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"Reality Check Ahead" on Factored Structured Settlement Payment Investments Says Author of Seminal Text

by John Darer CLU ChFC MSSC CeFT RSP CLTC

"Realty Check Ahead" are the words of Patrick Hindert J.D., co-author of Structured Settlements and Periodic Payment Judgments,  which is widely considered the seminal text on structured settlements.The words appear on the Independent Life Chronicle blog September 29, 2020 and appear to be Hindert's first foray into the waters of investing in structured settlement payment rights.

Hindert says:

The principal risk to downstream investors who purchase previously-factored payment rights is that a court can later vacate the original transfer of payment rights. 

Possible reasons: the tort victim/rights holder lacked authority to transfer those rights in the first instance or because court approval of the underlying transfer was later vacated for some other reason (such as contravention of other applicable law). 

Possible result: the downstream investors lose their purchased asset.

I understand that Hindert and his co-authors are updating their seminal text an dit will include a section discussing such investments and the attendant risks.

Hindert acknowledges that some secondary market brokers and settlement planners offer these “re-cycled” future payment rights to separate claimants in the context of personal injury settlements. Hindert acknowledges that some package and promote re-cycled structured settlement payment rights as tax-free “in-force annuities.” Significantly Hindert warns, these investments are not annuities and they are not structured settlements as that term is defined in IRC section 5891(c)(1).

The National Association of Insurance Commissioners its Statutory Issue Paper Number 160 expressly stated that acquired structured settlement payment rights are not an annuity or insurance product.

Hindert cites the SEC's Investor Bulletin that includes a number of warnings and resource links and concludes with the following admonition:

"Whether you are thinking about selling a … structured settlement, or buying one from someone else, remember that the risks in doing so are substantial and the safety net if things go wrong may not be very strong. Don’t shy away from asking probing questions—and shop around. there may be less risky alternatives to help you achieve your financial objectives."

Indeed by adopting the Life & Health Guaranty Associations Model Act, 31 states expressly exclude such investments from state insurance guaranty fund protection. For more details please read my August 1, 2020  Settlement News Network blog Are Structured Settlement Investments Covered by State Guaranty Funds?

• Given that Patrick Hindert is yet another authority who questions the marketing of factored structured settlement payment streams and, that the National Association of Settlement Purchasers named Patrick Hindert, as the 2012 recipient of its Alexander Hamilton Award, one would hope that NASP and its members take note.
• One hopes that Genex Capital, a NASP member in 2012 and a company which has relentlessly promoted factored structured settlement payment streams as "Assured Annuities" takes note.
• One hopes that John Bair, CEO of Milestone Consulting and co-founder of a structured settlement factoring origination firm, which on April 20, 2020 published a sales pitch to buy factored structured settlement payment streams using the term annuity, steps up to the plate and stops doing so.

 

 

 

 

How Private Investments in Structured Settlement Payment Rights Become Public News

by Structured Settlement Watchdog

Privacy is Not Something You Can Count On If You Invest in Structured Settlement Payment Rights

Despite recent advertising to the contrary, buying someone else's structured settlement payment rights is not always a private transaction. Selling structured settlement payment rights requires a petition filed with a Court.  The name of the Buyer's Assignee is often part of the Court record for anyone to see.The originating factored company assigns the rights to Payments by Court Order to its Assignee or Assignees.  Those names appear in the structured settlement transfer order. Even if it is a private transaction, matters outside of the investor's control could make it very public.

Buying Structured Settlement Payment Rights is Buying Into an Unregulated Morass

While licensed insurance agents, stock brokers and financial advisers and insurers are subject to laws to protect clients, the structured settlement factoring industry has been allowed to evade regulation of sales practices for its entire existence. This impacts investors when the deals that were "heavily vetted" end up being litigated for one reason or another and it ends up coming at a heavy cost to investors. At best they have to incur legal fees to protect their investments which will drive down the effective return on those investments and may even turn a winning investment into a losing one. If you proceed, proceed with caution and with your eyes wide open.

The Downside is "Cray Cray"

The Okebiyi case  (Ongoing)

Take the crazy pending in Kings County New York right now, where a judge denied a structured settlement tranfer petition in April 2015, but then WITHDREW and amended the order in November 2015 stopping all payments including the legitimate transfer Order approved by a different judge in 2014. Download 519239_2019_Dennis_Deiasi_et_al_v_Michael_Okebiyi_et_al_EXHIBIT_S__33

The investors in the 2014 deal had nothing to do with the 2015 deal, but the factoring company Freedom Financial Solutions was represented by Paris & Chaikin, a New York law firm whose paralegal was indicted in September 2015, the paralegal having been alleged to have forged more than 100 structured settlement transfer orders (and subsequently convicted). It gave Judge Silber pause. The investors have been in limbo for almost 5 years! The sellers, the Okebiyis will not give up the payments that the investors paid them for. Now the names of two retired couples are in open Court records. Probably not what the investors signed up for. See Dennis Deiasi, Ann Marie Diasi, Brian Greig and Patricia Greig, Plaintiffs v Michael Okebiyi and Shirmine Okebiyi, Defendants  Supreme County State of New York County of Kings Index Number 519239/2019.

