by Structured Settlement Watchdog®
Last week the head of a structured settlement agency, appointed by most, but not all of the life insurance companies issuing structured settlement annuities stated the following in an email from his agency email, about his agency, to a third party, that I have obtained:
That it is "the only primary market, as well as origination firm for secondary market transfers that I’m aware of".
What is an origination?
All the the steps necessary to attract a potential borrower,process a loan request, prepare all necessary paperwork,and place the loan on the books of the lender
What is an origination firm for structured settlement transfers?
All the the steps necessary to attract potential buyers of structured settlement payment rights, enter into agreements with sellers, prepare all necessary paperwork, itself or in conjunction with counsel ,and place the assigned payments on the books of the buyer, or its assignee(s). Examples of secondary market origination firms for structured settlement transfers are J.G. Wentworth, Stone Street Capital, Liberty Settlement Funding, Bentzen Financial, Strategic Capital and Catalina Structured Funding.
Is structured settlement origination an illegal business?
No it most certainly is not. Virtually all states have a structured settlement protection act which sets forth basic rules for structured settlement factoring transactions. Originators of secondary market transfers must comply with the law or they may be subject to a 40% excise tax on the factoring discount for violation of Federal law [ see IRC 5891]
Doesn't the agency's admitted business of the "origination of secondary market transfers" conflict with the Bylaws of the National Structured Settlements Trade Association?
Yes, it is appears to be in direct conflict. However, neither the agency nor any of its members are members of the NSSTA and thus not directly affected by NSSTA bylaws.
The life insurance companies may or may not be in conflict with NSSTA bylaws. For their benefit and for the purpose of clarifying NSSTA's message to its members, to the legal community at large and to Congress, I strongly suggest that NSSTA takes action to clarify what its bylaws mean in the context of its life insurer members. The NSSTA board contains life insurer representatives issuing structured settlement annuities and entering into contracts with agencies, such as its current honorable President, next honorable President and numerous former honorable Presidents and honorable Board members have included members of life insurers that issue structured settlement annuities.
What are the potential conflicts of interest?
If one is acting as a fiduciary of an investor, one is in an adversarial position to the seller.
If one is acting as an agent of the seller then as an adversary, one cannot be a fiduciary of the buyer, or assignee.
In 2009, Judges in Bronx County Supreme Court in New York were so concerned about structured settlement broker participation in factoring that the inclusion of the following language that structured settlement brokers became required to be sworn to under local court rules for a Structure Broker's Affidavit"
"11. Neither I nor (Insert name of company) will, without the express consent of the plaintiff and the prior written approval of this court: (a) provide any information about this settlement to any factoring company for any purpose; or (b) solicit the plaintiff or plaintiff’s family on behalf of any factoring company for any purpose, including, but not limited to, the proposed sale of plaintiff’s future periodic payments, nor will I or (Insert name of company) participate, assist, promote, or aid in such solicitation by any person, firm, corporation or entity; or (c) seek or accept any consideration, financial or otherwise, directly or indirectly from a factoring company.
The same agency head has a made a career of drumming up business for his agency by highlighting a real or perceived conflict of interest between structured settlement experts and settlement planners engaged by plaintiffs and defendants. How is that agency resolving those conflicts now that it is, by its own admission, "an origination firm for secondary market transfers"? (emphasis added)
In June, after accidentally stumbling upon Google ads and a website claiming to be able to not only beat but crush JG Wentworth (and its insanely low cost of money) by 50%* and having done extensive research and inquiries to connect the dots, I ended up on the doorstep of the firm in question. To get "the goods", I was asked to sign a 3 year non compete with a $100,000 liquidation of damages clause which I refused, because I sensed that this is a watershed moment in the industry deserving of critical commentary. With Patrick J. Hindert is no longer available, Sequence Media traditionally not going there, possibly due to factoring company sponsorship, there isn't anyone else with the structured settlement secondary market nous to play this role.
*since my June 2018 post, the subject website includes a disclaimer about the 50%, that it was based on historical rates and a survey of factoring companies. The fact is that historical numbers mean little. Rates are different deal by deal. JG Wentworth can look like crap one moment and smell like roses the next on the same deal.
How does the agency manage its conflicts of interest? Where is the disclosure?
Upon information and belief, the agency in question, itself or via related entities, does pre-settlement loans, settlement planning, structured settlement annuity brokerage, qualified settlement fund administration, sales of structured settlement derivatives to investors, acts as a registered investment adviser and now, according to last week's email, by its own admission, "originator of secondary market transfers".
What major question I have to ask is while the email of last week is on from the same email address believed to be used to communicate with contracted life insurers issuing structured settlement annuities why is there no disclosure of this activity on the public facing website of the agency?
In a well written March 2018 article, the author of the above email wrote "For now, we’ll hope for a world where true or near true liquidity (access to fair market value, like what exists in the Real Estate Industry) exists for existing structured settlement recipients".
Am attempt to reach the author of the agency head and author of the subject email for comment has not been responded to.