Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Why Does NJ Insurance Agency Claim Secondary Market Annuities Involve POLICY transfers?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Licensed Life Insurance Agent Hersch Stern is a very bright guy, long time licensed insurance agent and a general agent for many life insurance companies in Englishtown New Jersey. 

Stern's company website at ImmediateAnnuities(dot)com makes an inaccurate claim about structured settlement transfers

"Secondary Market Annuities (SMAs) are policies being transferred by an annuitant pursuant to state transfer laws. Annuities listed are subject to prior purchase, prior sale, or withdrawal by seller. Interest, payments, and prices are calculated using industry standards".  ImmediateAnnuities(dot)com

Where Immediate Annuities.com is not accurate about Structured Settlement Receivables

• Referring to assigned structured settlement payment rights as an annuity or annuities is inaccurate.
• A structured settlement factoring transaction does not involve any transfer of annuity policies.
• A structured settlement transfer does not involve the transfer of annuity policies
• The "annuities listed" as secondary market annuities are not annuities. They are receivables.
• NJ is one of the 40 states that have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520). There is an express exclusion for anyone "who acquires rights to receive payments through a structured settlement factoring transaction as defined in section 5891 of the federal Internal Revenue Code, 26 U.S.C.s.5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective". 

Why?

Investors are buying receivables not annuity policies!   In a structured settlement transfer the policy doesn't transfer

New Jersey "Structured Settlement Protection Act." N.J.S. § 2A:16-63

N.J.S. § 2A:16-64 Definitions

"Transfer" means any sale, assignment, pledge, hypothecation or other alienation or encumbrance of structured settlement payment rights made by a payee for consideration; except that the term "transfer" does not include the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution, in the absence of any action to redirect the structured settlement payments to the insured depository institution, or an agent or successor in interest thereof, or otherwise to enforce the blanket security interest against the structured settlement payment rights.

"Transfer agreement" means the agreement providing for a transfer of structured settlement payment rights.

"Transferee" means a party acquiring or proposing to acquire structured settlement payment rights through a transfer.

Res Ipsa Loquitur.

 

 

Coral Springs Co. Wholly Misleading Statement Re "Purchase of Structured Settlement Annuities"

by Structured Settlement Watchdog

Coral Springs Company Makes False Wholly Misleading Statement Re "Purchase of Structured Settlement Annuities"

According to MJ Structured Settlement Annuities' (MJSSA) definition, "a Structured Settlement Annuity (SSA) is an annuity from an insurance company paid over a period of years as a result of a legal settlement for financial restitution". For example, MJSSA says, "the victim of a motor vehicle accident may be awarded an SSA where the guilty party will fund an annuity to pay out to the victim over time"

MJSSA Fails to Comprehend Basic Difference Between Civil and Criminal Lawsuits

Setting aside MJSSA's showing a lack of understanding of the difference between a civil suit (where at the conclusion of trial a civil Defendant may be found liable (as opposed to a criminal trial where a Deendant could be found guilty)**, MJSSA makes a false and wholly misleading marketing claim by holding out  the purchase of factored structured settlement receivables as a purchase of a structured settlement annuity (or structured settlement annuities).  

"MJSSA offers investors the opportunity to purchase Structured Settlement Annuities that deliver a guaranteed, fixed income stream over a defined period of time. These are individual, one-time-only secondary market annuities available for a limited time". See the screenshot immediately below.

Screenshot for critical commentary, retrieved from MJSSA website 9-14-2023

It is well settled that factored structured settlement payment rights are not annuities 

1. Factoring is a sale of receivables. For example, see  A. DRB Capital -- Structured Settlement Receivables Successfully Acquired | News & Insights | Arnall Golden Gregory LLP (agg.com) "DRB Capital, LLC, is a Florida-based specialty finance company that buys and sells structured settlement receivables, such as annuity payments and court-ordered payments"  and "As a result of the deal, DRB, which has over $1 billion in committed capital and employs more than 150 people, was able to add a substantial inventory of structured settlement receivables to its balance sheet". B. Genex Capital Corporation Issues "Recall Notices" on Certain Pre-2015 Genex Capital Receivables - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com);

2. The National Association of Insurance Commissioners (NAIC), in its Statutory Issue Paper No. 160, which was finalized April 6, 2019,  made it clear that acquired structured settlement payment rights are not annuities or insurance products. See NAIC Statutory Issue Paper No. 160 p6 Section 6, footnote which states clearly  " This guidance is specific to acquired structured settlement income streams (legal right to receive future payments from a structured settlement) and does not capture accounting and reporting guidance for the acquisition of any insurance product (e.g., life settlement, annuities, etc." ]

3. In the event of insolvency of the underlying annuity issuer, investors in acquired structured settlement payment rights are screwed in 80% of the US states, have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), which expressly excludes acquired structured settlement payment rights from insolvency schemes. The application of the exclusion expressly applies to acquired structured settlement payment rights that were acquired prior to the effective date that the investor's state adopts the 2017 Revisions to the Model Act. 