The Wall case

Wall v. Altium Grp., LLC, CIVIL ACTION NO. 16-1044 (W.D. Pa. Jul. 12, 2019). The Walls, who ended up losing all their investment, spent money on their own attorney fees and then had to pay the attorney fees of the people they sued, because they lost. All the information about their case is online. The Walls, retirees from Pittsburgh might have thought they were buying a safe, secure sleepy retirement investment when they did business with Altium Group of New Jersey.

Quotes from Judge Kearney's Memorandum Decision that will haunt investors ...

"Individuals purchasing complicated financial investments through investment companies may be aware of their need to carefully examine the governing agreements. But they may overlook language as to attorney's fees incurred in disputes about these agreements. These agreements may require a party unsuccessful in challenging the agreement to pay the reasonable attorney's fees and costs for the other party".

"The Walls signed a complex commercial Master Agreement through which they agreed to pay reasonable attorneys fees incurred by Altium should litigation follow. After extensive litigation, the Walls lost their arguments. They are contractually obligated to pay the reasonable amount of fees and costs. They raise limited objections to Altium's detailed invoices. After careful analysis, we find the Walls are correct on some objections but not others. In the accompanying Order, we enter Judgment in favor of Altium and against the Walls for the reasonable fees and costs of $92,163.23 incurred under the Master Agreement".

Then you have investors who bought a piece of what turned out to be the Access funding mess, or the Advance Funding Ponzi scheme in which injury and lottery victim sellers were scammed into buying into the scheme and lost all their money. In the Bronx New York venued Alcantara case, SMA Hub, an intermediary in the tertiary market was identified although its investors were not.

Structured settlement factoring transactions that originate with factoring companies like JG Wentworth are securitized and sold to institutions. Certain other factoring companies who shill to private investors or other companies that use fly by night LLCs with names like food items such as Dos Nachos (2 Nachos) or "Palantir Packaging" (to capitalize on the hype of a company due to go public), masking the names of the firms at the heart of the transaction.  If some part of the transaction was messed up or the transfer was vacated a some have then it all becomes very public as investors sue to protect their interests  (if they can). Efforts by an intermediary to help  "shield" its investors may not work if the court does not recognize their standing.  The name of the Buyer's Assignee is often part of the Court record for anyone to see.

 

Genex Capital 2020 Receivables Purchase Agreement | Think You're Buying An Annuity? Think Again

by Structured Settlement Watchdog

This is an important post for structured settlement investors, settlement planners who are advising their clients to invest in structured settlement payment rights, financial advisers for investors, accountants for investors,adminsrators of pension plans and state court judges presiding over attempts to characterize investments in factored structured settlement payments for minor's structured settlements.

There is ample reason to be worried if you enter into a Receivables Purchase Agreement with Genex Capital and don't carefully review  ( or didn't review) all of the Genex RPA and really understand its impact on your rights as an investor, in my opinion. Recent changes to the Receivables Purchase Agreement in 2020 appear to be an attempt to by Genex Capital, to give Genex Capital the ability to confiscate investor's structured settlement payment rights without compensation should the investor have a change in circumstances,  if they don't resell them through Genex Capital.

Who is Genex Capital?

Genex Capital Corporation, a factoring company and intermediary which lists its location at a Delaware UPS store mailbox  at 73 Green Tree Lane in Dover, Delaware, but operating out of Vancouver Canada,  buys, by its own admission, "structured settlement payment rights and other annuity payments and resells them to private and institutional buyers". [ Source: Assured Annuities website 7/29/2020 ]  So why is Genex Capital pitching these structured settlement payments rights to investors as if they were buying a legitimate structured settlement annuity?

Genex Capital claims "Genex Capital has been in the business of buying structured settlement annuities on the secondary market since 2003 and we pioneered the offering of our Assured Annuity™ to the retail buyer market in 2006". Genex Capital has also claimed in written materials soliciting investors that it has a number of channels, including an extensive broker network, through which structured settlement annuities are acquired.  However, if put to the challenge I suspect that Genex Capital would be hard pressed to provide proof that it has actually purchased any structured settlement annuities.  This is because with any legitimate structured settlement, the payee never owns the annuity contract. The structured settlement annuity is owned by the qualified assignment company.  What appears to be happening is that Genex Capital is merely buying structured settlement payment rights and labeling them annuities when they are not. Tsk! Tsk!

The National Association of Insurance Commissioners opined in its Statutory Issue Paper 160, published in December 2018, that acquired structured settlement payment rights are not annuities or insurance products

2017 Delaware Court Decision Nixed Attempt to Use Genex Capital Receivable Purchase Agreement as "Annuity" in Minor's Prove-Up Hearing

What Genex Capital pitches as structured settlement annuities are nothing more than a Receivables Purchase Agreement as a Delaware judge opined 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"

In pitching non annuities to the investors under the label " Assured Annuities", Genex Capital states " Each Assured Annuity™ is paid directly to you by a U.S. based Insurance Company with a credit rating that is generally AAA to A rated by Standard and Poor’s. In cases where you may want to resell the annuity in the future or in other appropriate circumstances, these payments may be paid through a third party bonded servicing company arranged by Genex Capital. In such case, you will have a direct relationship with such servicing company"

Why Would Anyone Want to Resell Their Structured Settlement Investment?

