by Structured Settlement Watchdog™
Secondary Market Annuities LLC is a Nevada registered company that, in my opinion, should be the poster child for why there is an urgent need for regulation of the secondary market for structured settlement payment rights. Its "in your face" flaunting mischaracterization what it is selling as annuities is both stunning and egregious. The structured settlement watchdog is snarling.
A. Secondary Market Annuities, LLC holds itself out as a seller of annuities. To wit
"Secondary Market Annuities, LLC is pleased to offer a unique opportunity to invest in guaranteed Fixed Term Annuities at rates that surpass those of similar fixed investment options" (emphasis ours)
B. In conjunction with its solicitation, Secondary Market Annuities, LLC advertises over and over the existence of State Insurance Guaranty Funds despite the FACT that licensed insurance agents are expressly prohibited from doing so in conjunction with the sale of annuities in most states. Even if one considers structured settlement payment rights, it is using the existence of guaranty funds to solicit buyers, when the ELNY liquidation may prove to be practical example that investors in ELNY structured settlement payments rights are "S.O.L." With that uncertainty hanging over the head of ELNY investors, how can any one selling structured settlement payment rights to investors make such a statement in good faith?
Check out these three quotes from the "Secondary Market Annuities,LLC website FAQ " How Safe Are Structured Settlement Annuity Payments?"
"Each state has a Guaranty Association that can provide payments, subject to certain limits, if the insurance company is no longer able to do so. They provide a similar function as the Federal Deposits (sic) Insurance Corporation (FDIC). The State Guaranty Association can also work with regulators to reassign annuity obligations to a fiscally sound insurer".
"In the event that these highly rated insurance companies are liquidated and have insufficient funds to meet claims, the State Insurance Guarantee Association provides protection to annuity holders. However, we make no representation or warranties in this regard"
"Structured Settlement Annuities are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other federal agency, however state guarantee associations may partially guarantee the payments"
How can state insurance regulators expect licensed agents to take their rules seriously if the likes of Secondary Market Annuities LLC are allowed to exploit the lax regulation?
C. Check out the Secondary Market Annuities, LLC Disclaimer
"No securities regulatory authority has expressed an opinion about these annuities. It is an offence to claim otherwise.IRC 5891 Annuitiesare only offered for sale in the United States and are exempt from registration with the U.S. Securities and Exchange Commission. Each prospective investor should be aware of their risk tolerance and consult his or her own accountant, and business advisor as to the legal, tax and related consequences of a purchase by him or her of an asset. No tax advice has been nor is being rendered by Our Company, any of its officers, directors, managing agents, employees, affiliates, or subsidiaries. IRS rules of practice require us to inform you that any description or discussion of taxation contained in this correspondence related to federal tax issue is not intended or written by Our Company to be used, and cannot be used by any taxpayer for the purpose of avoiding any taxpayer for the purpose of avoiding any tax penalties imposed by the internal revenue service, or for promoting, marketing, or recommending any tax related matters addressed herein". (emphasis ours)
Comment: IRC 5891is a section of the United States Internal Revenue Code that deals with the imposition of an excise tax on purchasers of structured settlement payment rights who do not follow certain guidelines. The excise tax does not deal with the purchase of annuities.
D. Secondary Market Annuities, LLC Invites Investors to compare CDs Bonds and other investments to what it labels "Our Fixed Annuities"
E. Despite the FACT that structured settlement payment rights ARE NOT annuities, this brazen company has named itself after something it does not sell. The company lists a Burbank California address yet its owner does not come up as having an active California Insurance license
F. The BBB seal on the Contact Us page of the Secondary Market Annuities, LLC website is linked to another company's BBB report, as of January 22, 2012 11:06pm EST
G. The company lists a Burbank California business address on its website but the company does not come up as registered with the California Secretary of State
H. The company's website domain name is registered to a Las Vegas, Nevada advertising agency, Advertising Consultation Group, LLC.
The structured settlement watchdog sees nothing wrong with offering structured settlement payment rights to investors provided that the "product" is not mischaracterized or misrepresented as an annuity. Such mischaracterization and/or misrepresentation should not be tolerated in the market place. State and Federal legislators and insurance regulators are called upon to establish greater consumer protection. I just took a 4 hour course dealing with suitability of annuities for seniors. How does it help that there are no rules to protect the same yield starved seniors being solicited to buy structured settlement payment rights which are being mischaracterized and/or misrepresented as annuities?
Previous Blog Posts on the subject
Secondary Market for Structured Settlments: Labeling Is Questioned January 11, 2012
Note: * David Jones is the California Insurance Commissioner