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How IRC 130 Failure Could Cause Major Tax Hit to Qualified Assignment Company, or Payee

by John Darer CLU ChFC MSSC CeFT RSP CLTC

The failure to satisfy IRC 130 could have crushing financial consequences to a qualified assignment company or Payee in certain circumstances. IRC 130

An IRC 130 failure could result in a big tax hit 

provides a tax exemption to the qualified assignment company subject to certain conditions. Without the tax exemption the qualified assignment company must declare income that it receives (the money intended for the annuity premium or cost of treasury obligations plus the qualified assignment fee). 

It's not hard to satisfy IRC 130, But...over stretching could cause you to "split your plans" with the IRS

In the typical qualified assignment there is substitution of obligors for periodic payment obligations to plaintiffs who have suffered personal physical injury, physical sickness, are wrongful death survivors, or workers compensation. 

(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.

(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.

(c) Qualified assignment For purposes of this section  (i.e. Section 130 in its entirety) , the term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—
(1)if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen’s compensation claim, and (2)if—
(A)such periodic payments are fixed and determinable as to amount and time of payment,
(B)such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,
(C)the assignee’s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and
(D)such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104(a).
The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor.

Important Pro Tip:  IRC 130(c) is a definition of what a qualified assignment is, in the context of what a qualified assignment does from a tax standpoint.   The terms of IRC 130(c) and the other parts of IRC 130 are not mutually exclusive.  This is recognized in so many words by Rev. Proc. 93-34, at Section 3 "Scope",  wherein it expressly states "an assignment by a designated or qualified settlement fund of a liability to make periodic payments must also satisfy all the other requirements of section 130 to be a qualified assignment. ..."  A Revenue Procedure is an official statement of a procedure published in the Internal Revenue Bulletin that either affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code and related statutes, treaties, and regulations or, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge. – Rev. Proc. 89-14, 1989-8 I.R.B. 20

(d) Qualified funding asset   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—
(1)such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,
(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,
(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, 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.

Despite being easy to satisfy, most qualified assignments have an out clause for the qualified assignment company

Here's how the Model Qualified Assignment and Release reads

Failure to Satisfy Section 130(c).  If at any time prior to completion of the Periodic Payments, the Settlement Agreement is declared terminated in a final, non-appealable order of a court of competent jurisdiction (or in the case of a workers’ compensation settlement, a final order of the applicable workers’ compensation authority) or if it is determined in any such final order that the requirements of Section 130(c) of the Code have not been satisfied in connection with this Agreement: (i) the assignment by Assignor to Assignee of the liability to make the Periodic Payments, Assignee’s acceptance of such assignment and the release by Claimant(s) of Assignor’s liability shall be of no force or effect; (ii) Assignee shall be conclusively deemed to be acting as the agent of Assignor; (iii) the Annuity shall be owned by Assignor, which shall retain the liability to make the Periodic Payments; (iv) Assignee shall have no liability to make any Periodic Payments; and (v) the parties hereto agree to cooperate in taking such actions as may be necessary or appropriate to implement the foregoing.

Under the typical qualified assignment, provided no constructive receipt has occurred, the Settlement Agreeement and Release establishes a future periodic payment obligation as consideration for the type of damages that fall within the meaning of IRC 130(c) and where the assignment company is affiliated with annuity issuer, there really is no chance that the assignment company is going to fail the IRC 130(d)  qualified funding asset statutory requirement, because the qualified funding asset is an annuity.

But what of the independent qualified assignment companies?  Independent qualified assignment companies have been used to inject other investments into the mix, including factored structured settlement payment streams, which are not annuities. What would happen under the unwind clause in the qualified assignment document of one such company.

A settlement planning firm which attempts to use other investments including factored structured settlement payment streams it calls "secondary market annuities", which are not annuities, raises concerns on many levels. 

Have you seen this in a qualified assignment agreement that you've signed for an attorney fee deferral funded with factored structured settlement payment streams or other investments?   9.  " In the event the Settlement Agreement is terminated by a court of law or in the event that Section 130(c) of the Code has not been satisfied, this contract shall terminate.  _______Assignment Company shall then assign ownership of any "qualified funding asset(s)" purchased hereunder to Claimant and/or Payee, and Assignee's liability for the Periodic Payments shall terminate"

If a factored structured settlement payment stream, or any other investment, that does not fall squarely within IRC 130(d),  were mischaracterized, or misrepresented, as a "qualified funding asset", if it was not a qualified funding asset,  the qualified assignment company could lose its tax exemption on the transaction and have a significant taxable event. And if that happens, where is money to pay the IRS going to come from? 

