these instruments are insurance and not securities, and therefore are subject to state, not federal regulation.
In their suit, the IA issuers and marketers argue that they believe they will prevail because the SEC rule “squarely conflicts with two Supreme Court decisions on which it purportedly was based.”
The SEC, in a brief submitted by William Shirley, a senior SEC lawyer, argues that federal regulation of annuities is not “unambiguously precluded” by the federal securities law.
As a result, the SEC says, it had authority under a Supreme Court decision, Chevron U.S.A. Inc. vs. Natural Resources Defense Council Inc., to determine whether regulation of EIAs comes under its authority.