Excessive Variable Annuity Fees Case Dismissed
December 4, 2000
The U.S. District Court of the Eastern District of New York has granted a motion to dismiss a lawsuit charging Prudential Life Insurance Company of America of Newark, N.J. with attaching excessive fees to its variable annuities.
Plaintiffs Sidney and Johanna Olmstead claimed the death benefit fees on Prudential's Discovery Select Variable Annuity were excessive, going towards company profits and representatives' commissions rather than to cover the company's risk in the product.
But the court held that there was no right of action for private parties to question the reasonableness of fees and the complaint was dismissed, according to Judge Nicholas Garaufis' report, issued Oct. 30.
The Investment Advisors Act gives the SEC the right to investigate violations and bring civil actions in federal court for injunctions or civil penalties. It does not state that private parties are also authorized to sue for civil remedies, and it is unlikely that Congress forgot to mention private parties' right to action, Judge Garaufis said.
The judge said it was Congress' intention to simplify the regulation of investment companies and eliminate the possibility of costs associated with such actions being passed on to individual investors.
"Congress specifically designated the SEC to determine fee reasonableness in order to streamline the regulation of and establish continuity in the variable insurance fund market," the report said.