4. Section 5891 of the United States Internal Revenue Code of 1986, as amended states that "The term “structured settlement factoring transaction” means a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration".

5. Structured Settlement factored receivables do not meet the definition of annuity under the laws of the State of New York. For example: "An annuity is a contract between a purchaser and an insurance company in which the purchaser agrees to make a lump sum payment or series of payments in return for regular disbursements, beginning either immediately (within 12 months) or at some future date"  Source: New York Department of Financial Services. 
6. Structured Settlement factored receivables do not meet the definition of annuity under the laws of the State of Georgia.  For example "An annuity is a contract you enter into with an insurance company to provide a guaranteed income in exchange for a payment or series of payments"  Source: Annuity | Georgia Office of Insurance and Safety Fire Commissioner
7. Ask MJSSA if any of their current structured settlement receivables offerings (falsely held out as annuities) are covered by your state's life & health guaranty association?  Here is where the MJ Structured Settlement Annuities has been a bit naughty and says that they are (not even a "maybe"). See number 3 from the screenshot of September 14, 2023 10:11 below.
8. 

   Wow, no no, just WOW!  Check out #3 | This is an excerpt retrieved 9-14-2023

Factored Structured Settlement Receivables Are An Unregulated Non-Insurance Product Sold, and Continuing to be Sold by Certain Salespeople and Companies under the Wholly Misleading "Secondary Market Annuities" 

Factored structured settlement receivables have been marketed to investors, including seniors in Florida, injury victims, trial lawyers and fiduciaries as "structured settlement annuities",  "secondary market annuities", even by people they trust that hold insurance licenses. There is little regulation of the the sales practices of structured settlement factoring companies and these receivables being deceptfully marketed as "annuities" or  "secondary market annuities" to investors by the secondary or tertiary markets. With what is known, the lack of regulation is just reckless at this point and has been for more than a decade.

Here MJ Structured Settlement Annuities is holding out a list of stuctured settlement factoring receivables for sale as if they are annuities and advertising them as offerings to investors. See  Available Offerings - MJ Structured Settlement Annuities (mjsettlements.com)

And the operative question is why? Where are Regulators Protecting Consumers and Investors?

Helpful References for Consumers

1. Under Florida law  Chapter 626 Section 99296 - 2023 Florida Statutes - The Florida Senate (flsenate.gov)  titled  Transfers of structured settlement payment rights. As opposed to sale or transfer of a structured settlement annuity contract.
2. annuities-guide.pdf (myfloridacfo.com)
3. Structured Settlements | What Is a Structured Settlement? (4structures.com)
4. What Are Structured Settlement Annuities? Structured Settlements FAQ (4structures.com)

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**SIDE BAR 

Broward County Confusion? Who led which horse to water?

"Let’s start with the basics. A structured settlement is an agreement reached during a lawsuit, where the guilty party agrees to pay the victim a specified amount of money in periodic payments".   -123Lump Sum website 123 Lump Sum in Quandry Over Whether Civil Defendants Are Guilty (or Liable)? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com) August 24, 2022

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MJ Structured Settlement Annuities appears to also use the name EZStructuredsettlementannuties, based on what was found on its website at time of original posting.

Last updated October 20, 2023

John Darer Reviews the NAIC Warning About Unlicensed Companies Selling Non-Insurance Products

by John Darer CLU ChFC MSSC CEFT RSP CLTC

The National Association of Insurance Commissioners provides expertise, data, and analysis for insurance commissioners to effectively regulate the insurance industry and protect consumers.

NAIC Warns of Unlicensed Legitimate Companies Selling Unregulated Non-Insurance Products

In a June 13, 2023 update, the NAIC warns that

"Legitimate companies that are not licensed by the state to sell insurance might lead consumers to think they are selling “insurance” while evading state insurance regulations"

The NAIC uses as an example "a company selling a health sharing plan might call the plan insurance when it is actually an unregulated, non-insurance product".

Factored Structured Settlement Receivables Are An Unregulated Non-Insurance Product Sold by Legitimate Companies as "Secondary Market Annuities"

Factored structured settlement receivables have been marketed to investors, including seniors, injury victims, trial lawyers and fiduciaries as "secondary market annuities", even by people they trust.

The NAIC, in its Statutory Issue Paper No. 160, which was finalized April 6, 2019 made it clear that acquired structured settlement payment rights are not annuities or insurance products.

80% of the US states have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), which expressly excludes acquired structured settlement payment rights from insolvency schemes. The application of the exclusion expressly includes acquired structured settlement payment rights that were acquried prior to the effetcive date that the investor's state adopts the 2017 Revisions to the Model Act.

