Ninth Circuit: Annuities Were Securities, Foundation Was Not Exempt

By Rodney Tonkovic
Associate Writer-Analyst, CCH Federal Securities Law Reporter

A 9th Circuit panel (Warfield v. Alaniz) affirmed a district court's judgment that charitable gift annuities were investment contracts and therefore securities under federal law. Investors purchased the annuities from a foundation in return for a promised lifetime income stream with the remaining money directed to a charity after the investor's death. The foundation, however, was a Ponzi scheme, and collapsed after five years.

On appeal, the foundation asserted that the annuities at issue were not "investments of money" because they were meant to be charitable donations. The panel rejected this argument, noting that the annuities were marketed in a way that emphasized their value as investments and that the marketing was directed to persons "likely to be attracted by the Foundation's promises of periodic payment of income and tax benefits." For similar reasons, the panel also found that the investors expected to profit from their purchase.

The court then rejected the foundation's argument that it was exempt as a charitable organization from the broker-dealer registration provisions. The panel explained that the sellers were ineligible for an exemption available to charitable organizations because commissions were received for the sale of the foundation's charitable gift annuities. The appellate court examined the statutory language and found that the annuities at issue were not exempt.

Warfield v. Alaniz

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