SEC Sanctions Registered Broker-Dealer in First-Ever Section 11 Enforcement Proceeding
June 22, 2022 by Thomas Cain, Katherine McCurry
In a recent administrative order (the “Order”), the Securities and Exchange Commission (the “SEC”) charged a registered broker-dealer (the “Broker-Dealer”) with improper switching or replacing of variable annuities in violation of Section 11 of the Investment Company Act of 1940.[i] The Order stands as the SEC’s first-ever enforcement proceeding under Section 11 of the Investment Company Act of 1940 (“the Investment Company Act”).[ii] According to the Deputy Director of the SEC’s Division of Enforcement, Sanjay Wadhwa, the purpose of Section 11 of the Investment Company Act is “to prohibit the improper ‘switching’ of investors from one investment to another for the purpose of generating additional selling charges.”[iii] This Order directly addresses this issue.