The same reasons why someone might want to sell their structured settlement payment rights to a company like JG Wentworth and others. Times change. Needs change.  Upon information and belief Somerset Wealth Strategies, at one time a very large intermediary of factored structured settlement payment streams, began in or about 2019 seeking out annuitants and offering to buy their payment streams at attractive prices.

Why Genex Capital 2020 Receivables Purchase Agreement Should Concern Investors

Genex Capital Corporation updated its Receivables Purchase Agreement in February 2020.

3.4  Buyer’s Assignment rights. Buyer shall not have the right or power to further assign or sell the Receivable or make changes of any nature or kind to the payment particulars or payment address or designated assignee and must keep regardless of circumstance unless otherwise in writing upon written request by Buyer to Genex, which approval and consent may be unreasonably withheld. GENEX HAS THE SOLE RIGHT, AUTHORITY AND POWER WITH RESPECT TO FURTHER ASSIGNMENT OF THE RECEIVABLE AS WELL AS THE BENEFITS AND OBLIGATIONS PURSUANT TO THIS AGREEMENT. IN THE EVENT THAT BUYER BREACHES THIS SECTION 3.4 THEN IS AGREEMENT IS AUTOMATICALLY VOID AND GENEX SHALL HAVE THE ABSOLUTE RIGHT WITHOUT NOTICE TO REDIRECT ALL OUTSTANDING PAYMENTS UNDER THE RECEIVABLE TO GENEX’S ACCOUNT AS LIQUIDATED DAMAGES FOR SUCH BREACH AND NOT AS PENALTY AND THEREAFTER GENEX SHALL HAVE FULL RIGHTS OF OWNERSHIP INCLUDING BUT NOT LIMITED TO THE RIGHT OF ALIENATION WITH RESPECT TO SUCH PAYMENTS WITHOUT COMPENSATION TO BUYER. 

4.2 (f) Buyer understands that there are risks associated with an investment in Receivables including but not limited to the risk of default on the part of the Obligor and that in the event of default, Buyer may be unable to recover its investment;

4.2 (g) Buyer understands that the Receivables and this Agreement and Court Order contain onerous ownership restrictions including but not limited to assignment restrictions and that Buyer understands and warrants that they shall hold the Receivables for the balance of their respective terms;

The 2020 Genex Capital Receivables Purchase Agreement Is More Confiscatory Sounding Than the 2013 Version Previously Found Online

Paragraph 3.4 of the 2013 Genex Capital Receivables Purchase Agreement says  "Buyer’s Assignment rights. Buyer shall not have the right to further assign or sell the Receivable and must keep the Receivable for the balance of its term unless otherwise expressly approved by Genex".  One line, that's it.

What could be the reason for Genex Capital's big change?  I invite SMA Hub, DCF Exchange and other tertiary market and secondary market companies that solicit and market factored structured settlement payment streams to individual investors to speak out about their companies' receivable purchase agreements and whether or not Genex Capital's business practice is a standard practice. 

Nathaniel Pulsifer,  President and Founder of DCF Exchange, responded that "it's very unusual, especially the part where consent to a buyer's subsequent transfer may be “unreasonably withheld”.  That seems incredibly problematic for the buyer to have such a restriction on their rights to transfer".

Buyer Beware!

In my opinion, yield starved buyers contemplating buying structured settlement payment rights as investments in their retirement plans should definitely chill before investing and see what you're getting into. Settlement planners should be guided accordingly before recommending these alternative non annuity investments to their clients. If you or your client have already bought a factored structured settlement payment stream via Genex Capital, your heirs could unwittingly lose their inheritance by reselling the inherited payment rights at the whim of Genex Capital CEO Roger Proctor if he chooses to "unreasonably withhold" approval. This is a developing story. Again  and I cannot stress enough, buyer beware!

 

Structured Settlement Annuitants Would Be Better Protected By Universal Adoption of California Rule

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Berkshire Hathaway will go to bat for its annuitants in questionable structured settlement factoring deals as court records show  [see In Re: Pitchberg Funding  Superior Court of the State of California, County of Los Angeles, Case No: ES022381]. 

Pitchberg Funding Sets Low Ethical Bar

Pitchberg petitioned to buy $505,555.32 in payments for $67,200.00, a deal bearing a very unimpressive 12% discount rate. The Pitchberg transfer petition is notable for

1. a grandmother/guardian of a 9 year old stating in her affidavit that she intended to use the money to pay for child support payments.
   
