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

Ethics or Optics? | Personal Injury Lawyers Represent Companies Buying Structured Settlements For Pennies on Dollar

by Structured Settlement Watchdog

A number of personal injury trial lawyers, including those admitted to the New York State Bar, mebers of NYSTLA and such are representing structured settlement factoring companies in transactions that result in recipients of structured settlement payments receiving no better than pennies on the dollar. 

Ethics or optics? Personal injury lawyers who represent structured settlement factoring companies

The same lawyers and/or firms also advertise and solicit business from personal injury victims. 

One such law firm, known to have represented structured settlement factoring companies in thousands of cases advertises the millions it has recovered for injury victims, while at the same time asks if you have an an annuity or structured settlement to support its "facilitating access to your money". 

Another personal injury firm, which is now disbanded, advertised that it was a personal injury law firm "committed to representing innocent accident victims who have suffered serious and catastrophic personal injuries" while also representing some of the biggest structured settlement factoring companies in the business.

Recently I came across another firm in the New York City area which advertises it does personal injury but has popped up in representation of pennies on the dollar merchants. The law firm also shares an office address with another lawyer who is listed as an Independent Professional Advisor on a number of the first law firm's cases.

A Conflict of Interest for Personal Injury Lawyers to Represent Factoring Companies in Cash Now Deals?

I can't help thinking that this may be going on all across the United States. While not dismissing a person's right to make a living, in my opinion such representations deserve scrutiny by such firms for potential conflicts of interest.

Areas of potential conflicts of interests include:

• How data acquired during the legal representation for the personal injury case is used. 
• How that data is protected?  Is there a "Chinese Wall"?
• Has the lawyer considered structured settlements for his or her clients in the past?  Are they making structured settlements available to their clients for consideration? 
• If one of the lawyers past clients returns with questions about selling their structured settlement payments, what happens?  Does the lawyer refer the matter out or do they handle their former client's sale. 
• Does the lawyer/law firm disclose that he/she or it derives income, perhaps substantial income, from pennies on the dollar merchants?  
• Susceptibility of the lawyer/law firm or one of his/her or its employees, to potential inducements that the lawyer/law firms secondary market clients may offer for referrals
• Directly or indirectly buying factored structured settlement payment streams of clients

The is something that should concern not only judges, but consumers and other lawyers. 

 

 

 

Niagara County Judge Murphy Shows How to Question a Structured Settlement Transfer Petition

by Structured Settlement Watchdog

Niagara County New York Supreme Court Judge Matthew J. Murphy is another fine example of why New York judges are among the best in the USA in enforcing their state's structured settlement protection act, with a January 8, 2021 decision in Tiger Parrish, LLC Petitioner v BHG Structured Settlements, inc et al. Respondents , Index 173532/2020.

Niagara County Supreme Court in Lockport New York

The petition involved the proposed transfer of structured settlement payment rights from 4 structured settlement annuities due to a 23 year old, with aggregate payments totaling $2,313,704.40 in exchange for an aggregate purchase price of $895,647.03. The effective discount rate according to the mandatory disclosures was 6.10% which, while not bad, still had a considerable amount of fat. Our sources indicated that between $1,000,0000-$1,122,456.99 would have been possible.

Sacco & Fillas was the law firm representing the settlement purchaser, Tiger Parrish , LLC. True to form with some of the Sacco & Fillas petitions I've seen, their cited case support for discount rates are what one might irreverently and figuratively describe as "antediluvian".

Judge Murphy's thoughtful analysis reviewed prior transfers and attempts to transfer along with reasons that were stated in the prior petitions. The current petition reviewed by Judge Murphy also reviewed the budget and expenses , but noted that the Petition and the seller's affidavit " do not provide a complete picture  of the seller's financial landscape". The Judge went into granular detail and said that "in order to make a best interests' determination, as required by law a full explanation of the settlement must be provided."

But the kudos in my opinion for Judge Murphy are deserved for noting that payments would be sold at a discount diplomatically skewering the investment projections.

The Petition to Transfer Exhibit 14 (labeled IPA) included an investment projection assuming a 12.5% rate of return, failed to take into account income taxes and there appeared to be no stochastic analysis  (also known as Monte Carlo analysis) that takes into account multiple variables! 

