Subject: Rule proposal 151A

December 16, 2008

Ronald V. Johnston

Secretary
The United States Securities and Exchange Commission
Washington, DC.

Senators: President-Elect Barack Obama
Hon. B. Boxer
Hon. D. Feinstien
Hon. B. Frank

House: Hon. H. Waxman
Hon. S. Davis

Re. The December 17th conference re. proposed SEC Rule 151-A, Rebuttal to its implementation.

Dear representatives of the People:

First, let me acknowledge that I have a personal vested interest in this matter, as a business owner, and secondly, as a forty year veteran of the securities industry as well as a licensed insurance product professional for 34 years. In addition, though, and outside of my professional affiliations, I am also a representative of the public, as an advocate, on a BLM Council for the California Deserts and the use of the public lands therein, as well as a public advocate and committee chair for Historic Preservation in San Diego, California. As to my education, I hold BA’s, MA’s, and a Ph.D. This is only to offer the credibility of my credentials, for your consideration, lest you think that my opinions are not well considered.

Second, and of primary import, the issue of this proposed Rule, concerning Fixed-Index, or “Equity Indexed” Annuities and their sale to the public, is one that has been targeted by the mutual fund industry, FINRA/NASD, by Registered Investment Advisors, and by Wall Street firms, purely for financial reasons. For “Wall Street”, and FINRA, (previously the NASD), to hold themselves out as bastions of the public trust, after reviewing the history, over just the past 10 years, of their “oversight” of their own industries, as evidenced by: (a) “Front running” of trades on the Exchanges; (b) Payoffs to retail brokers to sell mutual funds without regard to their merits or suitability; (c) Trading against Research and Inside Information by Analysts; (c) “Buying Investment Banking Business” with IPO allocations; (d) The lack of oversight in the manufacture and sale of “mortgage derivatives”, as well as misrepresentation of their credit worthiness to both the public and institutional markets; and now, (e) The Madoff scandal, which not only occurred under the NASD/FINRA’s and the SEC’s nose, but was perpetrated by the ex-CEO of NASDAQ, is reason, alone, to deny the NASD oversight of guaranteed insurance products.

Now, as someone who has been, as an Arbitrator for over thirty years, as well as the CEO of three Securities firms, on both sides of the table, I suggest that I have a relatively broad perspective of the industry. No matter what altruistic motives are held out by FINRA and “Wall Street”, the real goal is to eliminate of minimize the competition for the public’s “Serious and Safe Money”, that these products have proven to be, for the mutual fund industry and for Wall Street products and services. FINRA, as the “Regulatory Arm” of Wall Street, has less than arm’s-length interests in this matter as well, in that they receive fees from the sale of securities, but not life insurance; Fees for testing, Registration, and review of securities licensed sales persons; and collects fines and fees for infractions of the rules. This is a “War for Baby Boomer Assets” between the Wall Street-Mutual Fund Industry and the Life Insurance Industry. Unfortunately, if the SEC’s proposal is adopted, the casualties will include millions of Americans who will have to place their money at-risk with Wall Street and the Mutual Funds that they sell: The Independent Insurance Agent, Registered Investment Adviser, and Financial Advisor, as well as the over 100,000 people who represent the Small business, marketing arms for the insurance carriers who manufacture these products. All of these products would, if the SEC’s covertly crafted Rule, is adopted, be given over to Wall Street Firms who would then make them only available: (1) Through sales people registered with that firm that distributes that product, and takes a portion of the commission from the sales thereof; (2) As a fall-back to be offered only if the sales person could not coerce the client to purchase a “Risky” mutual fund or managed securities account; (3) As to a limited choice of product, such as was the case with the Dean Witter Mutual Funds, that were promoted through their brokers, without regard to superior products that were available, but for which Dean Witter did not make as much profit; (4) Through “Stock brokers”, who have a less-than-sterling history of representing the public’s interests above their own.

The SEC’s position, it seems, and that of FINRA/NASD, started off as a faulty interpretation of the definition of these products as a “security”, rather than a Life Insurance Product. In 1997, Safe Harbor Rulings by the Federal Courts have already ruled that these are Insurance, not securities, products. That position meeting marked resistance, has now gravitated to “Regulation of the Sales process and suitability”. And the need for the sale of any financial product to the public, I agree, requires regulation.

To that end, the insurance industry is very tightly regulated by State Insurance Regulators, as to the sales and marketing of their products. Second; the insurance industry, and I must concede, due to pressure from planted news columns by FINRA and the Mutual Fund Industry, has dramatically beefed up their internal certification and training, and has carried that through to their distribution channels. Therein may be one area that should, and easily could, add to the oversight of the sales process, wherein the Wholesalers, or NMO’s/FMO’s, such as our firm, should be required to have their marketing materials, that they offer to sales persons, subject to a National Insurance Commission’s review process. I have personally witnessed abuses by some marketing organizations, in the creation of somewhat misleading materials that are then promoted for use by sales people who affiliate with them. The carriers do make a very effective effort, in most cases, of policing this, but only do so if their name, or product name is mentioned in the marketing.

In summation: (1) This proposed rule is founded upon conflicts of interest that are self-serving as well as misguided beliefs that corporate profits supersede the public’s right to seek safety for their retirement assets. (2) There is also a faulty and exaggerated basis for the SEC’s and FINRA’s cry for regulation of a product that has had an imperceptible, i.e. less than 1%, history of complaints. (3) These products also have a 30 day “Free look” period in most states, (which mutual funds and securities transactions do not offer). (4) Our State Insurance Commissioners have done, and are doing an excellent job of regulating the sale of insurance products in their states, and the diversity of interests, from state to state, requires a certain degree of flexibility to require product design that fits the residents and personality of that state. The SEC and Wall Street would destroy that with 151-A.

(6) This measure is politically motivated, in my opinion, as was the failed attempt of the now-ending administration, to give the Social Security system to Wall Street. (Thank God that our Social Security Retirement assets were not in mutual funds this year). This is the “pay back” for support in 2000 and 2004, in my opinion, and carries with it the same flavor as the Social Security privatization attempt. The SEC proposed Rule should be denied passage and the SEC should consider looking, instead, at reorganizing the regulatory facets of FINRA to estop the tragic scandals, such as MADUFF, from occurring in the future. Let the State Insurance Commissioners regulate the products that they were appointed and elected to regulate.

Sincerely,

Ronald V. Johnston

Ron Johnston
Managing Director
Ronald v. Johnston
Annuity Ally, Inc.