2. a grandmother/ guardian stating in her affidavit that she was the recipient of certain guaranteed payments under a structured settlement when the payments had not even started. They are due to start December 10, 2026 when the minor is due the payments directly.
   
3. a grandmother/guardian stating in her affidavit that she "understand(s) (she) will forego receipt of the Assigned Payments under the Agreement. (She) understands  that her beneficiaries/heirs and (she) will no longer receive any of the Assigned Payments, or any portion of the Assigned Payments. None of the payments are to to her , but to her grand daughter, when due after she reaches the age of majority.
4. a grandmother/guardian who maintains that she has considered the impact of the proposed transfer on herself, when the payments are not hers, they are her grand daughters and due after her grand daughter reaches the age of majority.

Did the grandmother/guardian write that up herself, or was it prepared by Pitchberg Funding and/or its attorney for her to sign?

Pitchberg Funding obviously sets its ethical bar very low judging on this alone. Furthermore, four months after the Pitchberg petition was filed by its attorney, Julie D. Noe, its attorney, was cited for fraud on the court in a Nevada structured settlement factoring case. In the legal matter of In Re: Seascape Leasing, LLC District Court Clark County Nevada A-18-775027- Nevada District Court Judge Kerry Earley said "Seascape Leasing LLC and lawyers, Patrick M. Etchebehere and Julie D. Noe  "committed a fraud on the court by clear and convincing evidence" in a prior successful attempt to transfer the structured settlement payment rights of Brandon Boiclair. See my September 30, 2018 post, which includes a link to the Amended Findings of Fact, Conclusions of Law and Order in that matter, dated September 19, 2018.

The Berkshire Hathaway Response to the Pitchberg Funding petition.

in its response as a Specially Appearing Interested Party, Berkshire Hathaway Life of Nebraska (BHLN) filed June 5, 2018, BHLN also raised an important issue since the subject  structured settlement that is the subject of the In Re: Pitchberg Funding transfer petition, had been established for less than five years.

California Insurance Code §10139.5(f)(2)(L) Transfer In Less Than 5 Years Attorney Notification Rule

If the payee entered into the structured settlement at issue within five years prior to the date of the transfer agreement, then the transferee shall provide the following notice to the payee's attorney of record at the time the structured settlement was created, if the attorney is licensed to practice in California, at the attorney's address on file with the State Bar of California.  The notice shall be delivered by regular mail and shall contain the following language:

“Your former client, (insert name, address and telephone number of payee), the ‘payee,’ has entered into a contract with (insert name of transferee) to transfer and assign certain future structured settlement payment rights.  The transaction is subject to court review and approval under California law.  As the payee's former attorney, you are entitled to receive this notice.  You are not required to represent, advise, or consult with the payee in connection with the proposed transaction.  You are not required to take any action at all in response to this notice.  You may, but are not required to, contact the payee regarding the transaction.  The payee is not required to consult with you or provide you any information regarding the transaction, but the payee may do so if he or she wishes.”

The notice to the former attorney described in this section is not required to be provided if the payee in the transaction was not a party to the original structured settlement at issue (for example, if the payee is an heir or beneficiary of the person who was a party to the original structured settlement). Also, if the payee cannot recall or identify his or her former attorney and if the identity of the former attorney cannot be ascertained from the available structured settlement documents, then the notice described in this subparagraph is not required to be provided and the transfer may proceed without the notice.

In the Pitchberg Funding case BHLN stated in its response that it was unclear from the petition served whether Pitchberg Funding complied with the mandate as no letter to the minor's former counsel was included. Ultimately the transfer petition was dismissed.

Would lawyers like to know if one of their former clients was selling a structured settlement within the first 5 years?  I think they would. And I think it would be an effective deterrent to a money grab for "forbidden fruit".

The Temptation of the Forbidden Fruit

Over the past decade settlement planners have been expanding their practices beyond structured settlements into areas such as:

• Lien resolution
• Medicare Set Asides
• Wealth management
• Investments
• Acting as Trustees of Trusts
• Acting as Trustees of Qualified Settlement Funds
• Establishing their own qualified assignment companies
• Establishing their own non qualified assignment companies
• Acting as fiduciary advisers
• Engaging in the factoring of structured settlements as a buyer
• Selling factored structured settlements as an investor
• "Making a market" in factored structured settlements
• Non-recourse loans to plaintiffs and lawyers

Notwithstanding a plaintiff's own urges (or that of a guardian), fostered by their own or outside influences,  what if a settlement planner brokered or co-brokered a multi-million dollar structured settlement (and made a six figure commission for the placement of the structured settlement annuity) and THEN solicited the former plaintiff for the forbidden low hanging fruit.  Conceivably an unethical settlement planner could solicit the sale of structured settlement payment rights for pennies on the dollar and make a large fee in the origination, or a kick back from the originator. In the worst case scenario a settlement planner could solicit the sale of structured settlement payments,for pennies on the dollar,  re-sell the payment rights to an investor for a large spread and have the proceeds go to a fiduciary advisor related to the settlement planner and make substantial ongoing fees.

Would this be seen as consumption of "forbidden fruit"?