Download Eglow Investment Projection Linear 12.5 pct 

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SIDE BAR

Monte Carlo Simulation/Analysis in Structured Settlements and Settlement Planning Process (4structures.com)

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Judge Murphy observes that " investing in the stock market always  involves some risk. Additionally, despite the voluminous documentation there is no simple comparison of what Mr. M. (the seller) can expect to receive now; and an explanation of the safeguards which will be imposed on the proceeds of teh transfer so that Mr M. is not able to liquidate said proceeds without Court approval.  Nor has  Mr. Eglow provided, at a least in simple comparison, any analysis of the tax consequences of investing in the stock market compared to annuity payments. It is the Court's understanding that the annuity payments are not taxable. If that is correct, it could affect Mr. Eglow's analysis".

According to New York's General Obligations Law Section 5-1701(e) “independent professional advice” means advice of an attorney, certified public accountant, actuary or other licensed professional adviser:

(i) who is engaged by a claimant or payee to render advice concerning the legal, tax and financial implications of a structured settlement or a transfer of structured settlement payment rights;

(ii) who is not in any manner affiliated with or compensated by the defendant in such settlement or the transferee of such transfer;  and

(iii) whose compensation for rendering such advice is not affected by whether a settlement or transfer occurs or does not occur;

The papers say that Eglow and his firm will be providing financial planning services (for which he will presumably be compensated).

A December 15, 2020 letter from Jeffrey Eglow, of Newbridge Securities was submitted December 16, 2020 to Judge Michael Cresitello in support of a Middlesex NJ Petition to transfer involving Park St Closing LLC.  In the letter Eglow represents that he has had "many discussions regarding all aspects of her transaction and my advice, I respectfully request her transfer"  (emphasis added). It is evident in my opinion, that either there wasn't any discussion about the market in discount rates for income payments that begin in 2020 on one of the deals and 2021 on another with the third being a deferred transaction, or Eglow was brought to "the dance" by those charging her 12% plus . Selling a structured settlement is a money loser, 100% of the time.  Instead of investing x$, with a more competitive discount rate, the seller in that case might have considerably more to invest, or she might not need to sell as much, just like the Niagara County case, but with much worse discount rates in 3 separate deals bearing discount rates of 12.8*, 12.81% and 12%. There were hundreds of thousands in the factoring profit spread, according to our sources.  See Park St Closing LLC v Moronta C  Case# MID-007817-20. 

Last updated September 17, 2024

 

The Joe Gargan Structured Settlement Scam | A Highly Unusual Set of Circumstances

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What was the Joe Gargan Structured Settlement Scam?

The guilty plea of Joe Gargan, CEO of The Pension Company, to embezzlement of $8 million intended for the purchase of annuities to fund minor's settlements would give anyone who has done business with The Pension Company from 2014-2020 reason to be concerned.  Gargan's despicable crime also cost the taxpayers to pay all over again, and more, because the annuities had to be funded all over again at a higher cost due to interest rate shifts. But it was a unique set of circumstances that brought it about and they are highly unusual.

Why traditional procedures to establish a structured settlement make a Gargan-Style theft impossible.

1. Traditional procedures to establish structured settlements involve a check payable to the qualified assignment company not to the structured settlement broker.
2. The structured settlement broker overnights the check to the lock box of the assignment company (or the lock box of the annuity issuer if the case is unassigned and the annuity is to be owned by the defendant or defendant's insurer).
3. Within 24-72 hours of premium receipt the life insurer issues confirmation of payment. The defendant, the insurance company and the plaintiff's lawyer should receive:

• Copies of all structured settlement funding checks  (Plaintiff's Attorney)
  
• Confirmation of payment from each of the annuity issuers.
• The Defendant's insurer or Defendant (if self insured) should also have the canceled check or wire confirmation.

Why Was There a Need For An Escrow in The First Place?

The peculiarity of the Gargan case is that The Pension Company, Inc. was entrusted with settlement monies to buy annuities on behalf of a hospital in Westchester County New York. Where hospitals have insurance but have exhausted their aggregate limits, or one oi its layers of insurance involves an insolvent insurer, or they are unable to get liability insurance (or adequate liability insurance) and the plaintiffs desire a structured settlement the hospital must pay settlement out of their operating account and it can take some time to fund a structure.  A search on PACER shows a Bankruptcy case in the Eastern District of New York shows a matter in which The Pension Company Inc is listed as Escrow Agent for the Interfaith Medical Center Liquidating Trust.

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SIDE BAR     What is an Aggregate Limit?

The declarations page of your liability insurance policy will show the limits of liability for various different types of losses covered under the policy. Limits are generally stated on a per claim (or per occurrence)/aggregate basis. For example if you have $1,000,000/$3,000,000 limits it generally means $1,000,000 per claim and $3,000, 000 in aggregate for multiple claims in the policy term.  So if a hospital has multiple claims with a policy year, or a single claim that exhausts its limits limits, it could be forced to pay for, a make up the difference from its operating account.

