Securities & Exchange Commission v. National Securities, Inc.

National Securities (defendant) developed a fraudulent scheme involving a contemplated merger between a National Securities-controlled firm, National Life & Casualty Insurance Co., and Producers Life Insurance Co. (Producers). The cost of National Securities acquiring Producers was going to be paid by Producers’ shareholders without their knowledge. To try to prevent the merger, the Securities & Exchange Commission (SEC) (plaintiff) filed suit pursuant to the Securities Exchange Act of 1934. The district court denied the SEC temporary relief, and following the required approval by Arizona insurance regulators and Producers’ shareholders, the two companies merged into National Producers Life Insurance Co. The SEC continued with its lawsuit, and the insurers moved for judgment on the pleadings. The insurers argued that because the Arizona director of insurance approved the merger as not inequitable to the stockholders and not contrary to law, which was required under Arizona insurance law, the McCarran-Ferguson Act barred interference from federal law. The McCarran-Ferguson Act prohibits federal laws from impinging on state regulation of the business of insurance unless the federal law is specifically regulating insurance. The district court dismissed the complaint for failure to state a claim upon which relief could be granted. The Ninth Circuit affirmed on McCarran-Ferguson Act grounds. The Supreme Court granted certiorari.