One could look at it as churning.

Think there is no way this could possibly happen? 

I'm sure those that trusted Joe Gargan, James Gibson and Michael Woodyard thought that too at one time.  But the possibility of a plaintiff settlement planner having a "tryst" with factoring of their client's structured settlement was not lost on retired Bronx New York Supreme Court judge Paul A Victor, whose local rules for settlement of claims by infants and impaired persons, required a sworn affidavit that that the structure broker would not do the following, at #11:

Neither I nor (Insert name of company) will, without the express consent of the plaintiff and the prior written approval of this court:

a) provide any information about this settlement to any factoring company for any purpose; or

(b) solicit the plaintiff or plaintiff’s family on behalf of any factoring company for any purpose, including, but not limited to, the proposed sale of plaintiff’s future periodic payments, nor will I or (Insert name of company) participate, assist, promote, or aid in such solicitation by any person, firm, corporation or entity; or

(c) seek or accept any consideration, financial or otherwise, directly or indirectly from a factoring company.

The Bronx judicial commentary concerning this aspect of the structure broker's affidavit is crystal clear:

"However, these services, should be provided at the request of the annuitant. In contrast, it would not seem appropriate for a structured settlement broker to provide the names of its client annuitants to such factoring companies for solicitation purposes; and it would certainly seem unethical, if not illegal, for a structured settlement broker to receive a referral fee or any form of compensation from such a company. It must be noted that the “structure broker’s affidavit” which is required by this court’s rules must contain a representation that said broker does not have any such relationship with a factoring company"

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Side Bar

Structured settlement annuities are only available through licensed agents and agencies appointed by the structured annuity issuer.  The settlement planner is acting as structured settlement agent or structured settlement broker whenever placing (or co-brokering) a structured settlement annuity. The party or payee the settlement planner represents does not change this.

__________________________________________________________________________________________________________

Upon information and belief, as it stands in July 2020, there are more than just a few settlement planners actively participating in the structured settlement secondary and tertiary markets, including one who is a appointed agent of multiple structured settlement annuity issuers, well known to trial lawyers, who is a founder, director and primary blogger for a structured settlement factoring origination firm.  I wonder what Judge Victor would have said about that?  On April 20, 2020, a solicitation email went out to trial lawyers across the country from the settlement planner (who has publicly trashed structured settlement annuities as irrelevant) with the message "eliminate annuities from your client portfolios and settlement plans". Begged (and still begs) the obvious question, in my opinion.

With a sale with 5 years attorney notification rule in place, an important check and balance is put in place.  The Notification of Attorney Within 5 Years Rule should be part of each state's structured settlement protection act. What would the lawyer that referred that client to the settlement planner think about the raiding of the annuity payments? The deterrent value of such a rule is enormous. 

Imagine a different outcome for James McMillan. Evan Torgan's excellent legal work for 2003 Staten Island Ferry victim is undone in a series of improvident structured settlement factoring transactions. The first factoring vulture appeared 4 years after the 2009 settlement, so if a 5 year attorney notification was in place, attorney Torgan would have been notified and might have been able to intervene. McMillan had  a 2012 attempt dismissed by a New York judge and then was financially raped through 9 transactions in 2013 alone in the Sumter County Florida "kill zone".

 

 

 

 

Brooklyn Suit Seeks to Recover Stopped Payments for Structured Settlement Investors

by Structured Settlement Watchdog

Investors Fighting to Get Back Money They Paid to Sellers For Structured Settlement Payment Rights

In 2001 Brooklyn New York residents Michael Okebiyi and Shirmine Okebiyi settled a medical malpractice lawsuit as parents and natural guardians of their infant son, Nicholas Okebiyi.  Part of the settlement was structured with an annuity issued by Hartford Life Insurance Company as the qualified funding asset. The terms of the annuity provided for periodic payments of $6,769.89  per month, from July 16, 2014 to and including June 16, 2056, with payments increasing at 4% per year.

On September 13, 2013, the Okebiyi's entered into a structured settlement annuity sale and assignment agreement with Freedom Financial Services LLC in which they agreed to sell 84 monthly payments of $6,769.89, with an annual increases  of 2% per year. , starting July 16, 2014 through and including June 16, 2021 {" Assigned Payments". In exchange the Okebiyis were to receive $402,753.10 in a lump sum.

Freedom Financial Solutions, LLC is a structured settlement factoring company based in Hypoluxo Florida/Boynton Beach and managed by John K Woods, according its most recent annual report filed with and published by the Florida Secretary of State at sunbiz.org

_________________________________________________________________

Side Bar It is the structured settlement payment rights that are sold or transferred not the annuity itself

__________________________________________________________________

Freedom Financial acted as a broker/originator on the transaction and asked Somerset Wealth Strategies, LLC, an Oregon company offering wealth management and retirement planning services to locate investors to fund acquisition of the Assigned Payments upon securing a qualified court order pursuant to New York G.O.L. 5-1701 et seq. As readers know, at the time Somerset also ran a number of websites marketing factored structured settlement payments streams such as " SecondaryMarketAnnuities.com"

Somerset arranged for certain clients, namely Dennis Deiasi and Ann Marie Diasi, acouple from Florida and Brian Greig and Patricia Greig, a couple from California, to purchase the Assigned Payments. In anticipation of buying the Assigned Payments, these Somerset clients wired money to their escrow agent Anne E. Sety-Rosevear.