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Safeguarding of Funds in An Escrow Trust

There are several options available to ensure the safeguarding of funds in an escrow trust. First is utilizing an institutional trustee versus an individual acting as a trustee. An institutional trustee will have supervision, segregation of duties, financial controls, and insurance that an individual trustee will not have.

State trust law generally provides that a "Trust Protector" can be appointed to act as an independent third-party to supervising the institutional trustee of the escrow or trust. Additionally, a Trust Protector can be empowered to review and approve all trust distributions and other types of transactions.

There can be varying levels of duties and powers assigned to a Trust Protector to reflect the specific needs of the arrangement and level of supervision required. Additionally, the title may be modified to reflect better the particular circumstances (trust advisor, distribution protector, etc.)

It is common for an entity that has a pending liability to create an escrow trust as an informal sinking fund. However, caution should be exercised such that the escrow trust remains the asset of the funding entity to avoid potential economic benefit and constructive receipt doctrine complications for the ultimate beneficiary arising from a "formally funded" trust.

A formally funded account could create a “vested legal right” to funds and trigger the economic benefit and constructive receipt doctrines and thereby prevent the ability to obtain a qualified structured settlement. Ensuring that the escrow trust remains "informally funded" is generally easily accomplished by ensuring that the escrow trust assets remain subject to the claims of creditors of the funding entity while preventing the funding entity from utilizing the funds for other purposes.

Alternative to Escrow Trust

At least one major life insurance company will accept structured settlement annuity premium payments in installments.

Qualified Settlement Fund

A qualified settlement fund is another potential solution, but on a New York case, a QSF involving a single claimant does not afford a choice among any of the traditional structured settlement annuity issuers. The Westchester New York hospital case involved a single minor claimant. You will not be able to use annuities issued by New York Life, US Life Insurance Company in the City of New York, Metropolitan Tower Life, First Berkshire Hathaway Life Insurance Company, Pacific Life and Annuity Company or The Prudential Insurance Company of America as qualified funding assets out of such a qualified settlement fund.

Outside of New York, Independent Life Insurance Company's qualified assignment company has shown a willingness to accept qualified assignments on settlements that other insurance companies would consider single claimant cases.

This author believes that there is a risk in dealing with settlement planners pushing a menu of services within a one stop shop "kaleidoscope" of related and self administered qualified settlement funds, self administered qualified assignment companies, factoring origination, factored structured settlement payments streams as annuity investments for injured parties and attorneys which do not address (or do not adequately address) the conflicts of interest.

Fidelity Bond

Requiring the escrow agent to have a Fidelity Bond with suitable limits is another viable solution. Such bonds are not expensive and are a cost of doing business.

United States Government cases

There are many layers of approval that are required when it comes to the approval of a claim and requisitioning of funds that are unlike dealing with insurers.

This author understands that the United States has been analyzing its processes and controls and is taking, and has taken steps to improve processes and controls since the discovery of Gargan's admitted crimes.

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SIDE BAR 2

Gargan had been on the DOJ list of Annuity Brokers since at least 2004, presumably was assigned work and presumably performed his work satisfactorily for quite some time (until he perpetrated his crimes).

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Plaintiff Broker Question

Some have suggested on list serves and in Facebook groups that Joe Gargan's crimes might have been prevented if there was a plaintiff broker on the case, however upon information and belief there was a representative from a well known firm on the Westchester case involved on behalf of the plaintiff. While there are many good reasons for a plaintiff lawyer to work with a settlement planner, it didn't prevent crooked Joseph E. Gargan from wiring hundreds of thousands of dollars from The Pension Company escrow account into his own personal account in April 2020, with the knowledge that the Feds had been on his tail for over a year.

 

 

 

 

 

 

Predator Solicits Unemployable New York Man With TBI to Sell Structured Settlement

by Structured Settlement Watchdog

Is business that tough for a certain structured settlement factoring companies that they must solicit a New York man with a Traumatic Brain Injury for a pennies on the dollar " bounty", on his sole source of income?

The man has contacted me. He does not need to sell and does not want to sell.

A structured settlement buyer is doing the devil's work in New York City by soliciting an AIG/American General annuitant with TBI

If you are one of the factoring companies currently soliciting the New York man (whose last name sounds like the last name of someone famous) with TBI who has an AIG/ American General structured settlement paying him bi-weekly payments for life, please stop doing so. Move on. It's a New York workers compensation structured settlement and it represents the New York man's sole source of income, so one way or another it will not get approved.  

