State Roundup: After Months of Inactivity, Developments in the Van Dyke Case
The Van Dyke legal saga is entering its fifth year, going back to March 2013 when the Illinois Secretary of State, on behalf of the Illinois Securities Department, filed an administrative action against Richard Van Dyke (doing business as Dick Van Dyke’s Registered Investment Advisor), charging Van Dyke with 33 counts of fraud in recommending to 21 clients that they surrender their existing1 fixed indexed annuities and purchase replacement indexed annuities; the Department alleged that he defrauded these clients over $263,000 in total.2 Since that time, the Van Dyke case has been adjudicated at three different levels of the Illinois judicial system:3 first by an Administrative (agency) law judge, who, on March 24, 2014, found that the 33 indexed annuity transactions at issue were fraudulent, deceptive, or manipulative and in violation of Section 12J of the Illinois Securities Act and that the annuities in question were, in fact, securities products under Illinois law;4 second the Illinois Circuit Court for the Seventh Judicial Circuit, which affirmed the administrative order in its entirety on December 3, 2014;5 and, third by Illinois Court of Appeals for the Fourth Circuit, which, on July 29, 2016, reversed the circuit court’s decision, finding that the State had failed to prove that Van Dyke had committed fraud under Section 12J and – in an important win for the fixed annuity industry – that the fixed indexed annuities at issue here are not securities under Illinois law.6
Under Illinois court rules, the State of Illinois had until October 12, 2016 to file a petition to appeal the Court of Appeals’ decision with the Illinois State Supreme Court – making it the fourth court to consider Van Dyke’s case. In fact, on that deadline date, the State filed a motion to the Supreme Court requesting an extra 30 days to file. One month later, the State requested – and received – an additional 30 days to file the petition to appeal; on December 15, 2016, they filed their appeal.
On March 29, 2017, the Illinois Supreme Court granted the State’s petition for leave to appeal. Pursuant to court rules, the State’s opening brief was due May 2nd. Since that initial filing deadline, the State has requested and been granted five (5) postponements of this filing date: to June 7th, July 12th, August 16th, September 21st, and October 25th. Finally, the State filed its opening appellate brief on Wednesday, October 25, 2017. In addition to the State’s brief, two amici parties also filed briefs: NASAA, the North American Securities Administrators Association, and PIABA, the Public Investors Arbitration Bar Association.
NAFA is again working with the law firm of Quarles & Brady to draft and submit an amicus brief to the Illinois Supreme Court. Q&B has assisted NAFA throughout this fight to ensure that fixed indexed annuities remain classified as insurance products under Illinois law, having already filed three separate amicus or joinder briefs in this matter. We anticipate that there will be other parties who will submit an amicus brief in support of the Court of Appeals’ ruling.
A new argument in the State’s brief is that Van Dyke, as an Illinois Registered Investment Advisor, owed a fiduciary duty to his clients to act in their best interests and that this standard – rather than a suitability standard – should have been applied by the appellate court in determining whether he violated Section 12J of the Illinois Securities Act when he sold these fixed indexed annuities. It is difficult to imagine that this new fiduciary argument isn’t related to the proposed federal Fiduciary Rule. If the Illinois Supreme Court were to rule that FIAs are securities under Illinois law, then the same exact indexed annuity would be subject to two different standards and two different regulatory regimes, depending entirely on the licensure of the individual selling the product; currently, even investment advisors are governed by the suitability standards of the IL Department of Insurance when selling FIAs.
NAFA will continue to engage in this fight to keep fixed indexed annuities classified as insurance products in the State of Illinois and under the regulatory auspices of the Illinois Insurance Department; an adverse opinion by the Illinois Supreme Court would potentially devastating and could have impacts beyond just Illinois.
2 Arguably, Van Dyke’s legal woes can be traced back even further, to 2011 when the Securities Department conducted an audit and investigation of his business.
3 A more detailed description of the timeline referenced here can be found in the NAFA Annuity Outlook Magazine October/November 2016 issue.
4 One month later, the administrative hearing officer’s findings were adopted by the IL Secretary of State as an Administrative Order. Van Dyke’s IAR registration was revoked and he was fined $330,000: $10,000 for each of the 33 fraud counts. In addition, Van Dyke was permanently barred from selling securities in the state of Illinois.
5 NAFA, along with the Indexed Annuity Leadership Council (IALC) filed an amicus curiae brief to the circuit court, as did NAFA member Fidelity and Guaranty Life Insurance Company (F&G).
6 NAFA submitted an amicus brief to the Illinois Court of Appeals. And, when the opinion reversing the lower court’s decision was issued as a non-published decision (a circumstance that limits the precedential weight of the opinion for future cases), Van Dyke filed a motion to publish the decision – a motion that was joined by NAFA and by F&G. The Court granted this motion on September 7, 2016 and published its July 29th opinion.