In this post I will report on two definitely unethical and potentially unlawful activities that are being perpetrated by structured settlement factoring companies on injury victims with structured settlements and have the potential to cause devastating financial harm if not stopped. Both of these are going on as of March 2018.
A. Structured Settlement Factoring Companies are Selling Irrational Fear Using the State Insurance Guarantee Funds Limits as a Weapon, to Induce People to Sell at Huge Discounts [ ARE YOU LISTENING INSURANCE COMMISSIONERS?]
The scam works like this. "Sheronda Jones" was injured in an accident 15 years ago when she was an 8 year old child and has received a substantial monthly tax-free income from a structured settlement since she was 21 which was split funded with four prominent life insurance companies. The cost of the structured settlement was $5 million and $1,250,000 was used to fund periodic payments from each of the 4 companies. Sheronda lives in Denver which does not permit its licensed agents to speak of its statutory protection. Enter "Foknots Capital", and its unlicensed and unqualified sales person "Griffin Schmutznick", who makes his big move by telling Sheronda that since Colorado guarantee fund is limited to $300,000 per payee, she is exposed big time in the event of bankruptcy. And of course the only solution that Foknots has is to sell it now for pennies on the dollar and give up the tax advantages "just in case" an A++ or A+ company, with hundreds of billions in assets that has been around for 160 years goes belly up.
The same actors that manufacture this poo poo on a stick, will surely use an inverted guaranty fund pitch when they attempt to sell the structured settlement payment rights they acquire from Sheronda to investors using the scam label "secondary market annuity".
B. Structured Settlement Factoring Company Uses Potentially Unlawful Investment Projection to Twist the Annuitant Out of Their Structure
The scam works like this. Unlicensed and unqualified Factoring Company sales person attempts to convince structured settlement annuitant that they can sell their structured settlement and do much better investing the net proceeds elsewhere using an incomplete comparison featuring a single unreasonably high (and possibly unlawful) linear investment projection.
I've previously reported how Client First Funding originated this misleading idea in or about 2013. I've published copies of their letter of solicitation which featured an 8% linear investment projection. In the one I published the investment projection is laden with disclaimers, but promotes 4 investment advisers, two of which were then employed by Wells Fargo. One I spoke to was going to put everything this poor guy had, after selling $2.2 million for $577,000 into mutual funds. He had been receiving $60,000 tax free a year, with annual increases, a decent "salary". According to a legal complaint filed in the Terrence Taylor case, a representative of Bexhill/Client First told Terrence Taylor he could double his money with Wells Fargo if he sold to them. Undisclosed to Taylor, was that a Wells Fargo entity was also an assignee on the same deal. I understand that Client First is no longer doing this.
Now there is another company who is copying Client First's old methods and projecting an even higher linear rate assumption, in excess of 10%. The investment projection for the nebulous investment is generated by the factoring company itself using a free online tool.
The scheme is marketed as "an amazing program that can help put you in a better financial position and allows you to have control/access over your money". The scheme is fraudulently marketed by the Florida company as "one of many ways we can help restructure the policy". The policy is not being restructured.
Here is how the scheme is purported to work:
- The present value of your remaining annuity payments is calculated with today’s market rate. (think 50 cents or worse on the dollar)
- Once the present value is determined, you will know the initial amount of principal you have to work with (similar to what was started with when the annuity was first put into place)
- The company that does this highly recommends that you meet with a certified financial advisor (they claim they can assist in locating them in your area) to put together a financial plan for your future.
- Instead of investing your money with an insurance company, they claim that you can now have the option to put your money with a bank institution or other means (?) to generate interest. (misleading...as if your structured settlement paid no return)
- The interest gained from your principal amount can be used as monthly income to help with every day needs or be used to reinvest in your portfolio.
- This process now gives you full access and control over your money with the help of a professional to make your financial future is setup properly.
Interest rates on April 3, 2018
United State Treasuries (all taxable) Source: Bloomberg
12 month 2.06%
2 Year 2.27%
5 Year 2.60%
10 Year 2.78%
30 Year 3.01%
Municipal Bond (some part of interest tax exempt, depending on the bond and issuer)
1 Year 1.57%
5 Year 2.07%
10 Year 2.46%
Flaws in the Restructure scam
- Trading safe, stable , highly regulated, tax exempt structured settlement ncome stream, for one that is at best tax deferred and at worst fully taxable and exposes the annuitant to more financial risk
- How long it would take just to break even on your selling loss (assuming 50 cents on the dollar)?
1% 72 years
2% 36 years
3% 24 years
4% 18 years
5% 14.4 years
6% 12 years
7% 10.3 years
10% 7.2 years
11% 6.54 years
- Given the volatility that would have to be part of the underlying investments to generate a 10% or 11% yield in the Restructure scam, wouldn't it be more appropriate to use a non linear Monte Carlo analysis to randomly test the assumptions using the rigorously tested scientific method.
- And if you are going to do something such as use a linear analysis when discussing a high yield investment that is characteristically volatile why are you not using alternative interest rates?
Remember the Restructure scam is being pitched by the unqualified and possibly unlicensed structured settlement factoring salesperson before a financial or settlement planning advisor is involved.
Someone needs to see if the investment advisor the factoring company is pimping for is associated with a firm that is involved in funding the structured settlement factoring deal.
More to come on this...