Unfortunately a huge gap in regulation fails to protect how structured settlement consumers and structured settlement investors can be solicited. 

What regulation there is, is not consistently effective enough and weaknesses are exploited to the detriment of American consumers. 

New York has a Structured Settlement Protection Act (SSPA) which is generally quite effective.

However this has not stopped unscrupulous companies and individuals employed by or or contracted by structured settlement factoring companies in Maryland, Florida, Delaware and elsewhere to do the devil's work. Structured settlement factoring company predators have been know to take New Yorkers and fabricate a purported residency in another state to complete a terrible financial deal that induces certain structured settlement annuitants to commit fraud on the courts in the states of purported residency.  

Read more about my pro bono work as Structured Settlement Watchdog

 

 

 

 

    

Is a Factored Structured Settlement a Qualified Funding Asset?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Are Factored Structured Settlement Receivables a Qualified Funding Asset?

Do you have a structured settlement or structured attorney fee sold to you by a settlement planner, sourcing the money from a qualified settlement fund, using the settlement planner's qualified assignment company and funded with someone else's structured settlement payments? If so you may want to check the papers and perhaps speak with your accountant.

The Apparent Steps in the Purported Qualified Assignment

• Defendant, or its Insurer, has paid money in to a qualified settlement fund in exchange for a general release. 
• A periodic payment obligation is created based on the availability of other people's structured settlements offered for sale in the structured settlement secondary market.
• A Qualified Assignment and Release is executed by the Plaintiff/Payee or Attorney/Payee, the settlement planner's Delaware based qualified assignment company and the qualified settlement fund (related, unrelated or possibly administered by the plaintiff's settlement planning firm)
• The Qualified Assignment Release represents that the" Qualified Funding Asset" is Annuity
• The Qualified Assignment and Release  represents that the "Issuer of Qualified Funding Asset" is a Life Insurance Company that issues structured settlement annuities that the settlement planner's firm holds an agency appointment with.
• The Qualified Assignment and Release states  "In exchange for "legal payment rights" pursuant to 5891 of the IRC, to the Periodic Payments specified in Paragraph ____, Claimant hereby  releases and forever discharges the defendant/s and/or the Respondents with regard to the Periodic Payments and agrees only to look to (Name of Settlement Planner's Delaware qualified assignment company) for satisfaction of the obligation to pay periodic payments.
• But the Qualified Assignment and Release also states " In the event of notice of an application to any court for the transfer of payment rights established under this agreement, (Name of Settlement Planner's Delaware Qualified Assignment Company) reserves the right to effectuate a transfer of ownership of the " Qualified Funding Asset(s) to the Claimant/Payee. Upon the transfer of ownership to Claimant and/or Payee, this contract shall terminate.

My first reaction was "Holy Conflated Musical Chairs Batman!" If you have entered into one of these agreements, perhaps you should simply be asking "What the F*** is going on?"

Before we dig deep into that, let's get into the background of qualified assignments and what should be happening when there is a qualified assignment.

What is a Qualified Funding Asset?

Background

For the purpose of this discussion let's assume that we are speaking about a structured settlement which represents payment of damages for personal physical injury or physical sickness. [i.e. qualifies for the income tax exclusion under IRC 104(a)(2)]. Most structured settlements are created via what is known as a qualified assignment. The following chart displays the sequence of events that take place when a typical structured settlement is created.

The term "qualified funding asset", is defined at Internal Revenue Code (IRC) Section 130(d), which states:

"For purposes of this section, the term “qualified funding asset” means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if—

• such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,
• the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,
• such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and
• such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment".

Why I Am Concerned About the Settlement Planner's Methodology. Should You Be?

• The settlement planner's own assignment company's  Qualified Assignment and Release document referred to releasing the Defendants  or Respondents. For defendants, an important element of a qualified settlement fund is that it can remove them and their insurers from decisions that must be made post settlement [the "resolve or satisfy rule"]. The qualified settlement fund allows for the defendants to pay cash into the fund in exchange for a general release. Thus, post General Release,  why would they need to be released again in the Qualified Assignment and Release?
• Internal Revenue Code Section 5891 refers to structured settlement payment rights not "legal payment rights". Structured settlement payment rights are defined at IRC 5891(c)(2) as "rights to receive payments under a structured settlement". The term "legal payment rights" appears nowhere in IRC 5891.
• A structured settlement factoring transaction does not involve the sale of an annuity.
• A structured settlement factoring transaction is defined at IRC 5891(c)(3)(A) as 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"
• Structured settlement payment rights are also known as " factored structured settlement payment streams". Acquired structured settlement payment rights  are not an annuity according to the National Association of Insurance Commissioners in Statutory Issue Paper 160. 
• Beside the NAIC exclusion of acquired structured settlement payments as not being a covered annuity contract, none of the cash flows are filed with the Department of Insurance in your state. The Departments of Insurance specifically don't regulate factoring because the purchase and sale of cash flows is not the business of insurance.
• If the settlement planner's Delaware qualified assignment company, the taxpayer intended by the statute, has "designated" such factored structured settlement payment stream "an annuity contract" when it isn't, as appears to the case here "(in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment", then wouldn't, or shouldn't, there' be an IRS concern? 