Freedom Financial and the Okebiyis filed a petition by Order to Show Cause in the New York State Supreme Court County of Kings, seeking approval of the transfer of structured settlement payment rights. On February 28, 2014 the transfer was approved by Order of Justice Bernadette F. Bayne and the Assigned Payments were assigned to the clients of Somerset. Payments were serviced by Allied Servicing Corporation which  in turn split the payments between the respective assignees.

On February 6, 2015, Okekbyis entered into a new structured settlement annuity sale and assignment agreement with Freedom Financial where thet agreed to sell an aggregate of $2,140,611.96 of periodic payments to Freedom Financial.

A new petition by order to show cause was filed in Kings County Supreme Court by Nicholas' father Michael Okebiyi bearing index 501670/2015, whereupon the Petiton was heard by Justice Debra Silber. Judge Silber denied the 2015 petition on April 30, 2015 because the Michael Okebiyi did not have standing without a Court appointing him as guardian of Nicholas.

Investors Get Shafted on "Silber Platter"

On November 9, 2015, Justice Silber, stepped in in loco parentis and recalled her April 30, 2015 and on November 9, 2015 issued an Amended Order and Restraining Order. Despite the Assigned Payments from the 2014 Order having NOTHING to do with the April 30, 2015 Order, the investors Dennis Deiasi, Ann Marie Diasi, Brian Greig and Patricia Greig have not received ANY payments they bargained for beginning December 16, 2015 and ongoing to today. At the time the current suit was filed investors were out $389,148.87 and at the time of this writing the number is over $400,000. And the aforementioned payees are due payments through June 16, 2021.

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Sidebar   " Surely You Can't Be Serious"

In the November 9th Amended Order and Restrating Order Judge Silber referred to Freedom Financial Solutions LLC as  "vectoring company" , inspiring the late renowned aviator Clarence Oveur to roll over in his grave muttering "What's your vector Victor, I mean Silber?", but that's not important right now...

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Despite having knowledge of the Restraining Order, and despite having received the Purchase Price contemplated by the 2013 Purchase and sale ratified in the February 28, 2014 Order, the Okebiyis have not returned the funds to the investors and have instead retained the full $402,653.10 even though the Assigned Payments have  ceased since the issuance of the Restraining Order in 2015.

The investors subsequently filed suit in the Supreme Court State of New York County of Kings  in a matter captioned Dennis Deiasi, Ann Marie Diasi, Brian Greig and Patricia Greig, Plaintiffs v Michael Okebiyi and Shirmine Okebiyi, Defendants  519239/.

The investors allege

Unjust Enrichment and Conversion with damages accruing on $286,213.71 alleged at the time the Complaint was filed February 11, 2020. The investors have had to incur attorney fees and costs

Where it stands now

A stipulation to extend the  time Covid-19 related delays extends the Defendants' response until June 30, 2020.   See Dennis Deiasi, Ann Marie Diasi, Brian Greig and Patricia Greig, Plaintiffs v Michael Okebiyi and Shirmine Okebiyi, Defendants  519239/2019

Somerset Wealth Strategies also seeks to recover the $101,354.92 commission retained by Freedom Financial Solutions as part of the 2013 structured settlement transfer for breach of implied contract and unjust enrichment alleging that the 2015 Petition was  the cause of the disruption of the Assigned Payments to Somerset's clients.

Yet Another Example of Why Factored Settlement Payment Streams Are Not Annuities

This type of stuff just doesn't happen when you buy a regular annuity.  Factored structured settlements carry more risk than a legitimate annuity. Think about it, you invest money in an investment in 2014, you receive the payments for  a period of time, money that you are counting on and then the payments stop in December 2015 and you haven't been paid since. to the tune of hundreds of thousands.

 

 

Can You Act in Adverse Parties' Best Interest on Both Sides of a Structured Settlement Factoring Deal?

by Structured Settlement Watchdog

When I asked John Bair "how do you resolve the conflict of interest?" in June 2018, John Bair insisted on a Non Disclosure Agreement, which included a multi-year non compete and a liquidated damages clause. I demurred.

Having noticed today the text of the Google Adwords solicitation from CrowFly (see image below), the company founded and for whom Bair serves as Director

One Face This Way and One Face That Way

and blogger, it seems reasonable to ask the same open question  adding one word " How do you resolve the obvious conflict of interest?"

