WASHINGTON — An Illinois appellate court panel has ruled that fixed indexed annuities are insurance and not securities products under state law.
The case stems from an enforcement action undertaken in March 2013 against Dick Van Dyke, a registered investment advisor by the Illinois Securities Department.
The Securities agency alleged that Van Dyke defrauded clients by recommending the sale of indexed annuities in violation of Illinois law.
The court held that the products sold by Van Dyke were not securities, and, furthermore, that Van Dyke had not perpetrated a fraud on his clients by selling them FIAs.
In doing so, the court reversed the Illinois secretary of state’s decision to revoke Van Dyke’s investment adviser registration, prohibit him from offering or selling securities in Illinois, fining him $330,000, and requiring him to pay witness fees of $23,500.
King Poor, lead attorney from Quarles & Brady, commented, “The court’s clear ruling in a published opinion provides much needed guidance that the law does not allow fixed indexed annuities to be regulated as securities. The historic regulation of these annuities as only insurance products remains intact.” King, based in Chicago, wrote the friend of the court brief for the National Association for Fixed Annuities.
However, a spokesman for the Securities unit, which is part of the Illinois Secretary of State’s office, is currently reviewing whether to appeal the case to the state Supreme Court. A decision must be made by Oct. 12.
The court held that, under Illinois law, fixed indexed annuities are only to be regulated as insurance products and not as securities.
“This comes as a major victory for the fixed annuity industry as a whole, in addition to the more than 20,000 agents and advisors licensed to sell fixed annuities in the state,” said Chip Anderson, executive director of the National Association of Fixed Annuities (NAFA). NAFA filed a friend of the court brief in the case.
The Securities Department held an administrative hearing in the case, and its original find was upheld by a state Circuit Court. The Securities Department is a unit of the Illinois Secretary of State’s office.
The state ruled that that fixed indexed annuity products should be regulated not only as insurance, as they had been for almost 50 years, but also as securities under the Illinois Securities Department.
Anderson contended that, “Miscategorizing the product in this way would have added another complex layer of regulation to indexed annuity sales and created an unworkable environment for agents and ultimately hindering consumer access to these valuable products.”
He added that NAFA had determined “that this was an important case on which to weigh in because of its potential industry-wide impact.”
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