1. C'mon, is this really a problem and why should I care?
Settlement industry members were asked to think about how each of the facts below affects the perception of the structured settlement industry each time a settlement consultant meets someone new and perhaps existing clients.
(1) On December 12, 2007 a factoring intermediary published that "probably about 90% of the brokers that the intermediary worked with prefer take the referral fee" (kick back) for introducing sellers of structured settlement payment rights. While NOT ILLEGAL, there is no regulation of this practice. Many factoring companies pay (or have paid) referral fees. In September 2007, the intermediary told this author that the majority of the fees were undisclosed. This means that even if a settlement consultant is NOT disclosing it, there is a strong chance that an informed attorney could believe that there is a 90% chance that the settlement consultant is on the "take". Think about it! Furthermore, It is indisputable that such payments cost tort victims money at a time they are most vulnerable
In a secondary market matter relating to life insurance settlements, the Complaint in "The People of the State of New York by ELIOT SPITZER, Attorney General of The State of New York v Coventry First, LLC et al.makes it clear that The State (New York) has an interest in economic health and well-being of those who reside or transact business within its borders. In addition the state has an interest in ensuring that the marketplace for insurance policies, securities and other financial products functions honestly and fairly with respect to all who participate in it. Brokers owe a fiduciary duty to their client, the Seller".
The Complaint (referring to Coventry) states that "while the Broker may profess to represent the client, in many cases the Broker conceals its conflict of interest and hides the fact that the Broker and the Seller are competing for a slice of Coventry's gross offer Coventry benefits on this scheme by obtaining lower prices for policies it purchases and by creating incentives for brokers to steer business to it". Download Coventry_complaint.pdf (emphasis added)
Although several years later, the intermediary removed the subject post, the intermediary has not gone so far as denying that the practice continued to exist.
(2)Woodbridge Investments, the folks that have (at times) effectively "bribed" people to do business with them by offering them increasing value prizes to structured settlement sellers tied to the level of sale of payment (rights) that secure their financial futures (Download Contest) , boasts that it has paid millions in commissions as part of its "structured settlement professionals program". Who has received these "millions" at the expense of tort victims?
(3)In 2008, one of our sources told us that structured settlement brokers are the MOST GREEDY of all their referral sources, some building in fees of as much as 10%+ in deals where the factoring company was willing to work for much much less.
(4) Peachtree Settlement Funding's marketing company announced a direct mailer over Christimas 2007 to 21,000 potential customers for structured settlement factoring. Where did they obtain this list of names?
(5) In November 2008 certain industry members were purportedly selling names of structured settlement payees and partnered with a "cash now pusher".
(6) In January 2009 an NSSTA member name appeared as the registrant of the website domain of cash now pusher Northeast Settlement Funding, his phone number appears as the number on the website before exposed in this blog. The NSSTA member subsequently stated to us that he sublet space in his office to the "cash now pusher" after a discussion about "ethical factoring companies". Who considers the use of "cash now" advertising to be ethical when there is plenty of support that cash now is not really cash now? In April 2010 we revealed that the new address of the NSSTA member's "tenant" was a bar, replete with Budweiser signs.
(7) We believe that some structured settlement brokers and settlement planners who you may turn to for assistance in selling your structured settlement payments are not disclosing financial arrangements they have with the purchaser of the structured settlement payment rights or with the factoring broker who is handling the transaction. You won't know unless you ask. While there is nothing illegal about seeking compensation for services rendered, concealing such compensation and its effect on the amount of payments that must be sold is questionable, in our opinion. The fee may be buried in the discount rate. The buyer has a cost of money, transactional expenses and profit it builds in to the rate being charged.
(8) In January 2012 we learned that some factoring entities have even paid advances to referring brokers. A structured settlement seller should ALWAYS ask if and how the broker gets paid. If a factoring company or intermediary is asking the broker, "how much do you want?" then why shouldn't you ask how much are your fees, and negotiate the fees?. (9) In January 2012, a factoring company representative related news of mutiple approaches by structured settlement brokers offering to sell their lists of annuitant information.