The NAIC cautionary statement shows an increasing awareness of what is going on in the structured settlement secondary and tertiary markets. The introduction of HB845 in North Carolina, if enacted, puts the regulation of structured settlement factoring under the auspices of the North Carolina Insurance Department effective 2024.

 

NJ Investors in Structured Settlement Payment Rights Now EXCLUDED in the Event of Insolvency

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Transfers or assignments of other people's structured settlement payment rights, have been deceptfully marketed to investors as secondary market annuities by certain members of the structured settlement secondary market and

If you buy someone else's structured settlement payments in NJ, you're not buying an insurance product. You get nothing if the insurer fails.

market, in addition to certain settlement planners and structured settlement brokers who incorporated them in settlement plans and (as the evidence showed last year), some have even used them in purported qualified assignment documents with a related factoring company. 

Then came the 2017 Revisions to the Life & Health Guaranty Associations Model Act(#520), which is has been approved by the majority, but not all US states, which expressly excludes structured settlement annuity benefits where a payee or beneficiary has transferred rights in a structured settlement factoring transaction regardless of whether the transaction occurred before or after the adoption of the 2017 Revisions became effective.

See  Bad News for Structured Settlement Investors as NAIC Encourages Adoption of Model Act #520 - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)

Why States Now Exclude SMA Investors From Annuity and Insurance Insolvency Schemes? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)

New Jersey Adopted No Insolvency Coverage For All Investors in Factored Stuctured Settlements August 2022. No Exception for Existing Investors

Progress report on the clarity for investors in structured settlement payment rights and it isn't good news. I reported that it was coming and it is now effective in New Jersey.

New Jersey P.L. 2022, CHAPTER 98, effective August 12, 2022,  AN ACT concerning the “New Jersey Life and Health Insurance Guaranty Association Act” and amending P.L.1991, c.208 has SERIOUS implications for NJ investors in structured settlement payment rights. 

c. Except as otherwise provided in subsection d. of this section, P.L.1991, c.208 (C.17B:32A1 et seq.) shall not provide coverage

(11) structured settlement annuity benefits to which a payee (or beneficiary) has transferred rights in a structured settlement factoring transaction as defined pursuant to section 5891 of the federal Internal Revenue Code, 26 U.S.C. s.5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective.

The in excess of two decade long strategic failure of state legislatures to (1) implement licensing standards and (2) to regulate the secondary market sales practices through licensing standards and regulatory enforcement of a reasonably forseeable problem

 

 

 

Can You Do a 1035 Exchange Into or Out of a "Secondary Market Annuity"?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What is a 1035 Exchange?

A 1035 exchange is the tax-free exchange of one type of annuity or life insurance contract for another, with the policyholder and insured remaining the same.   1035 Exchange refers to 26 U.S. Code § 1035 - Certain exchanges of policies (emphasis added)

 

Under IRC 1035(a) 

No gain or loss shall be recognized on the exchange of—

(1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long-term care insurance contract;

(2)a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract, or (C) for a qualified long-term care insurance contract;

(3) an annuity contract for an annuity contract or for a qualified long-term care insurance contract; or

(4) a qualified long-term care insurance contract for a qualified long-term care insurance contract.

Why would the holder of an annuity contract want to do a 1035 Exchange?

Without a 1035 exchange, the holder of a nonqualified annuity contract would owe ordinary income tax on any annual returns from the nonqualified annuity, plus a 10% penalty for those under age 59½ (in addition to any surrender fees) for an early surrender.

Under the 1035 exchange rules, however, the holder can avoid the ordinary income taxes if they find an annuity contract with better terms or if they’re nearing the end of their guaranteed term.

A 1035 Exchange is Not Eligible Into or Out of an SMA

Secondary Market Annuity is term that shrouds the truth in a veil of expertise, that began to be used by merchants of structured settlement payment rights in the late 2000s, as a marketing hook to capture investors in acquired structured settlement receivables. The term SMA is misleading to consumers because it is not an annuity. No investor in these receivables is buying an annuity. They are not applying for or buying a product from an insurance company. 

In fact, when it comes to a structured settlement:

• the original annuitant has no ownership in the annuity contract funding the periodic payment obligation as a qualified funding asset under the Settlement Agreement and Qualified Assignment.
• The owner of that annuity, as set forth in the settlement papers, is the qualified assignment company.
• What is sold/transferred is structured settlement payment rights established under a Settlemnent Agreement.
• This is what the investor is purchasing, not an annuity*, or an insurance product.