Under the above Paragraph 9 "out clause",  the settlement planner's qualified assignment company could assign ownership of the asset to the Claimant and/or a Payee who happens to be a trial lawyer who believed they had structured and deferred their fees. Any attorney payees could face a potentially monster tax hit as a result.  If the Payee is the former Plaintiff then the Plaintiff has a tax hit on the interest on the funding asset that he/she or his or her trust would now own. One way or another it has the potential to be a huge mess. This would be compounded if this was created in connection with a Qualified Settlement Fund controlled by the settlement planner's firm or an affiliate, which would potentially invalidate the assignment for not meeting the terms of Rev. Proc. 93-34.

I have lingering doubts following a webinar on QSF's delivered by Milestone CEO John T. Bair last week which misrepresented Rev. Proc. 93-34* as "black and white" permission to use investments other than annuities (and obligations of the United States) as "qualified funding assets'. His assertion was not supported from the plain reading of either Rev. Proc. 93-34,or IRC 130(d).

*According to the transcript Bair said at
29:52
"I've talked to lawyers and they assume
29:55
that if they're gonna do a fee deferral
29:58
then it has to be an annuity and that is
30:02
not the case it can be backed by
30:05
investments we have a revenue procedure
30:08
ruling from 2003 that says that you know
30:12
if you create a proper periodic payment
30:14
then it can be backed by investments so
30:17
that it's black and white" 

 

 

 

 

 

 

 

 

Is a Factored Structured Settlement a Qualified Funding Asset?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

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.

 

 

 

 

 

 

 

 

 

CrowFly Founder Misleads in Pitching Factored Structured Settlements as Life Insurance Products to Replace Treasuries

by Structured Settlement Watchdog

Why is Milestone Consulting CEO and CrowFly Board Member Misrepresenting Non Insurance Products as Insurance Products To Investors?

In January 2020, in his Milestone Consulting hat, Milestone CEO John T. Bair claimed that structured settlements were irrelevant. He doubled down in a post in February. Now in March 12, 2020, with his CrowFly, LLC factoring origination hat on, CrowFly Board member published  " Can Recycled Structured Settlement Annuities Replace U.S. Treasuries in Your Portfolio?"

Bair sets up the misrepresentation with a nod to Bob Dylan "The times, they are a-changing. War, pandemic, inflation, recession, oil shortages, housing markets, liquidity in the markets. These and thousands of other factors can make the stock market a wild ride for some, and downright devastating for others.

I'll tee up my touche with a quote from "Bare" Naked Ladies "Hold it now and watch the hoodwink As I make you stop,  and think"*

Bair says 'replace your low-yielding corporates and Treasuries in exchange for a 20-year guaranteed structured settlement that yields 4.5 percent — a value proposition if you’ve ever seen one. Interested in these “super bonds”?' 

Bair, proposes that "there is, on average, $2 billion worth of assets that are made available every year as people with structured settlements face life circumstances and need to sell at a slight discount". He says these assets are life insurance products, guaranteed by the issuer, and in most states by the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). Are these regulatory safety nets as good as Uncle Sam? No, but they are the next best thing in terms of credit. The ratings of the companies whose paper circulates in this market are Berkshire Hathaway, MetLife, New York Life, Prudential, Pacific, and others — all A+ and A++ A.M best rated insurers. Their guarantees have held up through major wars and other global calamities. So, it’s secure paper in my opinion.

Let's take Bair's statements one by one show why, in my opinion, they are wholly misleading:

