by Structured Settlement Watchdog®
Secondary Market Annuity | A Massive Untruth
The term secondary market annuity is a massive untruth that uses the cachet of annuities as a cover for non-insurance receivables to capture investors. It has propagated due to lack of regulation of sales practices that deserves the attention of the Consumer Financial Protection Bureau and state regulators.
In my October 10, 2015 post Maryland Congressman Questioned Whether "Secondary Market Annuities" Are Annuities Under Maryland Law, I reported on how Maryland congressman Elijah Cummings questioned the scam label. Enough already, it must be stopped, following the news that an elderly couple were screwed out of over $150,000 after doing business with their financial adviser, who pipe-lined the deal through a New Jersey company which purportedly did due diligence in acquiring the assignment of structured settlement payment rights from a Delaware company that originated the deal in Florida where it turned out that the documents contained a forgery.
This Shit Just Doesn't Happen When You Buy Legitimate Annuities
Please excuse the appropriately placed expletive, but a strong response is needed. This just doesn't happen when you buy legitimate annuities directly from a licensed agent of an insurance company. Legitimate annuities are regulated insurance products sold by licensed insurance producers whose business practices are regulated by each state in which they conduct business.
Structured settlement receivables marketed to unsuspecting investors using the scam label "secondary market annuity" "secondary market annuities", "SMIA" or "SMA" are not annuities and the sales practices are unregulated.
- 'Secondary Market Annuities are factored structured settlement payment receivables" says SMA Source. The owners of the company "market annuities nationwide to retail investors and hold insurance licenses in nearly all states'. Yet there is no licensing or regulation of the solicitation of investors in structured settlement receivables (i.e.factored structured settlement payment rights)
- On the website Annuity Straight Talk, run by the same folks as SMA Source, there is an astounding admission that ‘Secondary Market Annuity’ is easier to say than ‘Factored Structured Settlement’ ‘Previously Owned Annuity’, or even ‘In Force Annuity’ and thus SMA has become an industry standard'. What does such a purported industry standard say about the industry if participants are merely "cunning linguists' who sayeth not what they are selling as a matter of convenience?
- Annuity Advantage, a company run by Ken Nuss out of Medford Oregon,which has made the decision not to offer structured settlement derivatives, states "Investors can purchase these secondary market annuities from the original owner, usually with the involvement of some type of intermediary, and have the future stream of payments assigned to them". The implication that the annuity is sold is completely false. Structured settlement annuities are most often owned by a qualified assignment company and such ownership remains intact even after a structured settlement factoring transaction takes place. Nuss also reasons that "Unlike primary market (directly issued) fixed annuity products, your state guaranty association provides NO coverage for secondary market annuities (SMAs).
- Hersh Stern, the NJ owner of Immediateannuities(dot)com admits "A Secondary Market Annuity (SMA) has many names: Structured Settlement Annuities, In Force Annuities, Secondary Market Income Annuities. All boil down to the same thing. They are cash flows beings sold to you by owners who have opted to sell their payments for a lump sum. Therefore it is not a purchase between you and an insurance company, but between you and the recipient of a stream of cash, facilitated by an attorney and a broker.
Wall Case Undermines Stern's Position
However the Wall case, where the elderly couple got screwed out of $150,000 illustrates that Stern's statement is not exactly correct. The Walls relied on the advice of their financial adviser who introduced them to Altium Group, LLC, another NJ company having a similar business model to Stern, which acquired the rights to structured settlement payments (not the annuity) from the originator Corona Capital, a small Delaware company which originated the acquisition of the rights from a Florida man. Two years later a Florida Court determined that the man's signature on the 2012 transfer documents was a forgery and vacated the transfer order in 2014, redirecting payments back to the original payee, leaving the investors devastated.
In another series of cases structured settlement receivables were acquired by personal injury victims on the advice of their settlement planner, through a well known intermediary that used the scam label "secondary market annuities". It emerged that there might be compliance issues with one or more of the deals. The problem for the investor is that the originator factoring company was a small entity that is no longer in business. The settlement planners advising the injury victim investor may or may not have the sophisticated knowledge to do the appropriate level of due diligence on the deals. Upon information and belief the well known intermediary acquired a number of deals from Access Funding
Companies like Bulbrook Drislane, which also has a similar model to Stern, began selling structured settlement receivables using the label "in force annuities" in late 2007, recognized the problem with the Secondary Market Annuity scam label and its website now refers to such structured settlement receivables as InForce Payments and Secondary Market Payments.
Other companies which marketed structured settlement receivables with the scam label "secondary market annuities" have suspended operations "due to certain industry developments".