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SEC Moves to Protect Seniors from Fraudulent and Abusive Practices in Sale of Equity Indexed Annuities


Chairman Cox discusses protecting seniors
Chairman Cox discusses protecting seniors:
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Washington, D.C., June 26, 2008 — The Securities and Exchange Commission has published for public comment a proposed new rule that would protect seniors and other investors from fraudulent and abusive practices in the sale of equity indexed annuities. Equity indexed annuities are often sold to seniors, for whom they may be unsuitable investments due to substantial early surrender charges that lock up older investors’ money for many years.

The Commission voted unanimously on June 25, 2008, to issue the proposed rule for public comment. The proposed rule would establish the standards for determining when equity indexed annuities may be considered securities subject to the investor protections afforded by the securities laws.

“Working with the North American Securities Administrators Association, the SEC has made cracking down on fraud in this area a top priority,” said SEC Chairman Christopher Cox. “This is truly a joint federal-state partnership, and the SEC is proud to be working shoulder-to-shoulder with state securities regulators on this vital investor protection issue.”

The SEC’s proposed rule would define the terms “annuity contract” and “optional annuity contract” under the Securities Act of 1933. The proposed rule is intended to clarify the status under the federal securities laws of indexed annuities, under which payments to the purchaser are dependent on the performance of a securities index.

Section 3(a)(8) of the Securities Act provides an exemption under the Securities Act for certain insurance and annuity contracts. The proposed rule would provide that an indexed annuity is not an “annuity contract” under this insurance exemption if the amounts payable by the insurer under the contract are more likely than not to exceed the amounts guaranteed under the contract.

If adopted, the proposed new definition would apply prospectively – that is, only to indexed annuities issued on or after the effective date of a final rule. The recommended effective date for a final rule, if adopted, would be 12 months after its publication in the Federal Register.

In addition, the Commission proposed to exempt insurance companies from filing reports under the Securities Exchange Act of 1934 with respect to indexed annuities and certain other securities that are registered under the Securities Act and regulated as insurance under state law. The proposed exemption would be subject to conditions relating to the existence of state regulation of the insurer’s financial condition and the absence of trading interest in the securities with respect to which the exemption applies.

Comments on the proposals should be received by the Commission by Sept. 10, 2008.

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The full text of the rule proposal has been posted to the SEC Web site.



Modified: 06/26/2008