SEC’s Division of Enforcement Announces Settlement in Variable Annuity Exchange Investigation

In the first enforcement action under Section 11 of the Investment Company Act of 1940, which regulates variable annuity exchanges, the SEC settled charges against RiverSource Distributors, Inc. for improper switching or replacing of variable annuities. According to the SEC order, between January 2017 and May 2018, RiverSource violated Section 11 through efforts of certain wholesalers to develop lists of in-force annuity contract holders and then using those lists to encourage registered representatives to offer to the identified contract holders new variable annuity contracts as replacements for their current variable annuity contracts. Section 11 of the ‘40 Act prohibits any principal underwriter from making or causing to be made an offer to exchange the securities of registered unit investment trusts (including variable annuities) unless the terms of the offer have been approved by the SEC or they fall within certain limited exceptions. RiverSource, without admitting or denying the SEC’s findings, consented to an order finding that it violated Section 11, the imposition of a cease-and-desist order, a censure, and a $5 million civil penalty.

Click here to read an alert from Goodwin covering the SEC’s Enforcement action.