A 2017 legal decision in Delaware, the domicile of the settlement planner's qualified assignment company, supports an opinion that the settlement planner's representation of factored structured settlement payment streams as an annuity is a bald- faced lie:

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" .  Also see my post Greenwald v Caballero-Goehringer | Judge KOs Portrayal of Structured Settlement Derivatives as Structured Settlement

Is March 2010, Thomas D. Begley, Esq. of the Begley Law Group in Morristown, NJ wrote "The companies do not buy the structured settlement annuity itself, but rather buy the right to the income stream". 

If structured settlement payment rights are not an annuity (or an obligation of the United States), then they cannot be a "qualified funding asset". 

Then the prongs of IRC 130(d) ALL potentially fail.

For purposes of this section, the term “qualified funding asset” means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States FAILS because a factored structured settlement payment stream is not an annuity contract, but a receivables purchase agreement under Caballero--Goehringer. Settlement Planner's qualified assignment company is not a company licensed to do business as an insurance company. , if—

1. 
   such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment, FAILS because a  factored structured settlement payment stream is not an annuity contract, but a receivables purchase agreement under Caballero--Goehringer. Settlement Planner's qualified assignment company is not a company licensed to do business as an insurance company.
   2,.the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates, (FAILS because a factored structured settlement payment stream is not an annuity contract, but a receivables purchase agreement under Caballero--Goehringer. Settlement Planner's qualified assignment company is not a company licensed to do business as an insurance company.
   3. such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, FAILS because a factored structured settlement payment stream is not an annuity contract, but a receivables purchase agreement under Caballero--Goehringer. Settlement Planner's qualified assignment company is not a company licensed to do business as an insurance company. and
   4. such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment". FAILS because a factored structured settlement payment stream is not an annuity contract, but a receivables purchase agreement under Caballero--Goehringer. Settlement Planner's qualified assignment company is not a company licensed to do business as an insurance company

Now lets go back to IRC Section 130  (if IRC 130(d) fails,  is there a greater tax issue of an attempt to characterize factored structured settlement payments streams as qualified funding asset?

IRC 130(a) In general  Any amount received for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of any qualified funding assets.  Does this now FAIL because there has been no purchase of a qualified funding asset?  Was the settlement planner's qualified assignment company entitled to a tax exclusion under IRC 130, or did they report the income on its tax return?

IRC 130 (b)Treatment of qualified funding asset In the case of any qualified funding asset—

(1)the basis of such asset shall be reduced by the amount excluded from gross income under subsection (a) by reason of the purchase of such asset, and
(2)any gain recognized on a disposition of such asset shall be treated as ordinary income.

But what about the term "obligation" as  a "qualified funding asset"under Internal Revenue Code 130(d)? 

Reading the express language of the statute one can clearly see that It refers solely to an obligation of the United States.

This is Qualified Assignment 101 folks. One wonders how many qualified assignments were done this way and what an IRS audit of the books  and tax records of the qualified assignment company would turn up?

2. Securities and Exchange Commission/ FINRA investor alert 2013-86 also warns investors who might be attracted to the yield offered by buying the rights to someone else’s pension or structured settlement to be aware that:

• Investors may encounter commissions of seven percent or higher. [Our note:  the fees/mark up may or may not be disclosed. There are places to hide fees. Always ask to avoid a steep mark up] "Not surprisingly, the amount paid by the second plaintiff for the recycled payment stream is much greater than what the factoring company paid to the original payee. The factoring company markets the recycled payment stream based on its apparently attractive yield. However, because the recycled payment stream is taxable and also fraught with risk, the deal is not as good as advertised" -Stephen R. Harris, Esq.  Cozen O'Connor " Recycled Annuities" a Bad Alternative for Funding a Structured Settlement American Bar Association Journal December 17, 2018. 
• Pension and structured settlement income-stream products may or may not be securities and likely are not registered with the SEC.  
• These products could be difficult to sell if you need money and want to sell the product.
• Your “rights” to the income stream you purchased could face legal challenges

To jury rig the Qualified Assignment and Release document and misrepresent acquisition of someone else's structured settlement payment stream as a "Qualified Funding Asset(s) is outrageous, to say the least!

