Any type of arbitrage activity in an annuity is of concern to the New York Attorney General’s office, David Brown, the head of its investment protection bureau, warned yesterday. And the NASD and SEC are both poised to levy charges against annuities, The New York Times reports this morning.

The New York A.G. is "very interested" and "concerned" about manipulations of prices in annuities by professional investors, and "intends to bring a case" against a specific firm, Brown said at the Mutual Funds Reform and Public Trust Conference of the Securities Industry Association, according to a Reuters report. Brown declined to name the firm.

Specifically, New York is concerned about hedge funds and wealthy individuals using annuities without restrictions on the number of trades, to market time them, according to the NYT. In addition, regulators continue to track the practice of "churning," or moving a client’s assets from one annuity to another in order to generate brokerage commissions.

"We think there is a fair amount of improper activity," James S. Shorris, an NASD official, told The Times. For its part, the SEC has demanded records from 40 companies and is "actively and aggressively" pursuing market-timing investigations there, said Herb Perone, a Commission spokesman.

However, Deborah Tucker, a spokeswoman for the National Association for Variable Annuities, said that improper sales were not widespread.

Grace Period

At the SIA, Brown also noted that companies that bring possible infractions of the law to the attention of the New York Attorney General, rather than wait for remedial action, are "in a better position" in negotiations.

But as far as late trading is concerned, the NY A.G. draws the line there. "The view of our office is that late trading is criminal," Brown said, adding, "We are living in a completely new regulatory world. It’s moved to a different stadium."


The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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