1. What Bair calls " Recycled Structured Settlement Annuities" are not in fact annuities, they are factored structured settlement payment streams.  Life insurers buy individual streams or securitizations of factored structured settlement payments streams as investments, but they are not permitted to account for them as annuities or insurance products pursuant to the NAIC's Statutory Issue Paper 160.
2. The buyer of a factored structured settlement payment stream (such as that being peddled by Mr. Bair as a Treasury alternative) is not buying an annuity or a life insurance product per Statutory Issue Paper 160. 
3. One has to pose a big question WHY Bair fails to refer to the instrument he is pitching to investors truthfully and accurately. Instead of " factored structured settlement payment streams"  (NAIC) or "structured settlement payment rights  (Internal Revenue Code), in the most recent publication he uses " recycled structured settlement annuities and "super bonds".   He has also used in other published sales pitches, the tertiary market scam label "Secondary market annuity".
4. One wonders how securities regulators view the use of the term "super bonds".  Factored structured settlement payment streams are not bonds. Another former heavy user of "secondary market annuity" settled a FINRA complaint against him and a former employee for an aggregate $105,000  [Cooper v Somerset et al.]
5. Bair's published statement, "These assets are life insurance products, guaranteed by the issuer, and in most states by the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). Here Bair is lying to investors.  31 states have adopted the Life  & Health Guaranty Fund Model Act (#520) which at Section 3A(5) expressly does not cover "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.
6. Factored structured settlement payments streams are not insurance products according to the National Association of Insurance Commissioners as set forth in Statutory Issue Paper 160. Furthermore, in a January 26, 2009 opinion letter addressed to me, subsequently published by the New York State Insurance Department (now Department of Financial Services),  the Office of General Counsel concluded in answer to my quesion, that N.Y. Insurance Law Section 7718 broadly prohibits the existence of LIGCONY for the purpose of selling, soliciting or inducing the purchase of annuity contracts. Thus a statement that "state insurance guaranty funds provide an additional layer of protection for future structured settlement recipients", which is aimed at New York residents, runs afoul of Insurance Law,  Can Mr. Bair, who individually and through Milestone is licensed as an insurance agent in the State of New York and many other states legally make (1) the false claim that factored structured settlements are life insurance products in the inducement to buy/invest and (2) draw a conclusion from the false claim in (1), in inducing the purchase of factored structured settlement payment streams,  that they are guaranteed by NOLHGA
7. Bair and his agency continue to be appointed by many, but not all of the life insurers issuing structured settlement annuities.

Don't misconstrue this sharply word piece. Bair is a maverick and he does a lot of good things like End Distracted Driving and other pro bono work, but Bair sometimes just leaves you scratching your head with a reckless disregard for the truth such as here. It's just not necessary. Substitute olive oil for the snake oil. It's a lot healthier.

 

*from Barenaked Ladies " One Day" , 1999 Reprise records, written Ed Roberston

 

 

Life Settlements vs Structured Settlement Factoring Transaction Underscores "Secondary Market Annuity" Marketing Fraud

by Structured Settlement Watchdog

By examining the difference between a life settlement transaction and a structured settlement factoring transaction we can continue to home in on why the use of the term "secondary market annuities" to market factored structured settlement payment streams is a marketing fraud on investors.

What is a Life Settlement?

The sale of a life insurance policy is called a life settlement.  A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit. In a life settlement transaction, the policy’s owner transfers ownership of the policy to the buyer in exchange for an immediate cash payment and, in some instances, a reduced interest in the death benefit for the policy’s beneficiaries. The buyer of the policy pays all future premium payments and receives the death benefit upon the death of the insured (when the policy matures). A life settlement is different from a viatical settlement in that the individual insured on the policy has a longer life expectancy. In a viatical settlement, the life expectancy of the insured is 24 months or less.

Step 8 in the Life Settlement Process "The insurance carrier is notified of the change of policy ownership and beneficiary to the new owner, the provider."

[ Source: Life Insurance Settlement Association]

What is a Structured Settlement Factoring Transaction?

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". [ Source:  IRC 5891(c)(3)(A)]

IRC 5891 (c)(3 (B) Exception Such term shall not include—
(i)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 such institution (or agent or successor thereof) or otherwise to enforce such blanket security interest as against the structured settlement payment rights, or
(ii) a subsequent transfer of structured settlement payment rights acquired in a structured settlement factoring transaction.

Fundamental differences between a life settlement and a structured settlement factoring transaction

1. Life settlement involves the sale of an actual policy. A structured settlement factoring transaction does not.
2. A structured settlement factoring transaction involves the transfer of structured settlement payment rights not the transfer of annuity ownership
3. A subsequent transfer of structured settlement payment rights is not a structured settlement factoring transaction or a transfer of annuity ownership since the annuity ownership was not transferred in the first place.

Licensing

Life settlements are typically under the purview of state life insurance departments. In Connecticut for example, life settlement is a line of authority under an insurance license. The state regulator has the power to fine, suspend or revoke the authority. By contrast regulation of authority to engage in structured settlement factoring transactions, solicit annuitants, solicit investors in factored structured settlement payments streams is the exception rather than the rule.

 

 

  

 

 

Why Is Milestone Consulting Pitching Factored Structured Settlement Payment Streams as Annuities When They're Not?

by Structured Settlement Watchdog

MIlestone Consulting states that it is boycotting the National Structured Settlements Trade Association "because of its ties with insurance companies" and because of its failure to protect plaintiff rights, while 

The secondary market "annuity" puzzle

 

upon information and belief, the Milestone CEO uses, benefits from and has not renounced his NSSTA CSSC designation on his LinkedIn profile(at time of publication) and  Milestone is contracted and appointed  with some but not all NSSTA member companies issuing structured settlement annuities, who are being "tarred and feathered" at the expense of the Factored Structured Settlement Payment Rights Milestone touts using the tertiary market's scam label "Secondary Market Annuities" while Milestone uses the names of the companies to market the alleged safety of the investment on its blog.

