by Structured Settlement Watchdog
What are the duties of a structured settlement factoring companies to their investors?
Genex Capital Corporation recently issued "recall notices" to investors in structured settlement payment rights where payments are being serviced. The notice headline is "RECALL FIRST NOTICE---ACTION REQUIRED"
""As a valued client, we believe it is our duty to continually evaluate your holdings, consider whatever external risks may be developing and make recommendations in an effort to protect your investments with us" signed Genex Capital Corporation, Per Roger Proctor President and General Counsel
One of the notices says RE: GENEX CAPITAL RECEIVABLE---GABC-SAF -LC/ Original Purchase Date 6/12/2015
What is GABC?
On April 19, 2012, the Supreme Court of the State of New York, Nassau County (“Receivership Court”) entered an Order finding Executive Life Insurance Company of New York (“ELNY”) to be insolvent and approved a Restructuring Agreement in connection with the liquidation and restructuring of ELNY. By Order of the Receivership Court, the Superintendent of Financial Services of the State of New York, as Receiver, was directed to liquidate ELNY’s business and affairs in accordance with New York Insurance Law and in substantially the manner provided in the Restructuring Agreement. The Liquidation Date of ELNY was the closing date of the Restructuring Agreement, which occurred on August 8, 2013.
Substantially all of ELNY’s remaining assets have been transferred to Guaranty Association Benefits Company (“GABC”), then a newly created not-for-profit captive insurance company owned by the Participating Guaranty Associations that is referred to as “NEWCO” in the Restructuring Agreement. Since the Liquidation Date, GABC has been responsible for managing such assets and making payments to contract owners, payees and beneficiaries. Source: New York Liquidation Bureau
What about the other acronyms?
SAF is presumably Structured Asset Funding and based on the content of the notice, LC stands for Loan Care, a company that is involved with payment servicing.
Receivables v Annuity
It is worth noting that in this "recall notice", Genex Capital refers to the investment as a receivable not an annuity. On the other hand, since late 2013, Genex Capital has operated a website called Assured Annuity which it describes on that brand's website as its "retail arm" It has been my long-standing position that what is being sold are not annuities but factored structured settlement payment rights.
In January 2022, in litigation pending in Arizona, Proctor issued a declaration in which he eloquently described what investors who chose payment servicing (instead of direct assignment), were buying were "subsets" of structured settlement payment rights. In my opinion, consistent with my long term documented beliefs, it's the perfect way to describe them as opposed to the inaccurate "annuity".
To wit "Each of the Defaulting Investors in this litigation chose payment servicing over taking a direct assignment to the payments. As such they voluntarily elected to take the lesser subset of rights associated with the Receivables with all of the corresponding benefits and restrictions associated therewith rather than choosing to become the direct designated payee in the respective court orders. By this election the Defaulting Investors avoided having to, among other things, indemnify the Annuity Issuers and Annuity Owners".
[from 1/3/2022 Decl. of Roger Proctor in Response to Seeley Defendants' Motion for Partial Summary Judgment (at #56) IN THE SUPERIOR COURT OF THE STATE OF ARIZONA IN AND FOR THE COUNTY OF MARICOPA
GENEX CAPITAL CORPORATION, a Delaware corporation; Plaintiff, vs. SEELEY CAPITAL MANAGEMENT, INC., a Massachusetts corporation; et al., Defendants. AND RELATED COUNTERCLAIM; RICHARD L. KEEFER and VICKI L. KEEFER, husband and wife; et al., Plaintiffs,vs. GENEX CAPITAL CORPORATION, a Delaware corporation; et al., Defendants. Case Nos: CV2020-004958 CV2020-013796 (Consolidated) at #1]
In a recent letter to a structured settlement investor:
"Our records indicate that you purchased a Genex Capital Corporation ("Genex") Receivable paid by___________. You selected the servicing option with Security Title Agency ("STA"). At the time you purchased this investment, STA was the premier payment servicing company. Genex prepaid the fees for STA's services for the duration of the term of your Receivable.
Recently, STA has undergone a number of ownership changes. In 2018 STA was sold to LoanCare, LLC and then on December 1, 2021 LoanCare resold STA's payment servicing portfolio to Sutton Park Capital, LLC ("SuttonPark"), all without Genex's prior knowledge or consent. Sutton Park is a reputable company with whom we have a good relationship, but the series of sale transactions and poor state of STA historical recordkeeping have resulted in significant and chronic payment delays being experienced by our valued clients. In short, Genex no longer has confidence in the servicing arrangement originally attached to your investment. Many of you have contacted us over the past several months expressing concern and seeking our assistance in obtaining your missing payments. The situation is not acceptable.