*NAIC Statutory Issue Paper No. 160, finalized April 6, 2019

Last updated July 2, 2023

 

 

 

 

Genex Capital Arizona Structured Settlement Investment Litigation Update

by Structured Settlement Watchdog

Time for a quick update on the Genex Capital structured settlement investment litigation in Arizona, an important case to follow for investors in structured settlement payment rights or, contemplating making investments in other people's structured settlements (or parts thereof), and their advisers.  If you are an injury victim who is evaluating whether or not to apportion your settlement recovery to a structured settlement, this article is not for you, unless your settlement planner is recommending that you invest in other people's structured settlement payment rights.

In my June 11, 2022 blog, I reported that the Court in its June 9, 2022 under advisement ruling, declined to enter a partial summary judgment in favor of Defendants against Genex Capital Corporation in its lawsuit against New England Annuity Associates, Bulbrook-Drislane, Seeley Capital Management Inc., Income Stream Funding Partners, LLC, John Bulbrook/Jane Doe Bulbrook, and Christopher Seeley (collectively, “Defendants”)

1. The Court found that Genex Capital presented sufficient evidence demonstrating that factual disputes remain as to what damages Genex may have suffered. As a result, the Court declined to enter summary judgment on the issue of damages. The Court found that Defendants have not shown an absence of any genuine issue of material fact regarding causation. Based on its conclusions, the Court declined to enter summary judgment on the issue of damages or causation of damages.

2. The Court found that the Keefer Plaintiffs are entitled to a declaration that they are the owners of and have the right to receive payments arising from the Payment Streams and that Genex has no material right, title, or interest in the Keefers’ Payment Streams.

The Court further reasoned that although the  RPA (Genex Receivables Purchase Agreement) is clear regarding the Keefers’ interest in the Payment Streams, the RPA is equally clear regarding restrictions on reassignment. Section 3.4 of the RPA states: “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.” Statement of Facts, Ex. 1, RPA § 3.4. The Court found that Genex is entitled to a declaration that the RPA does not permit reassignment of the Receivables without Genex’s consent, but denied all other relief.

Following the June 9, 2022 under advisement ruling, Genex Capital requested reinconsideration of the ruling. Subsequently the Court requested New England Annuity Associates Defendants to file a response. New England Defendants filed an amended counterclaim in July to which Genex has filed a response. 

The latest is that local counsel of record for  Genex Capital Corporation and its CEO Roger Proctor filed to withdraw as counsel.

Pursuant to Rule 5.3(a)(2)(B)(ii) of the Arizona Rules of Civil Procedure, Timothy J. Eckstein, Jeffrey B. Molinar, William D. Furnish and BriAnne N. Illich Meeds of the firm Osborn Maledon, P.A. move to withdraw as counsel of record for Genex Capital Corporation and Roger Proctor. The undersigned attorneys seek an Order granting their withdrawal on the ground that the clients failed substantially to fulfill an obligation to the lawyer regarding the lawyers’ services and has been given reasonable warning that the lawyers will withdraw unless the obligation is fulfilled.

On September 13, 2022, The Court granted the Motion of  Timothy J. Eckstein, Jeffrey B. Molinar, William D. Furnish and BriAnne N. Illich Meeds of the firm Osborn Maledon, P.A. to withraw as Counsel for Genex Capital Corporation and Roger Proctor.

GENEX CAPITAL CORPORATION, a Delaware corporation; Plaintiff,
vs.
SEELEY CAPITAL MANAGEMENT,
INC., a Massachusetts corporation; et al.,
Defendants. __________________________________

RICHARD L. KEEFER and VICKI L.
KEEFER, et al.,
Plaintiffs,
vs.
GENEX CAPITAL CORPORATION, a
Delaware corporation; et al.,
Defendants. __________________________________

AND RELATED COUNTERCLAIMS.
Case No. CV2020-004958
(Consolidated with CV2020-013796 and
CV2020-002266)

Why You Should Follow the Arizona Litigation

The Arizona litigation is perhaps the most significant case about the limitations and transactional risks of investing in structured settlement payment rights. It is well worth taking the time to understand what has happened with the investors. 

For years such receivables  (structured settlement payment rights) have been marketed to investors across the secondary and tertiary markets as if they were annuities, in some cases even insinuating, with a disclaimer, that such investors might have the same statutory protections as those who buy real annuities.  Today 37 states, who have adopted the 2017 revisons to the Life & Health Guaranty Associations Model Act (#520) have zero protection for investors in the event of the insolvency of the obligor of the factored structured settlement receivable

See Section 3A(5(c) of the 2017 Revisions tp the LIfe & Health Guaranty Associations Model Act  (#520) which expressly excludes "a person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 U.S.C. 5891(c)(3)(A), regardless of whether the transaction occurred before or after such section became effective".

Genex Capital CEO Roger Proctor has done the structured settlement industry and consumers a substantial service in earlier responsive court filings by defining investments by the investors in this case, particularly when subject to a payment servicing agreement, as a "subset" or "the lesser subset" of payment rights.

