Securities and Exchange Commission v. United Benefit Life Ins. Company

PETITIONER: Securities and Exchange Commission
RESPONDENT: United Benefit Life Ins. Company
LOCATION: El Paso Natural Gas Co. Headquarters

DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 387 US 202 (1967)
ARGUED: Apr 10, 1967
DECIDED: May 22, 1967

Facts of the case


Media for Securities and Exchange Commission v. United Benefit Life Ins. Company

Audio Transcription for Oral Argument - April 10, 1967 in Securities and Exchange Commission v. United Benefit Life Ins. Company

Earl Warren:

Number 428, Securities and Exchange Commission, Petitioner, versus United Benefit Life Insurance Company.

Mr. Solicitor General.

Thurgood Marshall:

Mr. Chief Justice, and may it please the Court.

The respondent in this case United of Omaha sells to the public or had been selling to the public what it called a Flexible Fund Annuity under which the value of the purchaser's ultimate interest depended in significant part upon the value of a regular portfolio of securities, largely common stocks and in which the respondent manages.

The Securities and Exchange Commission believing the Flexible Fund Annuity to be subject to the Federal Securities Act sought to enjoin the respondents from offering these securities and selling it out complying with the registration provisions of both the Securities Act of 1933 and 1940 Act.

To remember, both of these statutes contained exemptions for “insurance” and so the question in this case here on certiorari to the U.S. Court of Appeals for the District of Columbia Circuit is whether the Flexible Fund is within those insurance exemptions in both the 1933 and the 1940 Acts.

William J. Brennan, Jr.:

Mr. Solicitor General, is there a -- or is there not a legislation before Congress on this matter now?

Thurgood Marshall:

Not that I know of.

It's about the mutual companies in general.

William J. Brennan, Jr.:

It doesn't touch this problem?

Thurgood Marshall:

I don't know, sir.

William J. Brennan, Jr.:


Thurgood Marshall:

No sir, no sir.

The District Court ruled that this Flexible Fund was an insurance product within the exemptions and it therefore declined the grant the requested relief and the Court of Appeals affirmed viewing the fund is significantly different from the variable annuity contract which this Court held to be subject to the Federal Securities Law in the VALIC case.

And here we urged that the Flexible Fund contract like the contract in VALIC, is a kind of interest extended to be -- intended to be regulated by the Securities Act.

And conversely, that like the contract which was in VALIC, it is not the kind of product intended to be exempted on the grounds that they were insurance products.

The nature of the Flexible Fund contract like the one in VALIC requires that it's purchasers be given the investment protection that Congress designed for those who are offered in sole participation and a pool of equity securities and interests that fluctuates in accordance with the value of a portfolio securities managed by some other people.

Now under the Flexible Fund, the purchaser makes fixed periodic payments until the pre-selected maturity date, usually some 20 or 30 years from now.

After expenses are deducted from these premiums or anything from 50% in the first year to nine and a half for the next nine years, and 5% thereafter, the balance of the net premiums are put into a separate fund by the respondent.

This fund is reduced each month by an amount totaling 1% per year and by an allowance for the respondent's taxes.

The remainder is invested in a portfolio of securities as I mentioned before largely common stock securities, certainly equities.

During the pay-in period, the period prior to the selected maturity date, the purchaser may at any time withdraw their accumulated cash value of his share.

If he dies during the pay-in period, his beneficiary will receive that same amount or a refund of the total payments paid whichever amount is larger.

Now, once the maturity date is reached, the purchaser is no longer a participant in the Flexible Fund.

At that time, he may receive in the cash the accumulated value of his pro rata interest in the fund or he may purchase of any several conventional annuities with the accumulated value of his share.

In either case, we do not contend that the security laws have any application after the maturity date is reached and the purchaser ceases to participate in the fund.

So there's no substantial difference, we submit, between the VALIC contract and this one except that in VALIC, the purchasers interest in the variable fund there involved continued past the maturity date.

Before I compare more points of Flexible Fund to the investment contract in VALIC, first we should point out a single comparison between the Flexible Fund and ordinary deferred annuity life insurance and conventional savings accounts, a comparison which we have made in our brief at pages 24 and 25.

There it would appear that an annuity, let's say, a male at the age of 35, who pays a $100 per month for 30 years total of $36,000 for respondent's ordinary deferred annuity life insurance, he would have been guaranteed $54,828 at the maturity date.

But under the Flexible Fund contract, the same man making the same payment is guaranteed only $33,174 being the sum of the net premium, $2826 less than he would have had if he put the money in his mattress.