Regulation of Business – Securities Act of 1933 – SEC Loses Fight to Regulate Variable Annuity

The defendant, Variable Annuity Life Insurance Company, regulated as a life insurance company by the District of Columbia, issued a contract which it termed an annuity, but which differed from a conventional annuity in certain important respects. Ordinary annuity premiums are invested in debt securities while the premiums paid on the variable annuity are invested in common stocks. Further, instead of benefit payments in fixed dollar amounts, the variable annuity’s benefits fluctuate since the value of the fund from which they are paid is affected by changing stock prices and dividend policies. The SEC, claiming these provisions brought the contract within the definition of a security in the Securities Act of 1933 and the company, within the definition of an investment company in the Investment Company Act of 1940, sought to enjoin the issuance of policies until the defendant complied with the provisions of the acts. Held, complaint dismissed. Because of the novelty of the agreement the court is unable to classify it either as a security or an annuity. Congress must decide whether there is to be federal regulation of the securities aspect of this contract. SEC v. Variable Annuity Life Insurance Company