by Structured Settlement Watchdog
As part our ongoing commentary about the structured settlement secondary and tertiary markets and in particular structured settlement investments, it's time for an update on the Genex Capital v Seeley Capital litigation, and counterclaims by a group of investors against Genex Capital and its CEO Roger Proctor. This highly contentious and expensive litigation is an important one to follow to help investors, financial advisors (including settlement planners) appreciate the critical differences between buying an annuity and investing in structured settlement payment rights.
Mr. Proctor has already eloquently described in this litigation what investors buy, as "subsets" of payment rights. That's a completely different thing than "an annuity", how it is often advertised and/or used in sale pitches by those who hock structured settlement payment rights to investors.
More Investors Sue Genex Capital Corporation and Its CEO
On February 23, 2022, what appears to be a new set of investors have filed suit against Genex Capital Corporation and its CEO in Arizona Superior Court in Maricopa County Arizona. The matter is captioned Barry Beitman, Bruce Sweeney, Weill Guo, Quingling Zhang and Sandi Haskell, Plaintiffs v Genex Capital Corporation, Roger Proctor, Happy State Bank & Trust Company and Security Title Agency Inc.CV 2022-002266. A Certificate of Compulsory Arbitration was docketed on February 26, 2022
Plaintiffs are represented by Phoenix lawyer Devin Sreecherana of May Potenza Barran & Gillespie, the same lawyer who represents other investors against Genex Capital in a separate action filed in a November 2020 Complaint and Amended Complaint December 2020-CV-131796, which was subsequently consolidated with an action brought by Genex Capital Corporation against Seeley Capital Management, John M. Bulbrook Insurance Agency Inc., New England Annuity Associates LLC, Security Title Agency Inc and Loancare LLC CV2020-004958
In support of the Genex Capital response to Seeley Defendants' Motion for Partial Summary Judgment, Genex Capital Corporation CEO Roger Proctor submitted a Declaration on January 3, 2022. Here are some of the points made by Proctor and my commentary (highlights/emphasis ours for commentary):
Point #1
"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." [ Decl. of Roger Proctor 1/3/2022 at 1]
What is payment servicing with respect to structured settlement factoring?
Over the last 13 years I've addressed structured settlement payment servicing in numerous blog posts as well as a 2009 video with Dallas bankruptcy attorney Bruce Akerly.
A payment servicing agreement is only necessary when a person sells part of their structured settlement, and the annuity issuer will not "dice" payments. For example, the annuitant contracted to receive $1,000 per month when they settled their personal injury case. The structured settlement was funded with an annuity issued by a life insurer that will not "dice" payments. Some years down the road, the annuitant sold the rights to $500 per month of their $1,000 per month payments, but because the insurer would not dice payments, the full $1,000 per month had to go to the servicing company each month, where it would be "diced" and then distributed $500 to the annuitant and $500 to the investor in the structured settlement payment rights.
A payment servicing agreement may also be necessary at the discretion of the originating structured settlement factoring company, or a tertiary market company, if there is a large sale of structured settlement payment rights. The use of a servicer to dice up the larger deal into smaller subsets to make it easier to move the payment rights to investors.
Sometimes the settlement purchaser (or a related company) is the servicer. But things may get more complicated if the structured settlement payment rights are securitized or sold on. It is then possible, yet another company could be the servicer!
In his declaration of 1/3/2022 Roger Proctor states that "Genex purchased Structured Settlement Quotes" (website at Structuredsettlement-quotes.com) "in March 2012... to support its search engine optimization for marketing of its annuity purchase services" {Decl. of Roger Proctor at 56]. It's notable that the Genex Capital owned website states "The servicing of structured settlement payments occurs when an annuitant enters into a structured settlement factoring agreement in which the annuitant chooses to split one or more payments and the factoring company becomes the payee of the entire payment. Once the factoring company receives the entire payment from the insurance company, they keep their agreed upon amount and pay the annuitant their portion".