• "The settlement planner recently promoted a glossy attorney fee deferral brochure which also refers to these instruments by the tertiary market scam label " secondary market annuities.
• On the one hand, the same glossy brochure cites the seminal case of Childs v Commissioner, in which "the Petitioners never had the right to receive immediate payment, and non fund or property was set aside for petitioners which they could draw on at a time of their choosing", yet the glossy brochure says  "Change your investment at any time during deferral". Ohhhhkay.....
• Without the IRC 130 exclusion, If the attorney fee deferral is for more than one year and the factored structured settlement payments were an annuity, which they are not, is there any adverse consequence to the qualified assignment company?
• Again what the settlement planner is peddling as an annuity is not an annuity/ are not annuities.

Worth Reading ‘Recycled Annuity’: A Misleading Phrase For A Risky Investment That No One Should Confuse With A Structured Settlement by Pete Vodola.  Vodola is a Connecticut attorney who is intimately familiar with structured settlement factoring tranactions having consulted with and litigated on behalf of annuity issuers on compliance issues related to structured settlement protection acts thrroughout the United States for more than 15 years.

 

 

 

 

 

 

 

 

 

John Hancock Life Introduces Structured Settlement Exchange Program for Its Annuitants

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

John Hancock Life is rolling out a structured settlement exchange program that enables John Hancock annuitants to address their liquidity needs while providing a measure of protection against secondary market predators. 

The John Hancock Structured Settlement Exchange program is unique for being established at a time when John Hancock is not writing structured settlement annuities.  John Hancock ceased writing structured settlement annuities in 2013.

The John Hancock Structured Settlement Exchange program is similar to the Allstate AFEN program and Berkshire Hathaway's Hardship Exchange Program, at a discount rate that is competitive, but definitely not the lowest possible rate.

Always shop around. Selling structured settlement payments usually doesn't make sense for most people, but at least John Hancock Life annuitants who must go down that road, now have a ceiling above which they should not be paying to another structured settlement buyer.

 No John Hancock Life annuitant should pay more than 8% on any sale of structured settlement payments. 8%

Commutation programs are a source of consternation from structured settlement factoring companies who complain that it gives the annuity issuer an unfair advantage, while factoring companies must incur advertising expense to find prospects.

On the other hand one has to consider that the structured settlement factoring industry has no licensing requirement, unregulated sales practices and has an appalling history that has earned blistering exposes in national news media for member business practices (not to mention all the Structured Settlement Watchdog® has sniffed out). There are currently two ongoing lawsuits against life insurers for not doing enough for their annuitants when noticed of a structured settlement factoring transaction.  In my opinion offering a structured settlement exchange or hardship provision is smart business.

 

 

 

 

 

 

 

 

 

 

 

    

Structured Settlement Industry Production Was A Record Setting $6.4B in 2019!

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Structured settlement industry premium production increased for the second year in a row. 2019 was a record setting year for structured settlements, exceeding $6.4B,  a massive statement of relevance for the core personal injury settlement planning tool in an era of low interest rates and record setting stock market performance

Structured settlements remain a relevant core personal injury settlement planning tool that enables parties to address the personal needs of plaintiffs with a level of precision

In addition to traditional uses of structured settlements in personal injury, wrongful death and workers compensation settlements, there are many applications in the non qualified structured settlement area such as employment and commercial settlements, structured installment sales, wrongful imprisonment  (the latter has tax exclusion but cannot be assigned under IRC 130).

A round of applause goes to my industry colleagues, their employees and to representatives of American General, Berkshire Hathaway,  Independent Life, MetLife, New York Life,  Pacific Life, The Prudential Insurance Company of America, United of Omaha and USAA Life insurance companies , and our trade associations, with whom I share this success. A further round goes to legal counsel, insurers and adjusters who support structured settlements and take the time to stay current on the many applications of structured settlements and who choose to retain structured settlement experts.

4structures.com LLC recently introduced new advertising that focuses on one of the strengths of structured settlements,  " a custom fit for your life marathon".