With the SSTI we simply offered structured settlement professionals the opportunity to NOT be associated with any of the above. We offered them the opportunity to willfully separate themselves from (1) the practice of "structured settlement factoring vig", (2) selling of names of structured settlement payees and (3) distribution of confidential settlement documents to factoring companies. We encouraged those that were "hiding in the tall grass to declare that they take the factoring referral fees where tort victim sellers are being referred. Doing nothing doesn't help clients, individual business or the overall perception of the industry.
In 2012, we observe that more structured settlement professionals are involved with factoring in some capacity, as people see that there are sometimes valid reasons for annuitants to seek liquidity.
2. Why Individuals and Not Companies?
Upon information and belief the problem is with individuals. Companies are however, encouraged to publish ethics statements which include a position on factoring on their websites.Very few do to this day.
3. Why "under penalty of perjury"?
We felt that there's nothing like inspiring faith if you've got some skin in the game, if your statement is false. The Creative Capital CORA, the 4structures.com, LLC Structured Settlement Affidavit and similar pronouncements from other consultants, regarding general primary market structured settlement practice, add an additional layer of comfort for lawyers, tort victims and judges. We hope to do the same with the structured settlement transparency initiative.
Consider that Bronx County New York and other New York counties require a version of broker affidavit as standard court procedure when reviewing infant compromises. The very nature of the structured settlement factoring vig problem is very serious, where you may have lack of disclosure to tort victims of (1)the existence of compensation and (2), the ability to negotiate it.
If you are not engaged in the practice what are you afraid of? Selling names of structured settlement payees is unethical but may violate confidentiality paragraphs in settlement agreements, thereby exposing attorneys who recommended the structured settlement consultant or settlement planner. What is the implication to co-brokers?
To date very few structured settlement professionals have a published business practice concerning factoring of a plaintiff's structured settlement payments.
4. My name is not on the list because my company won't let me
This is a list for people who wish to willfully separate themselves from certain abhorrent business practices and/or make clear disclosures of their practices. Either you're in or not. As an alternative, consider encouraging your company to make a public statement about business practices concerning factoring compensation on your company web site. This author reserves the right to distribute the list of participants to members of state legislatures, members of Congress, each and every state trial lawyer association in the country AND the American Association for Justice in a format suitable for distribution to their members.
5. This is not fair
It's your choice! You are free to participate or not as you see fit. What isn't fair is a tort victim being referred to the same source as those on the list and getting less money at a time of desperate need (e.g. to pay off a credit card, pay for an operation, to get out of bankruptcy) because of the undisclosed and unnegotiated structured settlement factoring kick backs. Do you charge or accept vig from a referral to a plumber for a neighbor or friend in need from a good restaurant for referring someone who is hungry, from a movie theatre where you saw a good movie and referred someone pondering what to do tonight, or from a CPA who you referred to sort out a tort victim's estate? What is also not fair is the rest of the industry being tainted by the actions of certain myopic profiteering individuals
The information being provided IS in the public interest.
6. When will the list be published?
The Structured Settlement Clean Vendor List was first published during the week of December 14, 2007 after it was publicly revealed that a large percentage of brokers were asking for and receiving referral fees. Individuals are added thereafter upon receipt of their original declarations. This is an ongoing grass roots project.
While some gloaters would suggest that the transparency initiative has failed because such a low percentage of the industry have made declarations it actually speaks volumes about the structured settlement industry's lack of resolve about its members participating financially while advising former plaintiffs who are selling structured settlement payment rights. This author and others believe that trial lawyers, judges, injured parties and members of state and federal legislature need to know about it.
