by John Darer CLU ChFC CSSC RSP CLTC
The Banks Law Office PC of Portland, Oregon is trawling for cases after seeing opportunity in the FINRA and SEC joint warnings about purchasers of income streams.
Banks says May 13,2013 "The attention of state securities regulators in both New York and Massachusetts has been drawn by a recent rise in “structured settlements”. Settlement companies make deals in which government or military or other pensioners trade off their future income streams, at a deep discount, in exchange for a lump sum they receive right away. Those companies may then turn around and attract investors, re-selling these income streams at a premium. These may or may not qualify as securities".
While I am supportive of any efforts to expose and, if warranted, criminally charge wrongdoers in the structured settlement secondary market, I am dismayed that the Banks Law firm has mischaracterized the term "structured settlements".
I encourage Robert Banks and his team to become familiar with the following terms in the Internal Revenue Code.
IRC 5891 (c)(1) Structured settlement definition
The term “structured settlement” means an arrangement—
(A) which is established by—
(i) suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104 (a)(2), or
(ii) agreement for the periodic payment of compensation under any workers’ compensation law excludable from the gross income of the recipient under section 104 (a)(1), and
(B) under which the periodic payments are—
(i) of the character described in subparagraphs (A) and (B) of section 130 (c)(2), and
(ii) payable by a person who is a party to the suit or agreement or to the workers’ compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with section 130.
IRC 5891 (c)(2) Structured settlement payment rights
The term “structured settlement payment rights” means rights to receive payments under a structured settlement.
IRC 5891 (c)(3) Structured settlement factoring transaction
(A) In general
The term “structured settlement factoring transaction” means a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration.
(B) Exception
Such term shall not include—
(i) the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution in the absence of any action to redirect the structured settlement payments to such institution (or agent or successor thereof) or otherwise to enforce such blanket security interest as against the structured settlement payment rights, or
(ii) a subsequent transfer of structured settlement payment rights acquired in a structured settlement factoring transaction.
I submit that FINRA and the SEC are primarily interested in those soliciting pension buyouts, which ARE NOT structured settlements. FINRA and the SEC are also interested in the trading of structured settlement payment rights.
These rights are often traded by individuals and companies who have no insurance license but mistakenly label these payment rights "annuities". Some go so far as to imply that statutory protection available to insurance buyers are available. Some of these individuals and entities may be operating from outside of the United States soliciting both American and foreign investors and/or through a complex labyrinth of entities and layers of concealment to make it difficult for the average investor to discover their true ownership. A number of the entities fail to register to to do business with the Secretary of States where they do business, ostensibly to make it more difficult to serve process but also depriving the states of much deserved revenue. Much of this would simply not be possible if there was regulation on a FINRA or SEC standard about how such products are solicited. A minimum edcuation standard is critical. As it is a number of companies in the secondary market hire SEO firms with non-native English speakers who consistently produce some of the most illiterate solicitation materials for financial products imaginable.
Even more concerning is that gaps in regulation provide a weak point in the financial system for those who want to launder money or invade people's privacy.
Contrast the traders of structured settlement payment rights with those that work with injured parties, insurers and their counsel to place structured settlements. The latter ARE licensed for insurance; ARE subject to continuing education requirements, and if securities licensed , ARE subject to FINRA and/or SEC regulations which include fingerprinting and background checks.
Image: Stephan Petzko/Dreamstime.com
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