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On March 21, 2019, in Van Dyke v. Jesse White, the Illinois Supreme Court issued a long-awaited opinion relating to Illinois Securities Department authority to regulate annuities under the Illinois Securities Law of 1953 (Act).

By way of background, in 2011, the Illinois Securities Department audited Richard Lee Van Dyke following complaints from the adult children of one of his deceased clients. Van Dyke was registered with the Securities Department as an investment advisor and licensed by the Illinois Department of Insurance as an insurance producer. The auditors reviewed Van Dyke’s insurance files, as opposed to his investment files, and subsequently alleged that he had defrauded 21 clients. Specifically, the Securities Department claimed Van Dyke liquidated the clients’ indexed annuities and replaced them with other annuities, from which Van Dyke purportedly earned $312,278 in commissions while his clients paid $263,822 in surrender charges, penalties, and other fees.

The Securities Department initiated administrative proceedings alleging Van Dyke violated Section 130.853 of its administrative regulations, which prohibits investment advisors from effectuating “any transactions of purchase or sale that are excessive in size or frequency or unsuitable.” The Securities Department also charged Van Dyke with violating four administrative sections that expressly implicate transactions involving “securities,” and one that makes it unlawful, generally, to employ any device, scheme, or artifice to defraud any client while acting as an investment advisor. Van Dyke moved to dismiss, arguing the Securities Department had no jurisdiction over him because the Act expressly excludes annuities from the definition of a security and because he was not acting as an investment advisor at the time of the transactions.

Following an administrative hearing with the Securities Department, the secretary of state issued a final order finding Van Dyke committed fraud by offering unsuitable annuities. The secretary revoked Van Dyke’s investment advisory registration, permanently prohibited him from selling securities in Illinois, and fined him $300,000 plus costs of the investigation. The circuit court affirmed the administrative order, and Van Dyke appealed.

The appellate court agreed but held that Van Dyke was nevertheless acting as an investment advisor and thus subject to the Securities Department’s jurisdiction under Section 12(J). At the same time, the appellate court found the Securities Department did not prove Van Dyke violated Section 12(J) in the sale of replacement annuities or perpetrated a fraud on his clients. Accordingly, it reversed the secretary of state’s final order.

The secretary of state appealed to the Illinois Supreme Court, arguing the sale of indexed annuities falls under the definition of a security under the Act, and that it put forth sufficient evidence Van Dyke committed violations of the Act. Van Dyke sought cross-relief, maintaining section 12(J) of the Act did not apply because he was acting as an insurance producer, not an investment advisor.

Click here for the full GT Alert on the Illinois Supreme Court’s analysis and holding that annuities do not fall under the Securities Department’s jurisdiction.

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Photo of Beth A. Black Beth A. Black

Beth A. Black focuses her practice on a variety of financial services industry litigation and regulatory matters. Beth regularly defends major brokerage firms in a wide variety of employment disputes in arbitration and before administrative agencies involving claims of federal and state statutory

Beth A. Black focuses her practice on a variety of financial services industry litigation and regulatory matters. Beth regularly defends major brokerage firms in a wide variety of employment disputes in arbitration and before administrative agencies involving claims of federal and state statutory discrimination, wrongful termination, retaliation and defamation. She has represented broker-dealers, commercial banks, investment banks, investment management firms, directors and officers, and public issuers and their management and employees in litigation, investigations and disciplinary proceedings initiated by the SEC, FINRA, FDIC, CBOE, CHX and state regulators. She has also conducted internal investigations of brokerage firms as well as publicly traded domestic and foreign companies whose operations are in the United States and China. Additionally, Beth has represented financial services firms and their management in various customer-initiated cases in state and federal court and in arbitration.

Photo of Steven M. Malina Steven M. Malina

Steven M. Malina, a former Senior Attorney in the SEC’s enforcement branch, focuses his practice on a variety of litigation and regulatory matters with representations of financial services industry clients, hedge fund matters, and securities and general commercial litigation. He represents officers, directors,

Steven M. Malina, a former Senior Attorney in the SEC’s enforcement branch, focuses his practice on a variety of litigation and regulatory matters with representations of financial services industry clients, hedge fund matters, and securities and general commercial litigation. He represents officers, directors, broker-dealers, investment advisors, commercial banks, investment banks, investment management firms, and public issuers in investigations and disciplinary proceedings initiated by the SEC, CFTC, FINRA, FDIC, NYSE, CBOE, CME, and state regulators. In addition, Steve represents clients in related investor class-action, derivative, and other litigation and arbitration. He has also conducted internal investigations on behalf of publicly traded companies and represented committees and executive officers in internal investigations. Steve has represented brokerage firms and their management in customer-initiated cases, and injunction and arbitration proceedings.

Prior to entering private practice, Steve served as First Vice President and Deputy Regional Counsel for a large financial corporation and was a Senior Attorney in the Branch of Enforcement of the U.S. Securities and Exchange Commission.

Photo of Michael T. Baier Michael T. Baier

Michael T. Baier focuses his practice on a range of complex litigation matters, including products liability with an emphasis on pharmaceutical, medical devices, and other consumer products. He handles all aspects of litigation in state and federal courts and is experienced in single

Michael T. Baier focuses his practice on a range of complex litigation matters, including products liability with an emphasis on pharmaceutical, medical devices, and other consumer products. He handles all aspects of litigation in state and federal courts and is experienced in single plaintiff actions, mass tort actions, multidistrict litigation (MDL), and class actions.

Michael also represents clients in employment-related matters and contract disputes, as well as major broker-dealers and their employees in FINRA arbitration and regulatory proceedings.

Before his legal career, Michael served as a sergeant in the United States Marine Corps. He served two tours in Iraq between 2006 and 2010.