Florida's insurance commissioner has entered the fray over a new deposit instrument that resembles an annuity, charging that it is being sold illegally in the state.
The commissioner, Tom Gallagher, has initiated administrative proceedings against Blackfeet National Bank, the Montana institution that offers the Retirement CD, ana American Deposit Corp., which developed the federally insured product.
The companies are charged with violating more than a dozen Florida statutes and codes. Florida has some of nation's most stringent laws against sales of insurance products by banks.
In a 12-page order issued last month, Mr. Gallagher said he has initiated an investigation of the two companies, outlined a series of alleged violations, and. ordered them to show why they should be permitted to solicit and transact insurance business in Florida.
May Put Banks on Guard
The insurance commissioner gave the companies until the middle of this month to respond to the charges.
Although the action is currently confined to Blackfeet, the action may put other banks on their guard about offering: the product, industry observers say.
"This could delay the product's introduction or make banks cautious about marketing it," said David W.: Roderer, partner at Winston & Strawn, Washington.
In his administrative order, Mr. Gallagher said he was moving against Blackfeet National Bank and American Deposit Corp. because the companies have been marketing the Retirement CD in Florida. Advertisements have appeared in The Wall Street Journal and other publications, he said.
The marketers are "illegally soliciting or attempting to solicit" residents, the order stated.
Mr. Gallagher also alleged that Blackfeet is acting as an insurance company without proper certification or capitalization, and is "mischaracterizing" the tax-deferred product to skirt state regulations.
Additionally, he charged, its product advertisements and marketing materials omit relevant information about fees and surrender charges.
The action is likely to end up before an administrative law judge.
Promoter's Rebuttal
Richard Fasold, president of American Deposit, has already formulated a response.
"We find their action amazing," he said. "Why would any official in Florida try to prevent residents from having an FDIC insured retirement product?" He also questioned the state insurance department's ability "to regulate a national bank." Blackfeet president Jack Kelly also questions the department's authority over the bank, which is owned by an Indian tribe. The Florida department would have to get permission from a tribal court to take action against Blackfeet, he said. The Florida action is the latest development for a product that has generated controversy since its inception early this year, Insurers, fearful that the Retirement CD will cut into annuity sales, have aggressively lobbied federal lawmakers, who are now threatening legislation to rein in the product.
