A coalition of equity index annuity insurers and marketers today sued the Securities and Exchange Commission to overturn the
index annuity regulation approved by the SEC in December.
The suit was filed by American Equity Investment Life Insurance Co. of West Des Moines, Iowa., a major provider of index annuities, and other companies that market the products, in the U.S. Court of Appeals for the District of Columbia Circuit after the SEC published its rule in the Federal Register today.
The plaintiffs, who have grouped together to form the Coalition for Indexed Products in Washington, filed only a two-page petition this morning, which is to be followed by a lengthier complaint.
They asked the court to overturn the rule, which would bring index annuities under SEC regulation as securities for the first time, and stop the SEC from implementing or enforcing it, claiming that the rule is unlawful under the Securities Act and under the Administrative Procedure Act.
“It’s a legally mistaken rule that will impose enormous costs on the industry, subjecting it to unnecessary and duplicative regulation,” said Eugene Scalia, a partner in the Washington office of Los Angeles law firm Gibson Dunn & Crutcher LLP.
He led the U.S. Chamber of Commerce’s successful defeat of the SEC’s mutual fund governance rule in 2006
That rule, opposed by the mutual fund industry, would have required fund companies to be headed by independent chairmen.
The SEC issued the index annuity rule, based on reports of marketing abuses of the annuity products, which offer minimum guarantees as well as the prospect of higher market returns.
The SEC has said that investors can lose money on the products due to high surrender charges if investors sell them during a lengthy initial holding period.
But the plaintiffs argue that the products are insurance policies, which are regulated by the states under the 1933 Securities Act.
“In this instance, the states told the commission repeatedly that they were carefully regulating these products, and they vigorously opposed the rule,” Mr. Scalia said.
“The commission did not find that state regulation was inadequate. It did not find that there were widespread sales practice abuses. And in fact, it said that whether there were abuses was irrelevant to their decision to regulate. Respectfully, this rule consumed an enormous amount of SEC resources. It will impose hundreds of millions of dollars of cost on the industry, and it’s bad law and bad policy to say that whether the rule is needed is irrelevant given all the other challenges currently before the SEC,” Mr. Scalia said.
SEC spokesman John Nester said the agency has no comment on the suit.