Here are some concerns that the Genex Capital owned website makes regarding servicing of structured settlement payments
- "Certain structured settlement factoring companies were using this scenario as an excuse to service annuities that did not need to be serviced. In other words, an annuitant would decide to sell their payments, the insurance company would agree to this, but the factoring company would still service the payments. The reason for this is because the factoring company is securing future deals by owning the rights to all of the future payments. Many annuitants would not understand this process and would think this is the norm for this type of transaction. That is false and has many implications.
- The annuitant no longer owns the rights to their future payments. If they need help with anything regarding their annuity, they can no longer simply call the insurance company and speak to a licensed representative, instead they have to call the structured settlement factoring company to ask their question.
- If the annuitant was ever in a situation where they needed to sell more payments, the structured settlement factoring company who completed their last transaction is the only company that is able to complete any future transactions for that individual.
- Since the Chapter 11 Bankruptcy filing by JG Wentworth, investors are not interested in purchasing the rights to structured settlement payments serviced by other factoring companies. This means that any annuitant who has their payments serviced by a structured settlement factoring company will most likely be price gouged if they decide to sell more payments.
- Structured Settlements 4 Real reported a story where Structured Asset Funding serviced a tort victim's payments but failed to mail the check on time. This should not happen but can happen because these types of companies are not geared to service annuity payments." [reference to one of my blogs from 2009]
Point #2
Proctor declares that "Structured settlement annuities are contractual arrangements in which an annuitant or payee (“Original Annuitant” or “Annuitant”) receives future payments as part of a settlement or judgment in connection with a tort claim. Typically, an Annuitant cannot transfer or assign its interest in the annuity without express judicial approval that is confirmed through a final order. Genex’s business model is based on providing Annuitants with an opportunity to sell all or a portion of their annuities for a present-day cash value." [Decl. of Roger Proctor 1/3/2022 at 9-11]
Comment: Annuitants cannot sell structured settlement annuities. They can only sell structured settlement payment rights. Structured settlement annuitants do not own the annuity or annuities funding the structured settlement payment obligation established when their legal case was settled. Thus, structured settlement annuitants cannot sell the annuities.
Assured Annuity is self-described by Genex as its retail arm. It is believed to have been established after the Genex relationship with the Seeley Defendants had terminated September 9, 2013. I've long questioned the use of the term annuity by Genex in this context [see Is The Assured Annuity Really an Annuity? November 19, 2013]. I do not believe that if put to the test that Genex Capital, could supply proof of any structured settlement annuity contract it has purchased from an annuitant for whom the structured settlement was established. Indeed, Proctor himself admits that "Once judicial approval of the sale is obtained, Genex receives assignment of the annuity payments in exchange for an agreed-upon monetary lump-sum amount. [ Declaration of Roger Proctor 1/3/2022 at #13]. On the Assured Annuity website (located at assuredannuity.com) at time of publishing, it states "We buy structured settlement payment rights and other annuity payments.
Point #3
As a critical part of its business, Proctor states that "Genex must review the background and suitability of all prospective investors to ensure compliance with a plethora of laws and regulations, including anti-money laundering laws, financial-disclosure requirements, and other rules that prevent unlawful financial transactions
Genex also must determine investor suitability in accordance with its “know your client” protocols, consistent with, among other rules, Financial Industry Regulatory Authority Rule 2090 and Rule 2011"
FINRA Rule 2090 mandates that member firms must “use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”
FINRA Rule 2111 requires that a broker have a "reasonable basis" to believe that a recommended transaction or investment strategy is "suitable for the customer" based on facts obtained through "reasonable diligence." This rule is aimed at remedying past abuses and "yield-chasing" behavior in brokers at a client's expense
Then there is FINRA 2210 which covers advertising.
Who is Covered by FINRA Rules?
Because FINRA oversees workers within the financial industry, its rules primarily apply to brokers and financial advisors. Anyone who buys or sells stocks or securities on behalf of clients is required to get certification, register their name and address, and follow other requirements. To follow these requirements, these professionals must go through FINRA, which means putting nearly every stockbroker or financial advisor under FINRA’s authority.
Specifically, FINRA’s regulations govern “broker-dealers.” This is a broad term used to encompass both agents of financial transactions as well as those who trade for themselves or their firm. For instance, if your stockbroker buys stocks for you, they would be acting as a broker, but if they perform transactions for their brokerage firm’s own accounts, they function as a dealer instead. Regardless, FINRA covers both of these types of professionals, creating rules and regulations to govern their actions.
