## Facts

- National Securities, Inc. controlled National Life & Casualty Insurance Co. (National Life) and acquired control of Producers Life Insurance Co. (Producers), an Arizona insurer.
- After obtaining control of Producers’ board, respondents solicited approval from Producers’ roughly 14,000 shareholders for a merger between Producers and National Life.
- The SEC alleged the solicitation materials contained material misrepresentations and omissions, including failure to disclose that the surviving company would assume certain obligations National Securities incurred to acquire control, shifting part of the acquisition cost to Producers shareholders.
- The SEC sued under Exchange Act § 21(e), alleging violations of § 10(b) and Rule 10b-5, and sought injunctive and equitable relief, including rescission of the completed merger and restoration of the status quo ante.
- Temporary relief to stop the merger was denied; Producers shareholders approved the merger; and the Arizona Director of Insurance approved it under state insurance statutes.
- The merger was consummated, consolidating the companies into National Producers Life Insurance Co.

## Issues

1. Whether McCarran–Ferguson Act § 2(b) barred applying Exchange Act § 10(b) and Rule 10b-5 to alleged misrepresentations and omissions in shareholder communications for an insurance-company merger approved under state insurance law.
2. Whether McCarran–Ferguson barred the SEC’s requested remedies, including unwinding the merger, because they would impair state insurance regulation.
3. Whether § 10(b) and Rule 10b-5 reach misstatements in proxy-type merger solicitation materials notwithstanding the Exchange Act’s separate proxy provisions.

## Decision

- The Supreme Court reversed the Ninth Circuit and remanded.
- McCarran–Ferguson did not bar the SEC action because the state’s regulation, as applied, governed the insurer–shareholder relationship in a corporate control transaction, not the “business of insurance” centered on the insurer–policyholder relationship.
- The SEC’s requested equitable remedies, including rescission, were not barred; any effect on state insurance regulation was indirect and compatible with federal antifraud enforcement.
- The alleged merger-solicitation misrepresentations and omissions fell within § 10(b) and Rule 10b-5; the existence of proxy provisions did not displace the antifraud rules.

## Legal Principles

- For McCarran–Ferguson § 2(b), “the business of insurance” primarily concerns the insurer–policyholder relationship and the insurance contract, not every activity of insurance companies.
- State regulation of an insurance-company merger that protects stockholder interests in the company–shareholder relationship does not, without more, shield the transaction from federal securities antifraud enforcement.
- Federal securities enforcement is not barred merely because state insurance authorities approved the transaction; antifraud relief directed at misrepresentations does not necessarily “invalidate, impair, or supersede” state insurance laws.
- Exchange Act § 10(b) and Rule 10b-5 apply to material misstatements or omissions in communications soliciting shareholder approval of a merger, even where other Exchange Act provisions address proxy solicitations.

## Conclusion

The Court held that McCarran–Ferguson did not preclude the SEC from pursuing § 10(b) and Rule 10b-5 claims based on alleged merger-disclosure fraud involving an insurance company, and that federal courts could consider robust equitable relief, including rescission, because the state’s merger-approval regime regulated shareholder interests rather than the core “business of insurance.”


Securities & Exchange Commission v. National Sec., Inc., 393 U.S. 453 (1969)