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Court Tosses SEC Ruling
Published 7/21/2009
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WASHINGTON BUREAU -- A 3-judge federal appeals court panel today sent back for reconsideration a U.S. Securities and Exchange Commission regulation that could have put some indexed annuity contracts under SEC jurisdiction.
The judges, who sit on the U.S. Court of Appeals for the D.C. Circuit, ruled that the SEC used a reasonable interpretation of the term “annuity contract” when it drafted Rule 151A, a proposed rule that would have classified many indexed annuities as securities.
A Supreme Court precedent gives federal agencies the flexibility to interpret their own regulations, and the SEC was within its rights when it stated that the definition of “annuity contract” excludes annuities with returns linked to the performance of a group of securities or a securities index, Chief Judge David Sentelle writes in an opinion for the court concerning American Equity Investment Life Insurance Company et al., Petitioners, vs. Securities and Exchange Commission.
“We grant the [plaintiffs’] petitions, however, with respect to petitioners’ alternate ground that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation,” Sentelle writes.
“We hold that the Commission’s consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious,” Sentelle writes. “The SEC purports to have analyzed the effect of the rule on competition, but does not disclose a reasoned basis for its conclusion that Rule 151A would increase competition.”
The court notes that the SEC believes its proposed regulation would be better than a patchwork of state laws.
"After a more thorough review of the existing state law regime, the Commission may decide ultimately that Rule 151A will promote competition, efficiency, and capital formation," Sentelle writes for the court.
Published 7/21/2009
Subscribe to Life & Health
Print This Article
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Normal Text
Large Text
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WASHINGTON BUREAU -- A 3-judge federal appeals court panel today sent back for reconsideration a U.S. Securities and Exchange Commission regulation that could have put some indexed annuity contracts under SEC jurisdiction.
The judges, who sit on the U.S. Court of Appeals for the D.C. Circuit, ruled that the SEC used a reasonable interpretation of the term “annuity contract” when it drafted Rule 151A, a proposed rule that would have classified many indexed annuities as securities.
A Supreme Court precedent gives federal agencies the flexibility to interpret their own regulations, and the SEC was within its rights when it stated that the definition of “annuity contract” excludes annuities with returns linked to the performance of a group of securities or a securities index, Chief Judge David Sentelle writes in an opinion for the court concerning American Equity Investment Life Insurance Company et al., Petitioners, vs. Securities and Exchange Commission.
“We grant the [plaintiffs’] petitions, however, with respect to petitioners’ alternate ground that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation,” Sentelle writes.
“We hold that the Commission’s consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious,” Sentelle writes. “The SEC purports to have analyzed the effect of the rule on competition, but does not disclose a reasoned basis for its conclusion that Rule 151A would increase competition.”
The court notes that the SEC believes its proposed regulation would be better than a patchwork of state laws.
"After a more thorough review of the existing state law regime, the Commission may decide ultimately that Rule 151A will promote competition, efficiency, and capital formation," Sentelle writes for the court.