Under the terms of the agreement between Genex and Seeley and Bulbrook, which Genex acknowledges was consummated on an oral agreement and
handshake and not a written contract, in every instance where a new investor sought to purchase a Genex Receivable, Seeley and Bulbrook were responsible for completing the “know your client” protocols approved by Genex, facilitating the completion of an investor suitability form, providing a copy of the Bulbrook Buyer’s Guide approved by Genex, and obtaining required signatures on the RPA, all of which documents were either drafted by Genex or approved by Genex. From time to time, Genex sought proof that these requirements were being satisfied and at no time during the relationship did
Genex have concerns about same.
While I was unable to locate the name of Genex Capital Corporation, Genex Strategies or Roger Proctor on FINRA Broker Check or the IAPD database, it is good to see that the Genex Capital CEO aspires to FINRA standards. Did/Does Genex consider the products it offers/distributes to be securities? It sure would be great to see them regulated.
POINT #4
Proctor states that "Genex owes obligations to the Annuity Issuers, and to Annuity Owners/Obligors throughout the term of each Receivable transaction as specified in each court order. In light of these obligations, it is a critical to Genex that it understand the transaction history for all Receivables, ensure that its records are complete and accurate, control downstream further assignments, and know at all times the identity of the legitimate end Payee". [ Decl. of Roger Proctor January 3, 2022, at 24] He states that "Uncontrolled, unapproved, or secret transactions bypassing Genex’s oversight puts Genex at risk of possibly directing payment to the wrong person, double payments, fraud and confusion". [Decl of Roger Proctor 1/3/2022 at 25]
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.
Case Nos: CV2020-004958 CV2020-013796 (Consolidated)
DECLARATION OF ROGER PROCTOR IN SUPPORT OF GENEX’S RESPONSE TO SEELEY DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
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.
Let's go back to Genex Capital CEO Roger Proctor's declaration of 1/3/2022, wherein Roger Proctor states that "Genex purchased Structured Settlement Quotes" (website at Structuredsettlement-quotes.com) "in March 2012... to support its search engine optimization for marketing of its annuity purchase services" [Decl. of Roger Proctor at 56].
Exactly what kind of strategy was employed in doing so? In my opinion, at its apex, the SSQ website was a massive brandjacking engine. I've followed and chronicled my observations about SSQ in this forum from time to time for more than a decade. Some important observations:
One of the first moves after acquiring the site from Andrew Cravenho was to change the name from Settlement Quotes to Structured Settlement Quotes ("SSQ") and to make over the site. The makeover was published on or about July 17, 2012. Among its features were A to Z directory and review pages for more than a hundred insurers and structured settlement factoring firms like JG Wentworth and Peachtree that were and still are competitors to Genex Capital. If one were to enter a search for an insurance company name and quotes or structured settlement quotes the search engine results pages (SERPS) would invariably come up with SSQ web page for that insurer at or about the top results.
On February 5, 2013, I created the following screenshot which is an example of how New York Life was brandjacked
Download New york life structured settlement quotes - Google Search SSQ Brand Jack example 2-5-2013
In the above document you will see that the title of the search engine result has been purposely aligned to show the name of the insurance company and structured settlement quotes. Titles, meta tags and descriptions that appear in search results can easily be controlled by the domain owner, or someone working on their behalf.
As of March 1, 2022, the SSQ website shows a copyright date of 2015. Standard & Poor's credit ratings for insurers show ratings from 2011. It's clear that the insurers have not been updated since 2012. Res Ipsa Loquitur.
Contemporaneous Observations about SSQ
Structured Settlement Quotes (SSQ) Offers Payoff To Insurance Company Executive for Confidential Information July 17, 2012
SSQ Settlement Quotes Engaged in SEO Madness- 843 Steps Beyond January 15, 2013
SSQ Structured Settlement Factoring Company Reviews April 2, 2013
SSQ Structured Settlement Quotes Spam Links JG Wentworth "Review" Page. December 2, 2013
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