 

Structured Settlement Broker Bought Factored Structure With BIG Discount Rate in His Own Name

by Structured Settlement Watchdog

A settlement planner, who is a member of NSSTA and a member of the Society of Settlement Planners,  bought a factored structured settlement payment stream which bore a 10.76% effective discount rate at a time when market discount rates were possible at well below 10%.

The seller DID NOT have independent professional advice according to the petition.  The settlement planner was assigned the rights through a Florida structured settlement factoring intermediary which originated the deal in Broward County, where the deal and the name of the settlement planner are public record and were sourced online.

While the name of the broker/settlement planner is public record, I am going to proceed to an ethical discussion without it in the hope that a consensus can be developed about the right way and the wrong to buy structured settlement payment rights by settlement planners and structured settlement brokers.

Legal Considerations

• Structured settlement factoring is legal
• Buying factored structured settlement payment streams is legal

Facts

• Certain members of NSSTA and Society of Settlement Planners have and, upon information and belief, still buy structured settlement payment rights as investments for themselves and/or for clients.
• Other non members of NSSTA, who are appointed by NSSTA member life insurance companies directly, or though commonly owned or affiliated companies, buy structured settlement payment rights, or originate structured settlement factoring transactions. One has established what purports to be an "exchange"
• Many of the settlement planners claim to be tireless advocates for the claimant’s right to income tax free guaranteed periodic payments.
• It is commonly known to members of NSSTA and the Society of Settlement Planners, including the life insurers who appoint these individuals, that the structured settlement secondary market transactions are regulated, but, with the exception of a few states such as Maryland and Louisiana, there is no regulation of the participants and their sale practices.

It's also fair to say, that no member of either of those associations for more than 5 years can claim ignorance of the financial atrocities that certain members of the structured settlement secondary market have rained on former plaintiffs and recipients of structured settlement payments. 

Shocking statistic

In addition to financial atrocities, certain members of the structured settlement secondary have decided to directly, or indirectly through paid sanctioned lead generation to educate, most often poorly and inaccurately, plaintiffs that are a source of business for members of NSSTA and Society of Settlement Planners.  CBC Settlement Funding,  and its "lead pimps "Annuity.org, structuredsettlements.com and nlrbfcu.org, generate an estimated 22 times the clicks that NSSTA generates for the key word "structured settlements". That's just one key word.

Ethical Considerations in the Purchase of Structured Settlement Payments from Former Plaintiffs by Structured Settlement Brokers and Settlement Planners

The Ethics of Purchasing Structured Settlement Payments by Settlement Planners and Structured Settlement Brokers

• Is it ethical for a settlement planner or structured settlement broker to buy structured settlement payment rights from a someone who has not received Independent Professional Advice?
• Is it ethical for a settlement planner or structured settlement broker, to buy structured settlement payment rights from a client for whom he or she placed the structured settlement annuity? 
• Does funneling the structured settlement factoring transaction through a factoring company, change the answer?
• How does the answer change if the settlement planner is the only buyer?
• Is it ethical for a settlement planner or structured settlement broker to buy structured settlement payment rights from someone who has held their structured settlement less than 2 or 3 years?
• Is it ethical for a settlement planner or structured settlement broker or settlement planner to buy structured settlement payment rights from the sale of a minor's structured settlement, when the minor is a minor? This DID happen in one case that the structured settlement watchdog discovered after obtaining a copy of the Complaint and other casedocuments. When contacted the settlement planner claimed that he did not know the purcahse involved a minor's structured settlement.
• Is it ethical for a settlement planner or structured settlement broker to buy structured settlement payment rights from someone who has not got at least 3 competing quotes from unrelated entities?
• Does it matter, from an ethical standpoint, who originates the structured settlement factoring transaction from which the settlement planner or structured settlement broker is assigned the structured settlement payment rights as an investment?  Should the nature of the structured settlement company/originator's business practices be an item for consideration on the proverbial theory that "if you lie down with dogs, you wake up with fleas"?
• Does it matter, from an ethical standpoint, who originates the structured settlement factoring transaction from which the settlement planner or structured settlement broker is assigned the structured settlement payment rights as an investment?
• If the settlement planner or structured settlement broker is buying structured settlement payment rights as an investment, for themselves or clients arising out of a structured settlement annuity that they placed, what if any disclosure obligations do they have with the annuity issuer with whom they are appointed?
• What are annuity issuers who appoint said settlement planners or structured settlement brokers doing to assure the privacy and confidentiality obligations to annuitants are maintained?

This important discussion will continue.  My hope is that this blog post stimulates a wider industry discussion and that standards are set for the good of the industry and the people it serves.