"If you are dead set on having a guarantee from a major insurance company for payments," they say "then consider a secondary market annuity, or structured settlement that is being transferred or sold by another. These annuities offer yields of four to six percent and are guaranteed by the same insurance companies that offer brand new ones through their brokerage distribution channels. By being a buyer of someone else’s structured settlement, you are giving yourself an actual competitive yield, and helping another family who for whatever reason is being forced to sell".   MIlestone blog 1/11/2020

" After all they are issued by the very same insurance companies that issue all structured settlements like Metropolitan, Prudential and Berkshire Hathaway"  Milestone Legal Examiner 1/17/2020 by Milestone CEO

" So how can tort victims with purchasing power fix the structured settlement industry? They can be buyers of structured contracts and structured settlement annuities that are bought and sold every day" Ibid.

And the dead wrong,  "The annuity policies that changed hands were the guaranteed annuity policies from major insurers like New York Life, Metropolitan, Prudential, MassMutual, John Hancock and others".   Milestone Legal Examiner  March 5, 2018 by Milestone CEO

Comments and Questions

1. What Milestone is pitching as an annuity is not an annuity. It's a Factored Structured Settlement Payment Stream.
2. A Factored Structured Settlement Payment Stream is an instrument created by the transfer of structured settlement payment rights in a structured settlement factoring transaction  (defined at IRC 5891(c)(3)(A). With specialist knowledge Milestone knows that neither the annuity itself, nor its ownership, transfers when the rights are transferred. Or perhaps not, based on the March 5, 2018 quote.
3. Insurance companies do not "issue" Factored Structured Settlement Payment Streams, do they?
4. So, if the annuity does not transfer in a structured settlement transfer and remains owned by the qualified assignment company, and Milestone is pitching an annuity, is Milestone creating an annuity? Is any factoring company creating an annuity in a structured settlement factoring transaction or when it assigns the rights to an investor via Court Order? Where is the support that in the secondary market there are "structured settlement annuities that are bought and sold every day?
5. You don't get a closing book when you buy a legitimate annuity and you don't have the transaction risk with legitimate structured settlement annuities that you have with Factored Structured Settlement Payment streams.  5 companies selling (or in the past have sold) factored structured settlement payment streams to investors, have paid hundreds of thousands in legal fees fighting for their clients over claims to their structured settlement investments by lead paint victims arising out of the Access Funding scam in Baltimore  Maryland. Somerset's CEO and one of its former employees paid off one of its secondary market "annuity" to settle a FINRA complaint against them in September 2019 and December 2019 respectively.
6. So a big question is why would Milestone, a company led by a licensed insurance agent, market, or allow for something to be marketed that is not an annuity, as an annuity?
7. The National Association of Insurance Commissioners' (NAIC) Statutory Issue Paper 160 p6, December 2018 Ref #2081-17, said that factored structured settlement payment streams (or acquired structured settlement income streams) are neither annuities nor insurance products. Insurers who acquire factored structured settlement payment streams cannot account for them as annuities or insurance products. "New Footnote 1: 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.)"   and New Footnote 2: Reporting entities that hold qualifying structured settlement payment rights shall report the security on Schedule BA either as an “any other class of asset” or as a “fixed or variable interest rate investment with underlying characteristics of other fixed income instruments” if the structured settlement payment right qualifies for reporting within that reporting line (e.g., NAIC designation)
8. It's bad enough that we have to deal with Annuity.org, a factoring company shill, providing the misinformation, but why Milestone?
9. On the same blog post, Milestone uses contributions to the AAJ endowment as part of its marketing sales pitch  "being the only non-law firm donor to the AAJ Endowment". On September 24, 2007, the Office of General Counsel of the NY State Insurance Department (now DFS) opined in response to a request regarding a similar pitch, that it was unlawful when it appeared in an advertisement for the Milestone CEO's former company and directed at New York Trial Lawyers and members of ATLA (the former acronym for former name of AAJ). 
10. That being said, should donors get a free pass for representing to a lawyer's clients that something is an annuity that is not an annuity, or give reason for lawyers to ignore a client of theirs being sold something that is being called an annuity which is not an annuity.
11.  If you are advising an investor as a fiduciary, don't you need to put their interests above the selling annuitant?  
12. The two largest donors to NYSTLA are members of the National Structured Settlements Trade Association. If you go around the country you will find that NSSTA members are well represented in other states.