[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]

 

 

CrowFly Flies No More | Buffalo Structured Settlement Factoring Company Folds

by Structured Settlement Watchdog  (UPDATED August 26, 2022)

CrowFly, the John T. Bair principally owned structured settlement factoring origination and servicing company has played its swansong , the fat lady has sung and the curtain has come down, according to well placed sources. familiar with the situation. 

The demise of CrowFly came 4 months after a local media headline in Buffalo Business First " Fintech CrowFly hits another gear, tripling team and ramping up revenue" Buffalo Business First, Dan Miner Reporter  April 7, 2022. 

CrowFly only 4 months ago... Weird!

1. "The company’s revenue is up more than 400% annually the last two years and is in the process of nearly tripling its team to 15 employees. Co-founder Nita Bhatia was named CEO in late December (2021)"-Buffalo Business First
2. “We’re going to continue building out our org chart, which will help us continue our growth,” Bhatia said then. “We have only tapped a small portion of our potential market share and marketplace.”-Buffalo Business First
3. Huge estimated amount of daily budget in pay per click ads  

CrowFly has played its swan song

On August 25, 2022, the majority owner John T. Bair finally issued a statement "“After four years, and over a million in individual investment from me, achieving the goal of fundamentally changing the industry for the better became unviable,” Bair said"., in a post by Dan Miner of Buffalo Business First. It was unclear from the quote attribiuted to Bair if that " over a million" was before, or after, any fees earned on the sale of structured settlement payment rights from annuitants that Bair wrote while with Forge Consulting and Milestone Consulting? It's certainly reasonable to ask.

Question Of "Churning/ Attempted Churning" of Milestone and legacy Forge annuitants with structured settlement payments

CrowFly was billed as a "Fintech", part of a suite of companies in marketing materials, under the Milestone & Co umbrella  (formerly Seventh Amendment Holdings, LLC).  It really doesn't matter what they called it, there was an admission for anyone paying attention that CrowFly was a structured settlement factoring origination and servicing company.

For 4 years The Structured Settlement Watchdog, raised the natural question of whether CrowFly and other Bair associate entities targeted and mined Bair's primary market customers with structured settlement payments for structured settlement factoring.  Bair maintains however that CrowFly is a separate company despite the admission in a MIlestone Wealth's Form ADV Part 2 dated March 16, 2022 that Bair was the principal owner before the recent shuttering of the company. He also admitted in October 2018 using "we" from his Milestone email address that he was "the only primary market as well as secondary market origination firm that he knew of".

Carl Hunley Jr., a very talented artist, was commissioned to do a brand refresh for Seventh Amendment Holdings, LLC and various companies under its umbrella in 2020. As you can see from this March 28, 2020 posting on Behance, CrowFly was notably absent. I wonder why? CrowFly was in existence since 2017 and operating out of the same office.

Then came evidence found on the New York NECF IAPPS online court records system, a treasure trove of revelation.

• Our recent posts chronicle my findings. The New York court records show Seventh Amendment Holdings, LLC and United States Periodic Payment Assigment Company involvement as transferees in structured settlement transfers proposed to New York judges.  Seventh Amendment Holdings , which was renamed  Milestone & Co earlier this year, and USPPAC, are ongoing entities that participated in the factoring of John T. Bair written structured settlements.  No wonder Bair wanted a 3 year non compete and  a $100,000 liquidation of damages clause when I queried him about how he was going to manage conflict of interest in June 2018!  ( I didn't sign)
• My January 15, 2022 post discusses findings from a from New York court records search that reveal  numerous CrowFly transfer petitions, to add to the pile of petitions of the aformentioned Seventh Amendment Holdings, LLC and United States Periodic Payment Assignment Company,  the former name of holding company MIlestone & Co that was used as QSF admin and the latter a company used for qualified assignments. It would be reasonable for anyone, particularly lawyers referring cases, to question the level of "churning" of Bair written structures with all Bair related companies prior to and during CrowFly's existence. 
• What would be the result of research of court records in other states?  How many more cases would we find?  How much of the growth came from "churning" of Bair written structures?

Rising Interest Rates Hurt Factoring Companies With Thin Margins

Rising interest rates hurt structured settlement factoring originators like CrowFly. They cannot afford to get the pricing wrong on the originations, because if interest rates move up and they've priced too low to be competive, they may not be able to move the paper to investors. For example if CrowFly priced a deal at 4% and alternative investments are now paying greater than 4%, where is the room for CrowFly's margin and transaction costs?  Same thing goes for other companies. The situation grew dire for a number of firms when Sutton Park Capital, a funder of funders, reportedly turned off its funding spigot. A similar phenomenon occurred during the 2008-2009 financial crisis.  Then there were fewer splinter factions and small potatoes.

