Court Spikes SEC Rule 151A

Purveyors of fixed annuities scored a legal victory as U.S. Court of Appeals for the D.C. Circuit ruled against the Securities and Exchange Commission (SEC) in a case involving a controversial rule.

The case, brought by insurers including Des Moines, Iowa-based American Equity Investment Life Holding Co., challenged the legitimacy of Rule 151A, which sought to reclassify fixed annuities as securities and brought them under SEC jurisdiction.

The court's three-judge panel remanded the rule back to the agency for reconsideration, saying the SEC “failed to properly consider the effect of the rule upon efficiency, competition, and capital formation.”

First proposed in June of 2008, Rule 151A elicited enough controversy that a public comment period was extended. Critics charged that fixed annuities were sufficiently at the state level, and that the rule had been rammed through without proper consideration. In their ruling, the Judges echoes this sentiment. “The SEC’s failure to analyze the efficiency of the existing state law regime renders arbitrary and capricious the SEC’s judgment that applying federal securities law would increase efficiency,” they stated.