SEC Enforcement Weighs In On Variable Annuity Exchanges For The First Time

After years of relative silence related to variable annuity exchanges on the regulatory front, the U.S. Securities and Exchange Commission announced last week settled charges against RiverSource Distributors, Inc. ("Distributor") under Section 11 of the Investment Company Act of 1940, which regulates variable annuity exchanges. This is the first SEC enforcement action under Section 11.

Section 11 prohibits variable annuity principal underwriters from making or causing to be made an offer to exchange one variable annuity contract for another variable annuity contract unless the terms of the exchange offer have been approved by the SEC by rule or order (technically, Section 11 applies to exchanges of securities issued by unit investment trusts, which covers most variable annuity exchanges).