My condolences to CrowFly employees, some who find themselves out of work. It was only April 2022 when things were brimming with optimism and the company was hiring, growing to as many as 11 employees  (per Buffalo Business First]

Investing in Structured Settlements | What You Need To Know

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Investing in Structured Settlements | What You Need To Know

You or your US clients may be pitched investments in other people's structured settlements using the false flag claim that they are annuities. They aren't.

These alternative investments are not without risk and such investments may neither be suitable for minors, vulnerable retirees or nor personal injury victims.

A growing body of litigation suggests that  it's possible that sellers and/or servicers of these alternative investments may not have provided you with enough information, or in a form that you fully comprehend, to have a complete understanding of what you are being solicited to buy, or is being bought for your clients, sufficient to evaulate the potential risks.

Watch this 5 minute video. You will be glad you did. 

 

Milestone/Bair Withdraw Structured Settlement Insurer Appointments

by Structured Settlement Watchdog

Milestone's John T. Bair, the managing member and principal owner of Buffalo based structured settlement factoring company CrowFly, LLC  [Milestone Wealth Form ADV Part 2 Section 10 IAPD - Investment Adviser Public Disclosure - Homepage (sec.gov) ] has apparently recently terminated his appointments, and the sublicensee appointments with life insurers issuing structured settlement annuities. According to New York Department of Financial Services publicly available published records at time of publishing, Bair/Milestone no longer hold appointments with Berkshire Hathaway, Pacific Life & Annuity Company, Metropolitan Tower Life Insurance Company, New York Life Insurance Company and The Prudential Insurance Company of America effective May 31, 2022, according to the New York Department of Financial Services,  Upon information and belief Bair/Milestone are not appointed with structured settlement annuity issuers USAA LIfe, American General and United of Omaha.

What About Milestone Fee Master Option 2?

In addition, it is evident that the Bair/Milestone's Massachusetts Mutual Life Insurance Company appointment was terminated as of May 31, 2022. Bair/Milestone solicited trial lawyers for several years with this dubious chuckler "Keep more of your total contingency fee and work within an existing financial framework that can return historical dividends as high as 6% or greater.  What a neat party trick by "Marty McBair" it would be to take a time machine and get historical dividends in the future. Without MassMutual, whose appointment Bair has dropped, and with Northwestern  Mutual a no-brokerage company, is Option 2, deep-sixed?

What About Milestone Fee Master Option 3?

"A more tried-and-true strategy, this approach has been allowable since 2008 but has been cost prohibitive until now. No longer limited to the eight basic structured annuity options, this platform relies on the inherent advantages in the marketplace of
annuities. All annuities are available to back the obligations of this feeMaster option". Can MIlestone and Bair seriously and accurately represent to trial lawyers and disabled plaintiffs that ALL annuities are available when they are now not, now that the appointments have terminated by Milestone/Bair?

In its most recent still published form ADV Part 2, in Section 10 (Conflict of Interest), Milestone Wealth indicates that it "may recommend an annuity listed by CrowFly to a Milestone client". To the extent what Milestone is selling to an investor, or a trust, is a factored structured settlement payment stream. It is NOT an annuity. Plaintiffs and their attorneys should be mindful that when another person's structured settlement payments are being sold to them or their clients  it is a factored structured settlement payment stream, or receivable that does not meet the definition of annuity under the laws of many states.

Factored structured settlement payment streams are not annuities and not a qualified funding asset for a structured settlement. 

He was not the first, but for 4-5 years, John Bair was the only structured settlement annuity general agent who was also cofounder, managing member and principal owner of a structured settlement factoring operation, CrowFly, LLC. [ see Milestone Wealth Form ADV Part 2, page 10 regarding Conflict of Interest]

On April 20, 2020 Bair sent a missive to trial lawyers to get their clients out of annuities while soliciting clients to buy factored structured settlement payment rights inappropriately billed as "annuities" from CrowFly, LLC.  At the time of the solicitation it was known that the 2017 Revisions to NAIC LIfe & Health Guaranty Association Model Act (#520) expressly excluded structured settlement investors from the insolvency scheme. Today 37 states have adopted the revisions and as a result provide no protection to structured settlement investors in the event of insolvency. The 2017 revisions included a retro clause that affects people who have bought such investments prior to the effective date of the adoption of the revisions.  Expect the 2017 Revisions to eventually be adopted in all 50 states.

  

 

Confiscated Structured Settlement Payments from Investors Arizona Litigation Update

by Structured Settlement Watchdog

Maricopa County Arizona judge Danielle J. Viola has issued an under advisement order in important litigation concerning investments in structured settlement payment rights. Genex Capital Corporation et al. v Seeley Capital Management Inc, et al  Superior Court Maricopa County  CV 2020-004958.

