by Structured Settlement Watchdog
This is an important post for structured settlement investors, settlement planners who are advising their clients to invest in structured settlement payment rights, financial advisers for investors, accountants for investors,adminsrators of pension plans and state court judges presiding over attempts to characterize investments in factored structured settlement payments for minor's structured settlements.
There is ample reason to be worried if you enter into a Receivables Purchase Agreement with Genex Capital and don't carefully review ( or didn't review) all of the Genex RPA and really understand its impact on your rights as an investor, in my opinion. Recent changes to the Receivables Purchase Agreement in 2020 appear to be an attempt to by Genex Capital, to give Genex Capital the ability to confiscate investor's structured settlement payment rights without compensation should the investor have a change in circumstances, if they don't resell them through Genex Capital.
Who is Genex Capital?
Genex Capital Corporation, a factoring company and intermediary which lists its location at a Delaware UPS store mailbox at 73 Green Tree Lane in Dover, Delaware, but operating out of Vancouver Canada, buys, by its own admission, "structured settlement payment rights and other annuity payments and resells them to private and institutional buyers". [ Source: Assured Annuities website 7/29/2020 ] So why is Genex Capital pitching these structured settlement payments rights to investors as if they were buying a legitimate structured settlement annuity?
Genex Capital claims "Genex Capital has been in the business of buying structured settlement annuities on the secondary market since 2003 and we pioneered the offering of our Assured Annuity™ to the retail buyer market in 2006". Genex Capital has also claimed in written materials soliciting investors that it has a number of channels, including an extensive broker network, through which structured settlement annuities are acquired. However, if put to the challenge I suspect that Genex Capital would be hard pressed to provide proof that it has actually purchased any structured settlement annuities. This is because with any legitimate structured settlement, the payee never owns the annuity contract. The structured settlement annuity is owned by the qualified assignment company. What appears to be happening is that Genex Capital is merely buying structured settlement payment rights and labeling them annuities when they are not. Tsk! Tsk!
The National Association of Insurance Commissioners opined in its Statutory Issue Paper 160, published in December 2018, that acquired structured settlement payment rights are not annuities or insurance products
2017 Delaware Court Decision Nixed Attempt to Use Genex Capital Receivable Purchase Agreement as "Annuity" in Minor's Prove-Up Hearing
What Genex Capital pitches as structured settlement annuities are nothing more than a Receivables Purchase Agreement as a Delaware judge opined in a March 29, 2017 decision in Greenwald v Caballero-Goehringer, Delaware Superior Court C.A. No. K14C-04-027 JJC. a Delaware Superior Court judge rejected an attempt to portray structured settlement payment rights as an annuity in a minor's prove up hearing, stating. "The proposed "structured settlement" was described in the Third Petition as a structure to be purchased through a third party to be facilitated by a Houston, Texas law firm. The "annuity" proposed by the Petitioner was in fact a "receivable purchase agreement" which involved purchase of the rights of payment of a structured personal injury settlement from a California injured party having nothing to do with this case. In other words, the annuitant in the proposed plan facilitated by the Texas law firm was the California claimant, not the Minor. Furthermore, despite the Petitioner describing The Hartford as providing the annuity, the seller of the receivable purchase agreement was Genex Capital. No rating was provided for that entity in the petition. The Court denied the Third Petition, without prejudice"
In pitching non annuities to the investors under the label " Assured Annuities", Genex Capital states " Each Assured Annuity™ is paid directly to you by a U.S. based Insurance Company with a credit rating that is generally AAA to A rated by Standard and Poor’s. In cases where you may want to resell the annuity in the future or in other appropriate circumstances, these payments may be paid through a third party bonded servicing company arranged by Genex Capital. In such case, you will have a direct relationship with such servicing company"
Why Would Anyone Want to Resell Their Structured Settlement Investment?
The same reasons why someone might want to sell their structured settlement payment rights to a company like JG Wentworth and others. Times change. Needs change. Upon information and belief Somerset Wealth Strategies, at one time a very large intermediary of factored structured settlement payment streams, began in or about 2019 seeking out annuitants and offering to buy their payment streams at attractive prices.
Why Genex Capital 2020 Receivables Purchase Agreement Should Concern Investors
Genex Capital Corporation updated its Receivables Purchase Agreement in February 2020.
3.4 Buyer’s Assignment rights. Buyer shall not have the right or power to further assign or sell the Receivable or make changes of any nature or kind to the payment particulars or payment address or designated assignee and must keep regardless of circumstance unless otherwise in writing upon written request by Buyer to Genex, which approval and consent may be unreasonably withheld. GENEX HAS THE SOLE RIGHT, AUTHORITY AND POWER WITH RESPECT TO FURTHER ASSIGNMENT OF THE RECEIVABLE AS WELL AS THE BENEFITS AND OBLIGATIONS PURSUANT TO THIS AGREEMENT. IN THE EVENT THAT BUYER BREACHES THIS SECTION 3.4 THEN IS AGREEMENT IS AUTOMATICALLY VOID AND GENEX SHALL HAVE THE ABSOLUTE RIGHT WITHOUT NOTICE TO REDIRECT ALL OUTSTANDING PAYMENTS UNDER THE RECEIVABLE TO GENEX’S ACCOUNT AS LIQUIDATED DAMAGES FOR SUCH BREACH AND NOT AS PENALTY AND THEREAFTER GENEX SHALL HAVE FULL RIGHTS OF OWNERSHIP INCLUDING BUT NOT LIMITED TO THE RIGHT OF ALIENATION WITH RESPECT TO SUCH PAYMENTS WITHOUT COMPENSATION TO BUYER.
4.2 (f) Buyer understands that there are risks associated with an investment in Receivables including but not limited to the risk of default on the part of the Obligor and that in the event of default, Buyer may be unable to recover its investment;
4.2 (g) Buyer understands that the Receivables and this Agreement and Court Order contain onerous ownership restrictions including but not limited to assignment restrictions and that Buyer understands and warrants that they shall hold the Receivables for the balance of their respective terms;
The 2020 Genex Capital Receivables Purchase Agreement Is More Confiscatory Sounding Than the 2013 Version Previously Found Online
Paragraph 3.4 of the 2013 Genex Capital Receivables Purchase Agreement says "Buyer’s Assignment rights. Buyer shall not have the right to further assign or sell the Receivable and must keep the Receivable for the balance of its term unless otherwise expressly approved by Genex". One line, that's it.
What could be the reason for Genex Capital's big change? I invite SMA Hub, DCF Exchange and other tertiary market and secondary market companies that solicit and market factored structured settlement payment streams to individual investors to speak out about their companies' receivable purchase agreements and whether or not Genex Capital's business practice is a standard practice.
Nathaniel Pulsifer, President and Founder of DCF Exchange, responded that "it's very unusual, especially the part where consent to a buyer's subsequent transfer may be “unreasonably withheld”. That seems incredibly problematic for the buyer to have such a restriction on their rights to transfer".
In my opinion, yield starved buyers contemplating buying structured settlement payment rights as investments in their retirement plans should definitely chill before investing and see what you're getting into. Settlement planners should be guided accordingly before recommending these alternative non annuity investments to their clients. If you or your client have already bought a factored structured settlement payment stream via Genex Capital, your heirs could unwittingly lose their inheritance by reselling the inherited payment rights at the whim of Genex Capital CEO Roger Proctor if he chooses to "unreasonably withhold" approval. This is a developing story. Again and I cannot stress enough, buyer beware!