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Secondary Market "Annuity" E&O Claim Exposures for Financial Advisors, Settlement Planners and Their E&O Insurers

by John Darer CLU ChFC MSSC CeFT RSP CLTC

E&O claims exposure for secondary market "annuities" is a ticking time bomb for Financial Advisors, Settlement Planners and E&O Insurers

The use of the term annuity to solicit investors in structured settlement receivables (factored structured settlement payment streams) is a massive untruth that has been used to unload other people's structured settlement payments on soon to be retirees, retirees and injured individuals.  Emboldened by the massive regulatory gap, tertiary market entities have leveraged the scam label "secondary market annuities" by attaching it to just about any type of cash flow they can get on their shelves.  The tertiary market companies market the scam labeled alternative investments (bearing a much higher risk profile) to financial advisors who then sell them as "secondary market annuities" to unsuspecting clients who have trusted them,  because they have been sold legitimate annuities by the financial advisors, many of which are licensed and regulated insurance agents. Therein lies the exposure.

One Thing a Licensed Insurance Agent or Financial Advisor Should Know About an Annuity

A licensed insurance agent should know what an annuity is and also recognize what is not an annuity.  It's fundamental knowledge that is typically part of the first primer that one must read to prepare for a state insurance licensing exam.

There is a clear cut definition of an annuity on the website of each state insurance regulator (sample below). Many states have mandatory continuing education requirements for annuities.

Why would any licensed insurance agent or a financial advisor dabbling in the structured settlement receivables market place, put their license, reputation and livelihood on the line by running a false flag up their flag pole. 

How Insurance Regulators Define an Annuity

Maryland  An annuity is a contract between you and an insurance company under which you make either a lump sum payment or a series of payments, and in exchange, the insurance company agrees to make payment to you in the future.

Delaware 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. 

New York    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. 

 

Connecticut 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. 

 

CGS Section 38a-430(a) No life insurance or annuity policy or contract shall be delivered or issued for delivery to any person in this state, nor shall any application, rider or endorsement be used in connection therewith, until a copy of the form thereof shall have been filed with and approved by the commissioner

 

Also,  Any domestic insurance company empowered to make contracts contingent upon life may grant and issue annuities either in connection with or separate from contracts of insurance predicated upon life risks. [ref. CGS Sec 38a-432]

"Sunrise Subset"

In its answer to Plaintiffs' First Amended Complaint and Counterclaims in ongoing Arizona litigation cited below, dated June 11, 2021, Genex Capital Corporation admitted, in answering paragraph 31, that "one component of its business involves purchasing from payees future structured settlement payments due under structured settlement annuities and assigning to investors a subset of those rights..."  (emphasis added)  ( also multiple other references to "subsets of those rights..." Ibid at 13, 53, 56, 89, 109, 126)

Source: Genex Capital Corporation, a Delaware Corporation  v Seeley Capital Management, Inc., a Massachusetts corporation; et al and Related Counterclaim  Richard L. Keefer and Vicki L. Keefer, husband and wife; et al; v Genex Capital Corporation, a Delaware Corporation; et al and Genex Capital Corporation, a  Delaware Corporation, a  Delaware Corporation v Richard L. Keefer and Vicki L. Keefer, husband and wife, Hunmi Pak, a married man; E. Dwayne Walls, a married man; and PANABCO, a partnership  Arizona Superior Court County of Maricopa Case Nos. CV 2020-013796 and CV2020-004958 (Consolidated)  [the pleadings are a matter of public record]

The above admission(s) by Genex Capital Corporation in its answer to the First Amended Complaint, is very helpful to illustrate, support and underscore some important points:

• When you buy a legitimate annuity you are buying the actual annuity contract, which is an actual insurance product. 
• An insurance product can only be sold by appropriately licensed and appointed insurance agents and brokers in accordance with the laws of various states.
• When the originating structured settlement factoring company buys structured settlement payments in a structured settlement factoring transaction they are not buying an annuity.
• Furthermore, unless the investor is a "direct designated assignee" in the court order approving the structured settlement transfer, the investor is buying a subset of rights to certain payments  ( see Ibid at 45 in contrast to Ibid at 13, 53, 56, 89, 102, 126).
• Ownership of the actual annuity that is generating the payments is not transferred to the originating structured settlement factoring company.
• Since the originating structured settlement factoring company is not buying an annuity, but rights to payments,  it follows that "a subset of those rights" (as Genex Capital Corporation eloquently refers to what investors are actually buying in exchange for their investment), is not an annuity.    