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Side Bar

The Maricopa docket CV 2020-004958, consolidates the original action brought by Genex Capital in April 2020, the counterclaims of Defendants in May 2020, investor lawsuits against Genex Capital CV2020-013796 commenced October 2020, additional investor lawsuits against Genex Capital amending the same case number December 2020 and additional investor lawsuits against Genex Capital, CV 2022-002266 commenced February 2022, with associated counterclaims.  Other legal actions beteen Genex Capital and some of the same parties remain pending in other states, as well as an action by Genex Capital against another investor, octogenarian Geraldine Yeisley, a retired school teacher from Oklahoma which has also associated counterclaims [ see Genex Capital Corporation v Provident Trust Group Geraldine Yeisley Pottawatomie County OK CJ-2021-00115]

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Genex Capital Corporation Lawsuit Update v New England Annuity Associates et al. v Genex Capital Corporation et al.

The Court declined to enter a partial summary judgment against Genex Capital Corporation in its lawsuit against New England Annuity Associates, Bulbrook-Drislane, Seeley Capital Management Inc., Income Stream Funding Partners, LLC, John Bulbrook/Jane Doe Bulbrook, and Christopher Seeley (collectively, “Defendants”) The Court found that Genex Capital presented sufficient evidence demonstrating that factual disputes remain as to what damages Genex may have suffered. As a result, the Court declined to enter summary judgment on the issue of damages. The Court found that Defendants have not shown an absence of any genuine issue of material fact regarding causation. Based on its conclusions, the Court declined to enter summary judgment on the issue of damages or causation of damages.

Keefer Investor Lawsuit Update v Genex Capital Corporation

Keefer was the first investor lawsuit filed. Between 2011 and 2013, Plaintiffs Richard L. Keefer and Vicki L. Keefer (the “Keefers”) purchased the right to collect future structured settlement payments (“Payment Streams”) from Defendant Genex Capital Corporation (“Genex”) including rights to the Lessa Perdun payments (“Perdun Payments”) and Leigh Laura Duran payments (the “Duran Payments”). Genex executed an Assignment consistent with the applicable Receivable Purchase Agreement. Genex designated Security Title Agency, Inc. as the Servicing Company.

In September 2019, the Keefers executed documents entitled “Assignment of Sale and Assignment Agreement” to effectuate the sale and reassignment of some of the Payment Streams to New England Annuity Associates (“NEAA”). NEAA then reassigned the Payment Streams to other third-party investors and Security Title began remitting payments to the investors. Before providing notice to the Keefers of their alleged default, Genex directed Security Title to remit payments from the reassigned Payment Streams to Genex. Later, payments related to reassigned Payment Streams were held by Security Title  [ Judge Viola Under Advisement Ruling 6/7/2022 p 5 ]

On February 24, 2020 and April 3, 2020, Genex provided notice to the Keefers of the alleged default resulting from the reassignments of Payment Streams to NEAA without Genex’s consent. The notices required proof that the reassignments had been reversed within twenty days. In order to avoid a dispute, the Keefers and NEAA revoked the reassignments. Genex asserts that the Keefers did not respond to the notices of default. Genex alleges that it terminated the RPAs, repossessed the rights to the Perdun Payments and Duran Payments, and reassigned them to new investors.

Plaintiffs seek partial summary judgment that (1) they are the owners of and have the right to receive payments arising from the Payment Streams; (2) Genex has no right, title, or interest in the Keefers’ Payment Streams; and (3) Genex had and has no right to withhold, sell, or reassign the Keefers’ Payment Streams. Genex seeks summary judgment that (1) the Keefers did not have the power or the right to reassign the receivables; (2) Genex had the right to terminate and/or void the RPAs; and (3) Genex had the right to withhold and reassign future Receivables payments from the Keefers.

The parties’ motions for partial summary judgment are summed up in the following questions:

(1) What are the Keefers and Genex’s rights and interest in the Payment Streams?

(2) Did the Keefers have the power or right to reassign the Receivables?

(3) Did Genex have the right to terminate the RPAs?

(4) Can Genex withhold Receivables payments from the Keefers?        [6/7/2022 Viola Order p6]

Rights and Interest in the Payment Streams

The Court granted Plaintiffs Richard L. Keefer’s and Vicki L. Keefer’s Motion for Partial Summary Judgment in Case No. CV2020-013796 filed November 23, 2021 that (1) the Keefers are the owners of and have the right to receive payments arising from the Payment Streams; (2) Genex has no right, title, or interest in the Keefers’ Payment Streams; and (3) Genex had and has no right to withhold, sell, or reassign the Keefers’ Payment Streams. Genex had the opposite motion.