A. Following is an excerpt of a published opinion of the Office of General Counsel New York State Insurance Department (now Department of Financial Services) dated September 24, 2007:

"Turning to the question about advertising donations to certain not-for-profit organizations like association of trial lawyers, note as an initial matter that in Opinion of General Counsel No. 07-03-07 (March 12, 2007), the Department stated that “nothing precludes the agent or broker from making charitable contributions so long as the advertising of a charitable contribution as an incentive for new insurance business does not constitute an improper inducement in violation of Insurance Law § 2324.” This statement applies with equal force to life, accident and health insurance policies for which such an inducement would be a violation of Insurance Law § 4224.

The inquiry references an “affinity program” of an association representing trial lawyers. To participate in the program, a business must sign an agreement that provides for certain advertising-related services by the not-for-profit in exchange for a contribution from the participating business. The member businesses are responsible for providing all advertising content. The association urges its members to make purchases from any business that has joined the affinity program.

If this form of arrangement were strictly an exchange of compensation by an agent or broker for advertising services, the Department would regard the contributions as fees paid for permissible advertising, and not donations to a not-for-profit. In that circumstance, the contributions would not constitute an inducement in violation of Insurance Law § 4224.

However, where, as here, an agent or broker advertises that the agent or broker makes contributions to a not-for-profit organization of concern and interest to potential purchasers of insurance or annuities, such conduct constitutes an illegal inducement to purchase insurance that runs afoul of Insurance Law § 4224. Nor may an agent or broker evade the prohibition set forth in the Insurance Law by enlisting the aid of the not-for-profit organization to do what the agent or broker cannot do lawfully"

Sadly that's not all.

The same January 11, 2020 blog posts claims that Milestone "has been at the forefront of advocacy for plaintiffs since our inception in 1999" . Really Milestone?  While the Milestone CEO has indeed been in the business since 1999 where he started with EPS Settlements Group  (now Arcadia), Milestone was only established in 2012 (not 1999), according to its LinkedIn profile.  Second, here is a fax cover sheet from March 5, 2002 sent on behalf of the MIlestone CEO (then with EPS Settlements Group) who was the defense structured settlement broker on a medical malpractice case.  Download FAX cover sheet EPS-John Bair 3-5-2002." Note that Milestone now uses the same FAX number. A December 15, 2003 article in Buffalo Business First promoting his former company Forge Consulting, states that the Milestone CEO "was with EPS Settlements Group for 3 years" and " Bair continues. "It's why I ultimately launched this company  (Forge). It's what drove me personally to seek out a new environment to allow us to represent plaintiffs.Why was it necessary to embellish by "moving the chains" to attempt to bury EPS?  It's not like it can't be found. Why not just say you've been a plaintiff advocate since 2003?

Milestone suggests "educating yourself about non-qualified assignments which allow for tax deferral on the earnings of your settlement, and tax-exemption on the principle. (26 U.S.C. § 130c)" 

1. The word non qualified assignment does not appear in (26 U.S.C. § 130c) or [(26 U.S.C. § 130(c)] or IRC §130(c)
2. All principles are tax exempt

• a fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning.  Tax exempt 
• a rule or belief governing one's personal behavior.  Tax exempt a-rooney
• a general scientific theorem or law that has numerous special applications across a wide field. Tax exempt a-roni
• a fundamental source or basis of something.  Tax exempt verklempt

 

Secondary Market "Annuity" FINRA Complaint Against Portland Financial Advisor Brian Horn Settled

by Structured Settlement Watchdog

Secondary Market "Annuity" Settlement of FINRA claims

Brian Thomas Horn has paid off Barry Cooper to settle a FINRA claim against him in a lump sum of $55,000. The “Horn paying” follows a payoff by Thomas Burgess Hamlin of the Cooper FINRA claim against him in September 2019 for $50,000,  according to FINRA, as I reported about in the Fall.

Secondary Market "Annuity" investment has not paid what it was supposed to for more than 24 months, with no end in sight

Barry Cooper, a Florida retiree whose navy retirement money was invested in 2013 in a  "Secondary Market Annuity" which did not pay out as promised. It was supposed to start beginning January 2018. Mr. Cooper depended on the secondary market "annuity" money for a secure retirement. Now the secondary market "annuity" payments have still not arrived.  The suspension of payments is the result of competing claims from the Access Funding scam of Baltimore lead paint victims. The Access Funding scam was prominent Washington Post news story in August 2015 that received national attention because most of those targeted by the scam were minorities living in Baltimore City.  Coopers were first notified of competing claims in February 2017. Brian Thomas Horn, who was with Somerset Securities at the time of the sale to Cooper, allegedly made certain misrepresentations that were subject to the FINRA Complaint filed December 6, 2018.

