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Class Action Annuity Litigation

The sale of various forms of annuity contracts as retirement, insurance and savings products has been a staple in the financial world for more than a century. Indeed, when the Securities Act of 1933 was enacted, Congress was faced with the question of whether to include annuities (or life insurance) as a regulated investment under that statute. At the time, annuities were sold by both insurance companies and many banks as savings and retirement products. Given the broad state regulation of insurers (and equally broad regulation of banks), both annuities and life insurance were exempt from the regulation of securities under Section 3(a)(8) of the 1933 Act. Fast forward seventy years, and the battle for regulatory control of annuities has intensified again. Recent headlines announce the intent of the NASD, the SEC and state insurance regulators to impose new or expanded regulation. This renewed attention is perhaps a result of the current popularity of annuities among "baby boomers;" or the differing regulatory requirements imposed on annuity sellers, depending upon whether they are (or are not) registered with the NASD; or the press coverage of class action litigation in this area. Whatever the reason, a brief review of recent headlines and articles leads to the conclusion that annuity issuers and sellers are in the crosshairs of regulators and plaintiff's lawyers. This article provides a brief primer on the structure of various annuity contracts; refreshes the reader on some of the financial and tax issues which underpin the reasons for owning annuities; reviews annuity regulation and enforcement activities, and; concludes with coverage of litigation involving annuities since the 1980s (comparing and contrasting these cases with the pattern of life insurance market conduct class actions in the 1990s) including current trends in annuity class action litigation.

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