To keep our clients out of harm's way, we considered three potential options:
- Commence litigation against STA and Loancare seeking damages for breach of contract on your behalf (Downside-potential aggravated payment delays and costly protracted litigation)
- Transfer the more than 478 active STA accounts to another Genex approved servicing company(Downside-potential further payment disruption while Genex obtains amended court orders naming a replacement servicing entity.)
- Offer our value (sic) clients a one-time Genex subsidized Recall/Repurchase option to permanently eliminate this unforeseen risk and provide liquidity to you.
After consideration, we decided to proceed with Option 3 as it is the most effective, efficient, and certain option that maximizes your protection. Upon repurchase, Genex will be taking these Receivables out of circulation so as to safeguard the continued integrity of Genex's Receivable products.
This offer is open for acceptance until April 30, 2022. If you choose to not accept this offer, Genex shall no longer oversee the timely remittance 'of your payments as we have no contractual relationship with SuttonPark. However, reassignment restrictions shall continue to be in effect to protect the integrity of Genex's Receivable products.
WHETHER YOU CHOOSE TO ACCEPT THIS OFFER OR NOT, YOU MUST CONTACT US IMMEDIATELY TO UPDATE YOUR CONTACT INFORMATION ANO CONFIRM THAT YOU ARE STILL THE RECIPIENT OF THIS RECEIVABLE. FAILURE TO PROVIDED (sic) UPDATED INFORMATION BY APRIL 30, 2022, SHALL BE CONSIDERED AN EVENT OF DEFAULT RESULTING IN THE AUTOMATIC SUSPENSION OF YOUR RECEIVABLE PAYMENTS UNTIL SUCH TIME AS YOU RESPOND TO THIS REQUIREMENT.
For further information (about their recall notice), Genex Capital asks to direct your inquires "to Kevin Lowe or Linda Holland at 1- 800-348-3098. Please note, Genex Receivables purchased after 2015 were never serviced by STA and, therefore, remain unaffected by this unfortunate situation".
In an excerpt of another similar letter, the last sentence said:
“Please note, Genex Receivables purchased using Allied Servicing Corporation or Goldstar Trust Company remain unaffected by this unfortunate situation”. That letter had a response date in May 2022.
- What is the significance of the Genex Capital use of the term "duty" as set forth in Proctor's letter? What type of duty is it? Is it a fiduciary duty, a moral obligation? Again they say, "As a valued client, we believe it is our duty to continually evaluate your holdings, consider whatever external risks may be developing and make recommendations in an effort to protect your investments with us?"
- In view of Proctor's 1/3/2022 declaration and these letters, together with NAIC Statutory Issue Paper No. 160, the definitions of annuity under state insurance departments and the granular differences between annuities and receivables, and a fundamental fallacy that any structured settlement factoring company is actually buying a structured settlement annuity, can Genex Capital, or any other company justify the use of the term annuity to describe receivables they make available to investors. Roger Proctor deserves partial credit by his recent actions, for helping to reverse an inaccurate definition of what investors are buying when they buy factored structured settlement payment rights, or subsets of structured settlement payment rights. Thank you.
- Whether or not it makes sense to proceed depends on an individual's facts and circumstances. If you don't need liquidity and are satisfied with the security of your cash flow, is there a need to sell, if you must sell at a discount? As is clear from the Genex Recall Notice, there is a cost to selling. The investor must give up some of their contracted-for gains. One of the excerpts reviewed involving a $120,000 receivable from an Allstate structured settlement due in October 2024. While the investor, in one example, would end up with a 43% gain on their original investment, the investor would have to forego about $16,389.13 ($120,000.00- $103,610.87). The cost of doing business.
- With respect to #3, Allstate Life Insurance Company spun off its non-New York life insurance and annuity business (including structured settlements to Everlake Life Insurnace Company. On March 4, 2022, AM Best affirmed the A+ (Superior) Financial Strength Rating and the aa- (Superior) Long-Term Issuer Credit Rating for Everlake Life insurance Company and Everlake Assurance Company. in A.M. Best opinion, these ratings reflect Everlake’s balance sheet strength, which was assessed as “very strong”, as well as its “strong operating performance, favorable business profile and appropriate enterprise risk management.”
- Pay attention to the deadline in the letter regardless of whether you are going sell.
Recalls.gov is a resource for recall notices from 6 government agencies
Last updated April 14, 2022