FINRA Complaint against Brian Thomas Horn

Claim alleged "Brian Horn recommended the claimant use the majority of his retirement savings to purchase a Secondary Market Annuity that was unsuitable for the claimant, that the product was misrepresented as being a safe investment, and that the solicitation was made to the claimant's wife who had no authority over the claimant's account". Product purchased in 2014. [Source: FINRA Broker Check for Brian Thomas  Horn}

Broker Comment by Brian Thomas Horn Following Settlement

"THIS CLAIM RELATED TO AN APPROVED OUTSIDE BUSINESS ACTIVITY INVOLVING A FACTORED STRUCTURED SETTLEMENT SOLD TO CLAIMANT IN 2013. THE UNDERLYING PAYMENT STREAM AT ISSUE WAS SUSPENDED BY THE ANNUITY COMPANY DUE TO A COMPETING CLAIM AND LITIGATION CONCERNING THE TRANSFER OF THE PAYMENT STREAM, WHICH HAD BEEN PREVIOUSLY APPROVED FOR TRANSFER BY THE CIRCUIT COURT OF BALTIMORE COUNTY. BECAUSE THE LITIGATION CONCERNING THE PAYMENT STREAM WAS STILL PENDING IN THE STATE OF MARYLAND, AND SUCH LITIGATION WAS UNLIKELY TO RESOLVE IN THE NEAR TERM, THE CLAIM WAS SETTLED AS A COMPROMISE. IN SO SETTLING, RESPONDENTS DENIED ANY AND ALL LIABILITY".  [ Source : FINRA Broker Check for Brian Thomas Horn] 

Horn Makes Admission After "Genie Is Out of The Bottle"

Interesting that Horn now refers to what he sold Cooper, via Cooper's wife,  as a factored structured settlement payment stream, the truth.  Despite a disclaimer of liability on FINRA Broker Check,  it can only be seen as an admission. Horn was a rep for Somerset Securities when the deal with Cooper went down. The website secondarymarketannuites.com, associated with Somerset Wealth Strategies, in a screen shot captured in 2013,  heavily promoted "high yields with great safety".  Somerset was notably militant about using the term secondary market annuity even as we barraged them for it. A Secondary Market Annuity is an intellectually dishonest scam label for factored structured settlement payment streams used by merchants of factored structured settlement payment streams. They are not annuities and the NAIC later came out with a statement confirming same. In its disclsoures in advsertsing on its website , Somerset said to the public  "SMIA, FSS & LW are not deposits and are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. They may be partially or wholly guaranteed by State Guaranty Associations and Somerset WS makes no representations or warranties in this regard". True or not, regardless of the disclosure, there is no reason for the disclosure unless it was used to convince someone to invest in the deals. Anyone who has an insurance license knows it is unlawful to discuss the guaranty associations in connection with the sale of annuities or life insurance. It's a Hobson's Choice. If it is an annuity, it's unlawful to use the guaranty funds. And if it isn't an annuity, which it isn't, you've admitted to posing something as an annuity, that is not, to an investor.

The Ongoing Secondary Market "Annuity" Saga

"The defendants in the class action have asked the Maryland Court of Appeals (Maryland’s highest court) to hear the case, a request that court may but is not required to grant. It will take weeks, or possibly months, before the Court of Appeals decides if it will hear the appeal, and if it does, there will be further briefing, oral argument, and additional delay while the court prepares its decision. As a result, it may take a year or longer for the appellate process to conclude". [Emphasis ours]  [June 4, 2019 update to investors, Somerset Wealth Strategies' Tom Hamlin delivered the bad news, 6 weeks after a shocking to investors, highly negative ruling by the Maryland Court of Special Appeals]

"There are 150+ investors, plus 5 affected firms that are fighting for payment rights" said Hamlin in a September 18, 2018 missive.

The Cooper case highlights the inherent transactional risks of investing in factored structured settlement payment streams which, in my observation and opinion were inadequately explained, until the Wall and Cooper cases came to light. Militant companies deceptively marketed these payment streams as annuities, even using insurer logos, likely without authority to use them in such manner. For example a 2013 screenshot of the home page of the company Horn sourced these products from, shows the trademarked logos of Prudential and New York Life prominently on secondarymaketannuities.com. Not hard to see how consumers such as the Coopers could be confused or misled back then.

 

Structured Settlement Broker Bought Factored Structure With 10.76% 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

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

Planners

• 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 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.

 

 

 

 

 

 

 

 

AnnuityExpertAdvice.Com Is No Annuity Expert | Calls Non Insurance Product Annuity

by Structured Settlement Watchdog

Structured settlement lead generator websites are like dandelions. When the wind blows they spring up everywhere, figuratively turning what should be an easy online search into a lawn strangled by dandelions and crab grass. 

