In 1933, Congress exempted annuity contracts from federal securities regulation. 15 U.S.C. § 77c(a)(8). In 1959, the Supreme Court held that variable annuities fell outside this exemption, because they place all of the investment Case 3:16-cv-01476-M Document 56 Filed 07/18/16 Page 13 of 44 PageID 4210 6 risk on the owner.

15 For example, Sections 3(a)(2) through 3(a)(8) of the Securities Act provide exemptions for government securities, commercial paper, securities offered by non-profit organizations, savings and loan securities, interests in railroad equipment trusts, indebtedness offered in bankruptcy, and insurance policies, respectively. See 15 U.S.C. § 77c(a)(2), (a)(8). None of these exemptions apply here.

The securities laws again belie Treasury’s position, as the Securities Act of 1933 makes clear that exchanges of securities “by the issuer with its existing security holders” “where no . . . remuneration is paid” would be regulated sales of securities but for a statutory exemption that is inapplicable here. 15 U.S.C. § 77c(a)(9). In other words, Congress clearly does not believe that sales or purchases are confined to cash transactions.

The parties now seek a ruling from this Court approving the conditions surrounding the issuance of these Shares and finding that the terms and conditions are fair under Section 3(a)(10). On June 18, 2008, the SEC issued Revised Staff Legal Bulletin No. 3(CF) (“SEC Bulletin”) setting forth conditions that must be met to perfect the Section 3(a)(10) exemption.3 Although the SEC Bulletin is not binding, several 1 See 15 U.S.C. § 77c(a)(10) (fairness can be determined by “any court”); In re Trade Partners, Inc. Investor Litig., 2009 WL 440904, at *1 (W.D. Mich. Feb 23, 2009) (federal court hearing held jointly with a hearing in a Michigan state court action involving similar claims); SEC Bulletin at 1-2 (only a governmental entity – not a court – needs to be “expressly authorized” to hold the hearing) (Exhibit B).

The broad scope of Congress’s exemption of independent establishments such as FNMA in the Exchange Act is confirmed when contrasted with the comparatively limited scope of the statutory exemptions in the Securities Act. Section 17(c) of the Securities Act states that the exemptions provided in section 3 of that Act, 15 U.S.C. § 77c(a)(2), which apply to instrumentalities of the United States, “shall not apply” to the section 17 anti-fraud provisions. See id.

See Section II.D.2, supra. In addition, both the “Fixed Index Investment Agreements” and the “Promissory Conversion Investment Note Agreements” themselves constitute “securities” under Section 2(a)(1) of the Securities Act, 15 U.S.C. § 77b(1), and Section 3(a)(10) of the Exchange Act, 15 U.S.C. § 77c(a)(10). First, the agreements meet the test for “investment contracts” that qualify as securities set forth by the Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 295 (1946).

Such instruments are exempt from the Act entirely under Section 3(a)(2), which means there are no prospectuses to provide. See 15 U.S.C. § 77c(a)(2) (exempting from Act’s coverage “any security arising out of a contract issued by an insurance company” in connection with a qualified plan). The Stock Fund is treated separately by registering the entire Plan, and the Plan’s SPD is its prospectus, as the front pages of its constituent documents show (Facts ¶ 68).

(PCAOB authorized to perform “other duties or functions . . . in order to protect investors, or to further the public interest”); 15 U.S.C. § 7212(b)(2)(H) (PCAOB may add to required contents of registration application “as necessary or appropriate in the public interest or for the protection of investors”); 15 U.S.C. § 7214(b)(2) (authorizing PCAOB to vary, by rule, frequency of inspections if “consistent with the purposes of this Act, the public interest, and the protection of investors”); 15 U.S.C. § 7216(a)(2) (authorizing PCAOB, by rule, to regulate certain foreign public accounting firms to whom the Act would otherwise not apply, if “necessary or appropriate, in light of the purposes of this Act and in the public interest or for the protection of investors”), (c) (authorizing PCAOB to exempt any foreign public accounting firm or class of firms from the Act if “necessary or appropriate in the public interest or for the protection of investors”). See, e.g., 15 U.S.C. § 77b(10); 15 U.S.C. § 77c(b); 15 U.S.C. § 77g(a); 15 U.S.C.25 § 77j; 15 U.S.C. § 77zz-3; 15 U.S.C. § 78f(a); 15 U.S.C. § 78g; 15 U.S.C. § 77i(a)(6), (b), (c); 15 U.S.C. § 78j(a)(1), (b); 15 U.S.C. § 78n(a); 15 U.S.C. § 78s(a)(3), (b)(3)(B); 15 U.S.C. § 78u- 1(c). -36- public interest or for the protection of investors” or similar language.