One Face to Structured Settlement Investors

CrowFly LLC purchased a Google Adword ad in which the copy says "Purchasing Structured Settlements as Investments CrowFly is Committed to acting in Your Best Interest, Because You Deserve a Better Deal"

Another Face to Sellers of Structured Settlement Payments

On the other side of the beak  CrowFly says to Sellers  "Expect a different experience with us. We believe our clients value a trustworthy, straight-forward, and transparent partner with their best interests in mind"  [ Source: CrowFly website 5/25/2020]

Commitment v Belief

Isn't there a difference between being "committed to acting in your best interest and a "belief" in what sellers value?

Commitment "an engagement or obligation that restricts freedom of action",  synonyms are devotion, allegiance, loyalty...  [ Oxford English Dictionary]

Belief  "an acceptance that a statement is true or that something exists".  [Ibid.]

But then, the conflict surfaces...

One Face Two Face  (To Both Buyers and Sellers)

"At CrowFly, we are committed to acting in your best interest. Always"

Whether you’re a seller or a buyer, you deserve a better deal".

If each person deserves a better deal, can you act in seller's best interest and squeeze every living "penny on the dollar" out of the buyer after you've committed to acting in the best interest of the buyer?

Definition of Always    1.  at all times; on all occasions. 2. as a last resort; failing all else.  [Ibid.]

CrowFly LLC Says It is Committed to Acting in Buyer's Best Interest. If So, How Can They Act in the Seller's Best Interest?

Milestone Consulting Trashes Annuities in Annuity Market Stare Down,

by Structured Settlement Watchdog

I've been provided with a copy of a Milestone Consulting email blast to trial lawyers that states  "Eliminate annuities from your client portfolios and settlement plans". 

So you want to  play chicken?

A Game of Chicken?

The Buffalo, New York firm is tripling and quadrupling down on its assault on annuities while upon information and belief, it retains the appointments with all   but 3 of the life insurers issuing structured settlement annuities.  Milestone is not appointed by USAA Life Insurance Company, United States Life Insurance Company or American General Life Insurance Company. One wonders whether Milestone's leadership is simply playing a game of chicken with Metropolitan Tower Life, Independent Life Insurance Company, Pacific Life Insurance Company, Berkshire Hathaway Life Insurance Company of Nebraska, United of Omaha and Prudential gambling that they won't terminate his appointment and/or he fancies himself as a poor man's Ken Fisher.

It seems with a number of things written and posted by Milestone these days, that the devil is in the details.  Readers may wish to review some of my posts within the last few months that provide what is, in my opinion, essential critical commentary.

Intellectual dishonesty?

Milestone says "Who wants to pay a 4% commission for an asset that yields 1.7%?  Milestone provides no cite of start date or duration, rated age, or context. One clue. In his January 11, 2020 blog, Milestone CEO John T. Bair used 1.6% and indicated it was for a 10 year immediate annuity. What would be the yield over a longer period of time?  Milestone's headline says it all. The example Milestone uses for justification is intellectually dishonest in my opinion. When you start adding up the costs of Milestone and affiliated companies' qualified settlement fund, the cost of the assignment fee, the asset management fees, the trustee and/or custodial fees, what is the effective cost?

Today the 10 year bond is at 0.55, 20 year bond is 1.04% and taxable. One of my colleagues recently got a 3% IRR from New York Life with a daily rate and I have a quote for an 11 year old boy, with no rated age, on a 30 years certain and life that is 2.95% IRR. 3%, 2.5% and even 1.7% betters an investment in the S&P 500 from January 1, 2000 to December 31, 2019 by someone who missed the 20 biggest trading days in the market, according to data compiled by JP Morgan in its 2020 retirement guide. That's the 20 biggest days over 20 years folks!  See How Structured Settlements Compare.

As to the 4%, if Bair stated in January 2020 that "we have placed $2 billion+ worth of structured settlement annuities". If that can be substantiated, with a few pro bono special exceptions that would mean that Bair and/or the companies he is/was affiliated with, earned about $80,000,000.  in the alternative, some might argue that the an annual asset management fee of 1.5% annually for an unmanaged portfolio is overkill. Who wants to pay 1.5% annually for something like a factored structured settlement payment stream that earns a gross rate in the neighborhood of 3%?

You Say You Want a Revolution? 

This statement by Milestone Consulting makes no sense   "We believe that clients benefit greatly by directly owning the stocks in their portfolios, which includes their structured settlements and settlement plans"

• Is Milestone stating that structured settlements are securities?
• Is Milestone stating that settlement plans are investments?
• If a plaintiff or attorney were to directly own the funding assets of their structured settlement, what are the tax consequences to them?  Where are the tax rulings that substantiate this?

The words "eliminate annuities from your client portfolios and settlement plans", compounded by the fact that Bair has admitted in writing to being a factoring originator, begs the obvious question about whether Milestone is itself, or together with entities of common ownership ,  seeking to cannibalize or  churn its own business. Milestone has been heavily promoting the commonly owned factoring firm CrowFly LLC and factored structured settlement payments streams to investors using the tertiary structured settlement market scam label "secondary market annuities" as part of its FeeMaster campaign.