The Court reasoned that plain language of Section 3.1 of the Genex RPA and Schedule E are clear that Genex transferred all of its right and interest in the Receivables. The Court found that the Keefers are entitled to a declaration that they are the owners of and have the right to receive payments arising from the Payment Streams and that Genex has no material right, title, or interest in the Keefers’ Payment Streams.

The Court further reasoned that although the RPA is clear regarding the Keefers’ interest in the Payment Streams, the RPA is equally clear regarding restrictions on reassignment. Section 3.4 of the RPAs states: “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.” SOF, Ex. 1, RPA § 3.4. The Court found that Genex is entitled to a declaration that the RPA does not permit reassignment of the Receivables without Genex’s consent, but denied all other relief.

Furthermore, the Court reasoned

• The parties argued regarding the distinction between the right to assign and the power to assign.
• The Keefers argue that a breach of a promise not to assign does not render the assignment void or invalid.
• The Keefers also argue that the distinction between the right to assign and the power to assign does not change the fact that Genex does not obtain rights to the Payment Streams or have the ability to resell them based on an unauthorized assignment—either the reassignment was void or the reassignment constituted a breach. Neither would result in the Keefers forfeiting the Payment Streams back to Genex, said the Judge in her Order

 

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Side Bar

I've previously reported about the 2020 amplification of paragraph 3.4 of the Genex Capital Receivables Purchase Agreement, which appears to be an attempt by Genex Capital to address the reassignment issues that gave rise to the litigation and makes clear the potential consequences to investors in block capitals.

A prospective investor would have to agree to such terms (as well as the rest of the terms) of the latest version of the RPA, if entering into an RPA with Genex to buy receivables  (e.g. structured settlement payment rights).

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It is undisputed that the Keefers reassigned the Payment Streams to NEAA. However, the Keefers assert that disputed issues of material fact remain that preclude summary judgment on the issue of whether there was an uncured material breach. The Keefers assert that Security Title approved the assignments. Genex also asserts that the Keefers did not respond to the Notices of Default. The Keefers assert that they revoked the reassignments and informed Genex of the revocations.  

Based on the disputed facts, the Court declines to enter summary judgment in favor of Genex declaring it had the right to terminate and/or void the RPAs.

Even if the Court concluded a material breach occurred, Genex’s remedies are limited to those set out in the RPA. Genex may have a claim for breach, but Genex does not obtain any right, title, or interest in the Payment Streams or the right to withhold, sell, or reassign the Payment Streams as a result of the Keefers’ breach and default. Genex’s remedies in the event of the Keefers’ default are as follows:
(a) terminate the Agreement in respect of the Receivable Transaction in question by Notice delivered to the Buyer on or before Closing. In such case Genex shall be entitled to keep any funds deposited by Buyer by way of liquidated damages and not as a penalty; and/or
(b) enforce specific performance of Buyer’s obligations under this Agreement; and/or
(c) terminate the Agreement generally; and/or
(d) bring an action in law or equity to recover damages for the default, including Genex’s reasonable costs and attorney’s fees. Genex shall have the right, but not the obligation, to mitigate its damages.   [Under Advisement Order 6/7/2022 p9]

Final Thoughts

Obviously there is more to come in this litigation which continues to be instructive of the transactional risks of investing in structured settlement payment rights, or subsets of those rights. 

I, for one, continue to be grateful for Mr. Proctor's introduction of the term "subset" to refer to portions of structured settlement payment rights acquired by investors that are being serviced. [Proctor Declaration of 1/3/2022]

The RPA defines “Annuity” as “a payment or set of payments paid over a fixed term by an insurance company arising from a structured settlement, lottery prize winning payment or other annuity.” SOF, Ex. 1, RFP at 3. “Receivable” is defined as “all or such part of the payments from an Annuity which Buyer has agreed purchase [sic] under this Agreement as set out in a Request.” Id. Other language from the RPA also supports the conclusion that the distinction between “Receivable” and “Annuity” is immaterial.  [ Under Advisement Order p 7]

While the judge references a defined term "annuity" in the RPA and that the distinction between annuity and recevable is immaterial, acquired structured settlement payment rights are not considered annuities or insurance products  [ NAIC Statutory Issue paper No. 160, finalized April 6, 2019] and the definition of annuity under the insurance laws of many states is inconistent with what Genex Capital or similar companies are selling to investors. For example,

Oklahoma  

Annuity | Oklahoma Insurance Department |  An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid to the insurance company. Annuities are often purchased for future retirement income. 

 

Connecticut

 

An Annuity |  CT Insurance Department | is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are most often bought for future retirement income, and can pay an income that can be guaranteed to last as long as you live.

 

California

ARTICLE 9. Suitability Requirements for Annuity Transactions

10509.913 (a) “Annuity” means an annuity that is an insurance product under California law that is individually solicited, regardless of whether or not the product is classified as an individual or group annuity.