 

 

 

 

 

 

 

 

NY Senate Bill Requires Licensing for Commercial Loans But Not Structured Settlement Factoring to Vulnerable NY Individuals

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What is New York Senate Bill S6688?

Under New York State Senate Bill 6688, it would be unlawful to engage in the business of making or soliciting commercial financing products to businesses

NY Sen James Sanders, Jr. 

Image: Ronzoni/Wikipedia

located in New York State without first obtaining a license. S6688 is sponsored James Sanders, Jr, of District 10 in Queens who is the Chairman of the Committee on Banks. The bill would add Article IX-A of the banking law and the administrative code of the city of New York Section 363 Commercial Finance Licensing.

What is Missing from New York Senate Bill S6688?

At a time when structured settlement factoring companies appear to be open to being licensed, it's interesting to see that New York prioritizes small businesses over individuals, many of them disabled and minorities who are exposed to predatory practices that in one case cost a man from Long Island in excess of $1.4 million dollars and a Staten Island Ferry Victim millions as well. In the two examples the men were forum shopped into another state to skirt New York state's tough protections by unlicensed financial predators. Recently a recent high school graduate from the Bronx, with a penchant for taking selfies at his job at a New York pizza parlor near Times Square that he started after a structured settlement transfer petition was submitted days after his graduation from a New York City high school, to a New Haven Connecticut Superior Court. The transfer petition was rejected in a Connecticut state court.

What is a Commercial Financial Product?

"Commercial financing product" means any advance of funds to a commercial or business enterprise made for the purpose of assisting the business with its capital needs, including but not limited to:
(a) loans or lines of credit made to a business or commercial enterprise in a principal amount of five hundred thousand dollars or less, whether secured or unsecured;
(b) purchase transactions where an entity purchases accounts, receivables, intangibles, revenue or other actual or perceived assets of the business if any single payment or advance of the purchase price for the purchased accounts, receivables, intangibles, revenue or other actual or perceived assets of the business is in the amount of five hundred thousand dollars or less; or
(c) any leasing transaction where any funds are provided to the business or commercial enterprise by the leasing business or any affiliate of the leasing business in the amount of five hundred thousand dollars or less.
Among several exemptions, New York Senate Bill 6688 is " any person who makes or solicits five or fewer commercial financing products within any twelve month period".

Why New York Should Enact Companion Legislation or Tag on Licensing Requirements, for Structured Settlement Factoring Companies

There is already support in the structured settlement secondary market for licensing, so why not get on with it?

New York Senate Bill 6688 exempts from the article, "any person who makes or solicits five or fewer commercial financing products within any twelve month period". Any potential legislation should be mindful that structured settlement factoring companies often operate under different aliases or fly by night LLCs, making it difficult to trace the source. These fly by night LLCs could be used to keep solicitations under 5. Upon information and belief, one company based in Florida has used hundreds of LLCs. Furthermore, as I wrote the other day, some may also use offshore lead generation firms to skirt privacy protections under the TCPA. See "Structured Settlement Cash Now Companies in 'Pyramid Scheme' to Avoid TCPA Privacy Rules" here

The lack of licensing has cost New Yorkers most vulnerable millions of dollars due to predatory practices. The ability to fine , suspend or revoke is a powerful deterrent. The consequence's can be sobering. Such consequences are already in place in the legal profession. A disbarred New York attorney, who also happens to be a structured settlement broker and licensed New York insurance agent regulated by the New York Department of Financial Services, was automatically disbarred after having admitted to a felony while driving in which someone was injured. Ironically the disbarred lawyer's structured settlement firm donates over $100,000 annually to New York State Trial Lawyers Association as does another competing firm.    

What can the New York State Trial Lawyers Association do as well as the Academy of Trial Lawyers in New York to propose and support such legislation?

NYSTLA and the Academy collectively have solicited and received hundreds of thousands or more from structured settlement firms, to further those associations and their members' political agenda. Members of those associations have placed their clients into structured settlements. If members of NYSTLA and the Academy believe now, or in the past, that structured settlements are appropriate for their clients, are they doing all they can to protect them from predators? This is a no brainer.

Structured Settlement Buyers Want You To Be Their Chum

by Structured Settlement Watchdog

Structured settlement buyers want you to be their chum.  But you know what happens when there is blood in the water. Structured settlement sharks will rip your payments in half and savage your financial future.

Check out the new public service message from the Structured Settlement Watchdog.

 

Beware of structured settlement sharks!  Structured settlement cash now sharks.  The best they can offer is a money losing value proposition. You will never make money as the result of selling structured settlement payments. You will always be a loser.