A federal Appeals Court panel should require the Securities and Exchange Commission to start from scratch if it continues to want to regulate equity-indexed annuities as securities, an insurance company says in a new brief.
The brief by lawyers for Old Mutual Insurance Company was submitted to the panel in response to a Nov. 6 order by the panel of the U.S. Court of Appeals for the D.C. Circuit.
The SEC in January had published a rule, 151A, regulating EIAs as securities, but the industry immediately filed suit.
The decision in American Equity Investment Life Insurance Company, et al, v. the Securities and Exchange Commission, No. 09-1021, held that the SEC decision to regulate EIAs as annuities was reasonable but that it did not comply with Sec. 2(b) of the Securities and Exchange Act of 1933, which requires the SEC to study the effect of the rule upon efficiency, competition, and capital formation, and to include that information in its proposed rule.
“Vacatur … would guarantee that the new, proper ? 2(b) analysis the Court is requiring the SEC to conduct, and any possible changes to Rule 151A, would be subject to renewed notice-and-comment rulemaking,” the brief said. “That, in turn, would increase the likelihood that whatever the SEC does next, it will be based on a better administrative record, and hopefully lead to more reasoned-decision making,” the brief explained.
The original Old Mutual filing in early September asked the court to ensure that the insurance industry would have 2 years to prepare for the SEC’s revised rule to reclassify most fixed indexed annuities as securities, if and when a final rule might be approved.
Instead, the panel’s order asked Old Mutual to brief the court on what it should do in the wake of its split July 21 decision in which it said that the agency had authority to oversee EIAs as securities but that it had failed to properly study the effect of the rule.
The court said it “will then consider whether a stay, vacatur, or another remedy is more appropriate than the remand without vacatur provided in the order issued July 21, 2009.”