7. Who will see the names on the list?
The Structured Settlement Clean Vendor List is published on Structured Settlements 4Real and promoted along with this blog on the web through a variety of search platforms and distribution outlets. Structured Settlements 4Real has been ranked in the Top 50 legal subject matter blogs by Avvo.com and the Top 50 by Justia Blawg Search. This author intends to notify the nation's trial lawyers of this resource which has been designed for the public benefit of tort victims, lawyers, judges and other interested parties. Those on the list and members of the news media may wish to do the same.Some have already volunteered to assist with disseminating this information to their state TLA.
8. Is this sponsored by the NSSTA or SSP?
This is not sponsored by any trade association. It is a private initiative, a completely VOLUNTARY grass roots effort. However ALL members of NSSTA, SSP AND any non member full time structured settlement/settlement planning practitioners are eligible to participate.
9. Why are there no other representations in the declaration?
Because the scope of this declaration is very specific to compensation for structured settlement factoring transaction referrals and handling of confidential information and documents by intermediaries. This declaration is not intended to apply to liquidation of death benefits in a life insurance policy, structured attorney fees or lottery payments (which are not structured settlement factoring transactions defined in IRC 5891).
10. I did participate in one of these deals a few years ago but no longer do. Am I still eligible?
The Structured Settlement Transparency Initiative Business Practices Declaration Concerning Factoring Compensation is clear. The "as of" date is intended allow the project to be inclusive of (1) those who have never taken a referral fee, (2) those who have at a point in time taken a fee and came to a moment of clarity that caused them to stop the practice (3) To give those who do to dislcose the nature of their compensation (4) to give the opportunity to those who are taking fees to stop, if they wish.
Download SSTI Declaration 2011*
* note that the 2011 Declaration is more expansive than the 2007 version and takes into account that more and more structured settlement brokers and settlement planners are involved in the secondary market in some capacity.
11. What if I think it's OK to receive structured settlement factoring kick backs or sell names to factoring companies?
If you take structured settlement factioring compensation when advising selling annuitants you can still participate under the 2011 version. Simply disclose how you are compensated (flat fee or percentage) You can also just not sign the declaration. As an alternative consider posting something about your business practice on your website so that you can be evaluated "on the merits".
12. What happens if I get a call from someone who wants to sell their payment rights after I've signed the declaration?
The declaration is about 3 things. Identifying, for tort victims, lawyers and interested parties, those structured settlement brokers and settlement planners who (1) take no factoring compensation, or have fully disclosed how they are compensated up front (2) Do not sell lists of names or files to factoring companies (3) Do not supply settlement documents to factoring companies in connection with the foregoing. If you choose you can still handle the call and provide pro bono service. You are declaring only what is in the declaration and by declaring "under penalty of perjury" you have willfully created a meaningful disincentive to profiteer at the expense of the tort victim.
Inclusion on the Structured Settlement transperency Initiative Declarants lIst is not intended to prevent settlement consultants from speaking to tort victims about their options when it comes to the secondary market should the need arise.
13. How many people do you expect to get on this list?
We've already got a "minyan". It only gets better from here. Remember that this project is an ongoing VOLUNTARY process.
14. I'm still not convinced
Have a look at the the Florida Stuctured Settlement Factoring Disclosure. Download chambers_fla_disclosure.pdf . That should be all that anyone needs to know that the "structured settlement factoring kick backs ARE coming out of the tort victim's money.
Have you had any attorney express concerns about structured settlements due to the perception that the structured settlement may be factored? What meaningful action have you taken to demonstrate that you are not adding to the problem?
15. Who The Bleeping Hell Are You?
Someone who gives a damn. Do you give a damn? Then show it.
16. I want to make a declaration. Where can I find it?
Simply click the download link right below, sign it, get it notarized and fax it to 203-969-2303!
Download SSTI Declaration 2011
Note that this is the 2011 version of the Declaration which has been expanded to recognize that more and more strctured settlement brokers and settlement planners are involved in the secondary market in some capacity.
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