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Jul 2009
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July 22, 2009

U.S. Appeals Court Remands EIA Rule 151A to SEC for Further Technical Analysis

Yesterday's (July 20, 2009) ruling by the U.S. Court of Appeals for the D.C. Circuit remanded the "EIA" Rule 151A back to the SEC for further technical analysis to support its rulemaking, but sided with the SEC on key questions. The Court held that the SEC's interpretation of an "annuity contact" was reasonable and addressed an ambiguity in the meaning and application of this term under the Securities Act of 1933. The Court did not second-guess the SEC's authority to issue the rule or the substance of the rule.

The Court said the SEC's analysis of how Rule 151A would "promote efficiency, competition, and capital formation" was inadequate. These considerations were addressed by the SEC but the Court did not find the analysis persuasive. The Court said, "the SEC's analysis is incomplete because it fails to determine whether, under the existing regime [of state insurance laws], sufficient protections existed to enable investors to make informed investment decisions and sellers to make suitable recommendations to investors."

The effective date of Rule 151A was set to be January 12, 2011; however, that date is now appears to be in doubt because, after completing the additional analysis called for by the Court, the SEC will likely need to republish its rulemaking, including the new technical analysis, for further public comment.

Should you have any questions about the Court's action, please do not hesitate to contact us. A copy of the Court's opinion is available at this link.

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