Structured settlement lead generator websites are to structured settlement consumers, like dandelions and crab grass to your lawn.

AnnuityExpertAdvice.com is the latest website dandelion lurking on the fringes of the annuity industry and they are clearly no expert in annuities or structured settlements.

AnnuityExpertAdvice.Com flops poorly articulate the scam label " Secondary Market Annuity"

"Ever see television commercials about getting cash now for your annuity? This is called Secondary Market Annuities or SMAs. Basically, a secondary market annuity is the selling of your current income annuity (immediate annuity, deferred income annuity, structured settlements, lottery payouts) at a heavily discounted rate to a 3rd party company in exchange for a lump sum of cash. That 3rd party company will then pocket annuity income distributions as a long term investment".

1. The process that was erroneously described with reference to a structured settlement, is called a structured settlement factoring transaction.
2. A structured settlement factoring transaction is not an annuity, it is a term that appears in the Internal Revenue Code at IRC §5891 (c)(3)(A) as, in general, "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".
3.  The sale of structured settlement payment rights DOES NOT involve transfer of annuity contract ownership.
4. This sort of thing was not lost on the National Association of Insurance Commissioners (NAIC) which in December 2018 stated that factored structured settlement payment streams are neither annuities nor insurance products.
5. The NAIC further said in Statutory Issue Paper 160,  that insurers who buy factored structured settlement payment streams may not account for these assets as annuities or insurance products in their financial reports. 

AnnuityExpertAdvice.Com is a Stunning Example of Clueless. by Calling SPIAs, DIAs, Structured Settlements and Lottery Annuities Examples of Secondary Market "Annuities"

1. Let's start with the fact that a Secondary Market Annuity is not an annuity. It is a scam label used by merchants to move product. 
2. Immediate Annuities (SPIA) and Deferred Income Annuities (DIA), Structured Settlement Annuities (SSA) and Lottery Annuities are insurance products issued by insurance companies. They are not factored structured settlement payment streams or derivatives.
3. The insurance companies themselves have to be licensed and anyone selling the products must be licensed where the product is being sold. 
4. Buyers of factored structured settlement payment streams do not enjoy the same statutory protections that people who buy legitimate annuities do.

 

 

 

 

 

 

Why Do Insurers and Hedge Funds Not Want Regulation of Structured Settlement Secondary Market?

by Structured Settlement Watchdog

According to a 2018 investor presentation by a Buffalo New York structured settlement firm obtained by this author,  40% of investors in structured settlement payment rights are hedge funds, 50% life insurance companies and 10% individual investors. That could mean that some of the worst cases of financial rape of minorities, retirees end up benefiting rich hedge funds and their investors and life insurance companies.

Why is there no licensing, no minimum insurance requirement and no regulator of the corrupt structured settlement secondary market industry that benefits life insurers and hedge funds who buy their work product as investments?

The structured settlement secondary market is a highly corrupt industry:

• No licensing, no regulator. An expensive road for victimized consumers to seek redress. Victims are often young minorities who have been shafted, some for more than a million of dollars. Contrast that with the licensing and regulation of the industries from where the investors originate. 
• Many intermediaries operate under tens or hundreds of fictitious names to protect themselves. 
• The companies are likely uninsured, or woefully underinsured. The Access Funding scam saw Access Funding with only $1,000,000 in coverage. The company shut down in 2015 and opened as Reliance Funding at the same address.
• Misleading and often fraudulent advertising is the norm not the exception.
• It's largest player, JG Wentworth has had to file for bankruptcy twice.  Investors in its IPO saw their investments rapidly dwindle to zero.  At one point as I previously highlighted, before it was delisted and JG went bankrupt for the second time, its stock chart resembled an extended middle finger.
• Two law firms working for structured settlement factoring companies associated with forgeries
• A player for a series of Maryland firm that was banned from doing business in Maryland for 7 years (from January 2018) for fraud had to pay restitution, had to plea bargain with the Rhode Island United States Attorney for fraud on that Court
• More than one firm has induced structured settlement annuitants to trade their payments for pennies on the dollar for higher risk investment using investment projections that would be illegal under FINRA regulations.
• More companies have left the National Association of Settlement Purchasers than have joined.  Three industry leaders Earl Nesbitt, Patricia Laborde and Matt Bracy have left NASP and the industry. 
• Individual investors, including retirees, have effectively been conned into buying what they thought were annuities but are not in fact annuities. In December 2018, the National Association of Insurance Commissioners (NAIC) issued Statutory Issue Paper 160, in which it stated that factored structured settlement payment streams are not annuities or insurance products and cannot be accounted for as such.
• People continue to be illegally forum shopped into states where they don't reside, the factoring company knowing that having inveigled the seller in a fraud on the Court, possibly ensuring an easy defense. New York to CT has become popular and I will soon be breaking a story of a denied in New York, then filed in Florida forum shop, in 2019!

