by Structured Settlement Watchdog
According to a 2018 investor presentation by a Buffalo New York structured settlement firm obtained by this author, 40% of investors in structured settlement payment rights are hedge funds, 50% life insurance companies and 10% individual investors. That could mean that some of the worst cases of financial rape of minorities, retirees end up benefiting rich hedge funds and their investors and life insurance companies.
The structured settlement secondary market is a highly corrupt industry:
- No licensing, no regulator. An expensive road for victimized consumers to seek redress. Victims are often young minorities who have been shafted, some for more than a million of dollars. Contrast that with the licensing and regulation of the industries from where the investors originate.
- Many intermediaries operate under tens or hundreds of fictitious names to protect themselves.
- The companies are likely uninsured, or woefully underinsured. The Access Funding scam saw Access Funding with only $1,000,000 in coverage. The company shut down in 2015 and opened as Reliance Funding at the same address.
- Misleading and often fraudulent advertising is the norm not the exception.
- It's largest player, JG Wentworth has had to file for bankruptcy twice. Investors in its IPO saw their investments rapidly dwindle to zero. At one point as I previously highlighted, before it was delisted and JG went bankrupt for the second time, its stock chart resembled an extended middle finger.
- Two law firms working for structured settlement factoring companies associated with forgeries
- A player for a series of Maryland firm that was banned from doing business in Maryland for 7 years (from January 2018) for fraud had to pay restitution, had to plea bargain with the Rhode Island United States Attorney for fraud on that Court
- More than one firm has induced structured settlement annuitants to trade their payments for pennies on the dollar for higher risk investment using investment projections that would be illegal under FINRA regulations.
- More companies have left the National Association of Settlement Purchasers than have joined. Three industry leaders Earl Nesbitt, Patricia Laborde and Matt Bracy have left NASP and the industry.
- Individual investors, including retirees, have effectively been conned into buying what they thought were annuities but are not in fact annuities. In December 2018, the National Association of Insurance Commissioners (NAIC) issued Statutory Issue Paper 160, in which it stated that factored structured settlement payment streams are not annuities or insurance products and cannot be accounted for as such.
- People continue to be illegally forum shopped into states where they don't reside, the factoring company knowing that having inveigled the seller in a fraud on the Court, possibly ensuring an easy defense. New York to CT has become popular and I will soon be breaking a story of a denied in New York, then filed in Florida forum shop, in 2019!
And when you consider that 90% of the investors in factored structured settlement payment streams are insurance companies and hedge funds, you have to scratch your head and say why is there no regulation? Something stinks.
For starters, read about the Lauren Ashley Nesbitt case where Seneca One hosed an Oklahoma resident for over $1 million in profit spread and then flipped (assigned the rights to) the payments to Reliance Standard Life Insurance Company, a member of the Tokio Marine Group. If you click on the link within the linked post at the beginning of this paragraph you will be able to see it in black and white. Tokio Marine's property casualty arm uses structured settlements to help resolve and settle claims against its insureds. This is not an indictment of either of these companies, however corporate management of Tokio Marine and Reliance Standard should take a long hard look at what they are buying, BEFORE they buy, in my opinion to avoid the bad optics and reputational risk.
What will be the impact of the accounting change> Will forensic research show more questionable deals acquired by insurers either individually or through securitizations?
What will a review of the blue books of certain insurers say now that these instruments can no longer be buried as annuities or insurance products?
In these days of heightened attention to corporate ethics, is it time for corporate governance at life insurers to address what they are investing in? Can a life insurer afford to bury its head in the sand believing that buying through a securitization is a way to bypass such scrutiny?
Is it time for the clients of hedge funds and the hedge funds themselves to pay more attention to what they are buying?
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