Given what Genex Capital admits in its answer to the investor complaint cited above, Genex (via Assured Annuity), as well as others use the term "annuity" to market "subsets of these rights", originated from structured settlement factoring transactions. 

But a foreseeable exposure here is on the shoulders of the army of licensed insurance agents, financial advisors and settlement planners, who are supposed to know what an annuity is, who are regulated by one or more state insurance departments or self regulatory organizations, who may be misrepresenting to their investors what the investors are buying, with potentially disastrous consequences!  

Are Subsets of Receivables from an Athlete Agent's Contract Annuities?

Now, let's take this a step further.  There are other types of factored cash flows, like athlete's agent contracts, where tertiary market companies and/or licensed insurance agents and financial advisors in their brokerage channels are slapping on the "secondary market annuity" label to sell "subsets of rights" in such cash flows to investors. It's reckless.

 

 

 

 

 

 

 

 

"Secondary Market Annuity" Investors Screwed out of $152.8K Incur Legal Bills to Fight NJ Vendor

by Structured Settlement Watchdog®

Altium Group, LLC  advertised that 'Secondary Market Annuities are a High Yield, Low Risk financial investment vehicle. The Holmdel  New Jersey company also claims to " provide you safe, insured returns up to 8.00%. Invest in your future'.

Structured Settlement Receivables have been misrepresented as annuities by a number of actors in the structured settlement tertiary market who know that structured settlement receivables ARE NOT in fact annuities

In doing so, some companies attempt (or have attempted) to  'disclaim liability for legal, accounting, tax, financial or other advice or guidance of any kind to purchaser"

The Altium pitch also included

"By nature of the secondary market purchase process, Secondary Market Annuities come at substantially higher returns than similar annuity products purchased from the same insurance carrier"  Altium Group website retrieved January 23, 2017

The safety and yield of Secondary Market Annuities (SMA) have proven to be an attractive asset class to many publicly-traded companies over the past two decades".

Pennsylvania residents Robert and Linda Wall are two such investors, who with the aid of a financial advisor purchased the rights structured settlement payments from Altium.  In a case that underscores the clear and present danger of investing in structured settlement derivatives, the Walls invested more than $150,000 for the future payments that were supposed to be transferred to them, but never received any of the structured settlement payments, because the underlying transfer was vacated by the judge. The Walls brought breach of contract, unjust enrichment, negligence, and other claims

According to a legal complaint filed in July 2016,

• "On November 8, 2011, the Walls and Altium signed a “Master Structured Settlement Receivable Purchase and Sale Agreement and Non-Circumvention Agreement.” Under this agreement, the Walls wired Altium a $5,000 deposit on the purchase price and agreed to wire Altium the balance upon receipt of the Closing Book.
• Corona Capital then arranged for the purchase and transfer of Kenneth Stevens’ structured settlement payment rights, payable under an annuity issued by New York Life Insurance. On January 12, 2012, Kenneth Stevens signed an “Absolute Assignment and UCC Article 9 Security Agreement” assigning his right to payments from New York Life to Corona Capital.
• Corona Capital then sold the right, title, and interest payments to Mr. Stevens’ annuity to Altium on March 15, 2012. A Florida state court granted Corona Capital’s petition to approve the transfer on March 28, 2012 entitling the Walls to receive 60 payments of $3,000 with 3% annual increase in payments beginning on June 1, 2014, and ending with the last payment on May 1, 2019.
• On April 19, 2012, Altium sent the Walls the “Closing Books” and the Walls wired Altium the remaining purchase price of $147,833.37.
• Over two years later, the same Florida state court vacated its March 28, 2012 Order and ordered New York Life Insurance Company to make the structured settlement payments to Stevens’ attorneys and not to the Walls. Stevens had filed papers seeking to overturn the order and, “after extensive discovery”, the court concluded that Stevens “did not sign any of the documents submitted to this Court in support of the” Corona petition.  In other words, his signature had been forged.
• The Walls paid $152,833.37 to Altium under the Master Agreement but never received payments from Altium or Corona Capital. The Walls sued Altium Group and Corona Capital for breach of Uniform Commercial Code (“UCC”) transfer warranties, breach of contract, and unjust enrichment. The Court stated it lacked personal jurisdiction over Corona Capital and dismissed it on November 22, 2016.