And when you consider that 90% of the investors in factored structured settlement payment streams are insurance companies and hedge funds, you have to scratch your head and say why is there no regulation?  Something stinks.

For starters, read about the Lauren Ashley Nesbitt case where Seneca One hosed an Oklahoma resident for over $1 million in profit spread and then flipped (assigned the rights to) the payments to Reliance Standard Life Insurance Company, a member of the Tokio Marine Group. If you click on the link within the linked post at the beginning of this paragraph you will be able to see it in black and white.  Tokio Marine's property casualty arm uses structured settlements to help resolve and settle claims against its insureds.  This is not an indictment of either of these companies, however corporate management of Tokio Marine and Reliance Standard should take a long hard look at what they are buying, BEFORE they buy, in my opinion to avoid the bad optics and reputational risk.

What will be the impact of the accounting change> Will forensic research show more questionable deals acquired by insurers either individually or through securitizations?

What will a review of the blue books of certain insurers say now that these instruments can no longer be buried as annuities or insurance products?

In these days of heightened attention to corporate ethics, is it time for corporate governance at life insurers to address what they are investing in?  Can a life insurer afford to bury its head in the sand believing that buying through a securitization is a way to bypass such scrutiny?

Is it time for the clients of hedge funds and the hedge funds themselves to pay more attention to what they are buying? 

 

 

 

 

 

Somerset CEO Pays "Secondary Market Annuity" Buyer to Settle FINRA Complaint

by Structured Settlement Watchdog

Thomas Burgess Hamlin, the CEO of Somerset, has settled the FINRA claim brought by Barry Cooper over the sale of factored structured settlement payments which at the time of sale were marketed to investors as "secondary market annuities".

Barry Cooper's FINRA claim alleged breach of fiduciary duty, negligence, negligent supervision, common law misrepresentation, breach of contract and unauthorized trading. The transaction at issue occurred in 2013, and involved a Factored Structured Settlement "FSS" payment stream through an approved Outside Business Activity "OBA".

Damage Amount Requested
$150,000.00

Settlement Amount
$50,000.00    [ roughly the equivalent of the payments missed since January 2018,  due to competing claims]

Broker Comment (by Hamlin-from the mandatory FINRA disclosure  Source: FINRA Broker Check)
This claim relates to an approved Outside Business Activity involving a factored structured settlement sold to claimant. The underlying payment stream at issue has been suspended by the annuity company due to a competing claim and litigation concerning the transfer of the payment stream, which had been previously approved by the Circuit Court of Baltimore County in 2013. Because the litigation concerning the payment stream is still pending in the state of Maryland, and such litigation was unlikely to resolve in the near term, the claim was settled as a compromise.  (emphasis added)

A companion case against Brian Horn,  who was registered with Somerset Securities 2013 to 2015 and now with Waddell and Reed in  Portland Oregon, remains pending according to a FINRA Broker Check search  on 11/3/2019,  which states: "Claim alleges RR  (Horn) recommended the claimant use the majority of his retirement savings to purchase a Secondary Market Annuity that was unsuitable for the claimant, that the product was misrepresented as being a safe investment, and that the solicitation was made to the claimant's wife who had no authority over the claimant's account. Product purchased in 2014. 

The Cooper case is one of the seminal cases in the intellectually dishonest, crumbling marketing fraud that is "secondary market annuities".  In the Cooper case these instruments were marketed as annuities and sold to a retiree with substantially all of his retirement assets from a Navy pension plan. Barry Cooper was not an accredited investor.  Factored structured settlement payment streams are not annuities according to the National Association of Insurance Commissioners  (NAIC). In Statutory Issue Paper 160, the NAIC explicitly said so and said that insurers, which purchase such assets may not include them as annuities or insurance products in their accounting. They must be accounted for separately.  

The Risks of Factored structured settlement payments as investments

• Statutory protection likely not available in the event of insolvency 
• Bears transactional risk to investor that is not present with legitimate annuities. If you bought a factored structured settlement payment stream there is a good chance that the transactional risk was not disclosed.
• Some salespeople have even used insurance company logos without insurers' authorization to market factored structured settlement payment streams as annuities, even though they knew what they were selling was not a legitimate annuity.

I will have more to tell you shortly.