In the words of Lennon and McCartney:

"Well you know
We all want to change the world
You tell me that it's evolution
Well you know
We all want to change the world
But when you talk about destruction
Don't you know you can count me out"

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Do Annuity Policies "Change Hands" When Structured Settlement Payments Are Sold?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

When a structured settlement is factored to raise cash for a Payee, no annuity policy changes hands.  As set forth in Subparagraph (A) of paragraph 3 of

Annuities don't "change hands" either

subsection (c) of 26 U.S.C. 5891 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. It's a very basic fundamental. However it has not stopped structured settlement secondary and tertiary market actors from making misleading statements.

"With zero regulatory oversight, the factoring industry (or secondary market industry) flourished by ripping off annuitants and paying pennies on the dollar for what is considered to be a very valuable investment asset.  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. "  John Bair Milestone Consulting and Director of factoring originator CrowFly, LLC March 5, 2018.

In a structured settlement exchange, no annuity policy changes hands, just the rights to payments. The individual receiving structured settlement payments representing his or her damages is no more the owner of an annuity contract than the investor.

The terms Secondary Market Annuity, Secondary Market Annuities, SMA and SMIA are 4 of the biggest lies to investors in the unregulated structured settlement tertiary market. With continuing commentary, some actors in the tertiary market remain militant in their use of the deceitful terms, while some have backed off a little by admitting the usage was simply engineered for marketing purposes.

 

 

 

Biggest Lies Told By Structured Settlement Buyers and Structured Settlement Payment Rights Peddlers

by Structured Settlement Watchdog

Biggest Lies Told By Structured Settlement Buyers

1. There are no hidden fees
2. That's a pretty good deal, maybe I can give you $500-$1000 more
3. The quote annuitants receive represents the full amount
4. You can get all of your money now
5. You've got a step-grandmother you haven't seen in 20 years living in Tarpon Springs?  Then You live in Florida my bruh!
6. Sell your structured settlement and you can get 11% with...
7. Selling Structured Settlements for Maximum Lump Sum Payouts ( by a company that shafted a Long Island NY man for over $1 million)

Comments

1. The originator will probably not let you know what they are making. It is not unheard of for even a purportedly staunch plaintiff advocate to buy structured payments from an annuitant and then make a significant profit spread when the payment rights are resold to investors.
2. Without knowing the profit spread you can be scammed into think you are getting a good deal, but the $500-$1,000 extra vig to you could still leave a lot of fat in the deal. One source indicated that of the deals they see there's  a 70% chance there's at least $10,000 of fat in the deal and a 50% chance there's at least $100,000 of fat in the deal. The Cedric Martez Thomas case involving Novation Funding and the Lauren Nesbitt case involving Seneca One are two examples of cases I've covered here where the financial rape was in excess of $1 million!
3. The "quote annuitants receive" is never the full amount, it is net of the spread, which may or may not be disclsoed.
4. You can never get all of your money now, or ever.
5. Forum shopping with structured settlement factoring may be illegal. And if you are victimized the presiding judge may be prejudiced by your participation in the fraud.
6. Scam that has been used by a number of South Florida structured settlement factoring companies. The 11% rate is a total scam. No investment adviser, much less an unlicensed unregistered huckster at a factoring company can legally promise any rate. That a company uses the scam rate to induce an unwitting annuitant to part ways with their valuable asset for pennies on the dollar is at the heart of the scam.
7. Novation Funding's scam marketing claim that was invalidated forever by the tragic financial rape of Cedric Martez Thomas in October 2015 for in excess of $1 million profit spread.

Biggest Lies Told by Peddlers of Factored Structured Settlement Payment Streams

1. A "Secondary Market Annuity"
2. A " Secondary Market Income Annuity"
3. " SMA"
4. "SMIA"
5. "May be covered by state guaranty funds but no warranties or representation are made in this regard"
6. "These are life insurance products"
7.  Interested in these “super bonds”?' 

Comments

1-4. They're all lies because what they are selling is not an annuity. It's an engineered term used by licensed insurance agents who know what an annuity is and choose to ignore the truth for marketing purposes to make a buck off investors.

5-7. In John T. Bair's March 12, 2020 published claim, with his Director of CrowFly, LLC factoring origination hat on,  " Can Recycled Structured Settlement Annuities Replace U.S. Treasuries in Your Portfolio?",  Bair recklessly claimed "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?"  Bair unfortunately tells multiple lies that misinform potential investors and reflect poorly on himself and his company. 

Factored structured settlement payment streams are not annuities according to the National Association of Insurance Commissioners and even some of Crowfly's structured settlement tertiary market competitors.  Factored structured settlement payments streams are not super bonds. Bonds are securities, not insurance products. Insurance products are generally not securities. Variable annuities are securities and under FINRA's jurisdiction.  Bair then undermined his own lies, in my opinion, by (1) lying about statutory protections and (2) who provides them. If they were insurance products as he claims, there would be a prohibition on discussing the statutory protections in his blog solicitation of investors. Why someone who engages in cocksure preening about ethics would leave themselves exposed in such a way raises an eyebrow to say the least.

 

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"