The investors brought suit against both the factoring company, Corona Capital, LLC  a company managed by Eric Livingston and Altium Group, LLC, a company solely managed by William D. Coluccio  [Robert Wall and Linda Wall vs Corona Capital, LLC and Altium Group, LLC  WD Pennsylvania Case No. 2:16-CV-01044-MRH, filed July 15, 2016 ].  Corona Capital was dismissed on jurisdictional grounds. The Court then ruled "when, as here, the investor has no specific commercial relationship with the original injured party who sold the structured annuity, she may not sue the finance company for breach of transfer warranties under the Uniform Commercial Code but may sue the intermediary seller receiving her investment for breach of contract.

Each and every investor considering buying structured settlement derivatives (including trustees of trusts for injured parties), whether or not misprepresented as annuities (" secondary market annuities"), should make note of the defenses put up by Altium Group, LLC  [ they could be put up by any other company]

• Sixth Defense put forward by Altium Group, LLC "The purported claims against...are barred by assumption of risk"
• Ninth Defense "to the extent that plaintiffs incurred the damages they allege, Plaintiffs failed to take reasonable steps

Pop Quiz on Assumption of Risk ( on which of these does the doctrine apply?)

• Beaned by a foul ball while watching a professional baseball game that you purchased a ticket for.
• Teeing up your son with your honker
• Surviving a multi-story fall, only to be attacked by a random lion that happens to be ambling by 

 

Forgery of structured settlement transfer documents is not without precedent

• Thomas Rubino, a now former paralegal of the New York personal injury and factoring company law firm of Paris & Chaikin is an admitted forger
• Jose Manuel Camacho Jr., a lawyer used by many structured settlement factoring companies forged the signatures of 7 Broward County judges on more than 100 structured settlement transfer documents

An Annuity Sold email address was used in connection with transmission of court papers requiring notarization in connection with cases with phony defendants in a bid to game Google. 

Attorney Edward Stone and I will be speaking on a panel about the risks of investing in structured settlement derivatives at the upcoming annual meeting of the Society of Settlement Planners in Las Vegas in March 2017.  Stone has represented (and is currently representing) a number of individuals seeking to have structured settlement transfer orders vacated for alleged failure to comply with structured settlement transfer laws. 

Important Related reading

Regulatory Sun Rise in Maryland and Somerset Wealth Sunset of Structured Settlement Derivatives November 27, 2016

What is a Structured Settlement Derivative? | Structured Settlement Terms   August 12, 2016

What One Settlement Planner Has Said In Advising Recycled Structured Settlements to Plaintiffs and Attorneys  August 11, 2016

What is a Secondary Market Annuity? Who's "Smoking" The "Ash-Geesh"?   February 23, 2015

Recycled Structured Settlements | A Conflict of Interest for Plaintiff Brokers?   December 15, 2014

Recycled Structured Settlements | "In the End the Payee Does Not Know The Difference" Says CA Attorney   November 5, 2012

Risks of Investing in Recycled Structured Settlement Payment Rights   October 1, 2012

Secondary Market for Structured Settlement Payments| Labeling is Questioned  January 11,  2012