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What's California "Structured Settlement Attorney" Talking About?

by Structured Settlement Watchdog

It's so disappointing when so-called experts providing independent professional advice, can't articulate the fundamentals of the business upon which they are providing independent professional advice.

How can any consumer feel confident in such advice when you consider the following, from an adviser in a state that permits a fee of up to $1,500 to be paid by the purchaser of structured settlement payment rights?

Let's examine a series of statements from a solicitation by a so-called structured settlement attorney based in California:

A. "If you are receiving a settlement over time and are in need of a lump-sum payment that is possible.  That is what is referred to as selling your annuity in the secondary market".

Structured Settlement Watchdog Commentary: This is a case of SNAFU.  No structured settlement annuitant owns the structured settlement annuity that funds the obligation to make payments to them.  The structured settlement cannot sell the annuity since they do not own the annuity. What they can sell, if the transaction complies with relevant state and federal law are structured settelment paymnet rights.

B. "Most of the time you agreed to take a larger settlement over time, but what you may or may not know is that the original cash offer or a portion of it was used to purchased annuity that you are receiving in payments. These payment streams have a present-day discounted value in the secondary market. The IRS has come up with a number that it feels a dollar today is worth in say 10 years, and vice a versa. That number is then used to calculate what your payments are worth. This allows the purchaser to cover their costs in making the transfer happen. 

Structured Settlement Watchdog Commentary: Actually, that's not a proper articulation. It's unlikely that any structured settlement factoring company would do a deal for present value by simply the Applicable Federal Rate. The Applicable Federal Rate does NOT allow the purchaser to cover their costs and account for their profit margin!

According to the IRS Excise Tax on Factored Structured Settlement Payments Audit Technique Guide 3/2019 rev. p4

"The transferee – that is, the factoring company – is required to make a series of disclosures designed to highlight the value of transferred payments and to contrast that value with the net amount that a payee stands to receive in exchange for thetransferred payments. In most states, the transferee is required to disclose the discounted present value of the transferred payments, as determined by using the “Applicable Federal Rate” most recently published by the Internal Revenue Service for purposes of valuing annuities.

C. The payment stream when setup was set up with a probable rate of 2 % return, and now your payment is being purchased at a minimum of 10 % return. Each transfer is unique so do quote exact numbers is impossible, but what you can expect to be to lose a large portion of the “face” value of your payments.

Structured Settlement Watchdog Commentary:  Tritely inarticulate balderdash.  Where do I start? 

1. "...probable 2% return, and now your payment is being purchased at a minimum 10% return". Aren't we speaking about discounted present value? Ergo, the latter reference is an effective discount rate?

2. Where does the random "probable 2% return" come from?  If an annuitant is in their late 20s and has a structured settlement established when they were  a child, that could have had a considerably higher Internal Rate of Return.  Consider that in 2002, the 10 year United States Treasury ranged from 5.04% in January to 4.03% in December. the 20 Year Treasury yield ranged from 5.43 in January 2002 to 5.63% in December 2002.  See How Structured Settlements Compare to Alternative Investments

D. "Structured settlement has to be underwritten & approved by a court. The underwriter is responsible for making sure that the payments can be sold and transferred without liens or liabilities. The court is responsible to ensure the seller has the right to sell the payments, and that it is in the best interest of the person receiving the payments to sell".

Structured Settlement Watchdog Commentary:  

1. No structured settlement are underwritten by a court.

2. No structured settlements have to be underwritten by a court

3. Courts are not underwriters

4. Some structured settlements have to be approved by a court, such as where the settlement is on behalf of a minor, an incompetent, or the matter is subject to probate.

 

California IPA | $1,500 for "Holey" Structured Settlement Independent Professional Advice?

by Structured Settlement Watchdog

It's so disappointing when so-called experts providing independent professional advice, don't articulate their business properly.  How can any consumer feel confident in such independent professional advice when you consider the following, from an adviser in a state that permits a fee of up to $1,500 to be paid by the purchaser of structured settlement payment rights? 

structured settlement ipa

 

Let's examine a series of statements from a solicitation by a so-called structured settlement attorney based in California:

A. "If you are receiving a settlement over time and are in need of a lump-sum payment that is possible.  That is what is referred to as selling your annuity in the secondary market".

Structured Settlement Watchdog Commentary: This is a case of SNAFU.  No structured settlement annuitant owns the structured settlement annuity that funds the obligation to make payments to them.  The structured settlement annuitant or structured settlement payee cannot sell the annuity since they do not own the annuity. What they can sell, if the transaction complies with relevant state and federal law, are structured settlement payment rights.

B. "Most of the time you agreed to take a larger settlement over time, but what you may or may not know is that the original cash offer or a portion of it was used to purchased annuity that you are receiving in payments. These payment streams have a present-day discounted value in the secondary market. The IRS has come up with a number that it feels a dollar today is worth in say 10 years, and vice a versa. That number is then used to calculate what your payments are worth. This allows the purchaser to cover their costs in making the transfer happen. 

Structured Settlement Watchdog Commentary: Actually, that's not a proper articulation. It's unlikely that any structured settlement factoring company would do a deal for present value by simply the applying Applicable Federal Rate. The Applicable Federal Rate does NOT allow the purchaser to cover their costs and account for their profit margin!

According to the IRS Excise Tax on Factored Structured Settlement Payments Audit Technique Guide 3/2019 rev. p4

"The transferee – that is, the factoring company – is required to make a series of disclosures designed to highlight the value of transferred payments and to contrast that value with the net amount that a payee stands to receive in exchange for the transferred payments. In most states, the transferee is required to disclose the discounted present value of the transferred payments, as determined by using the “Applicable Federal Rate” most recently published by the Internal Revenue Service for purposes of valuing annuities.

About Form 8876, Excise Tax on Structured Settlement Factoring Transactions | Internal Revenue Service (irs.gov)

C. "The payment stream when setup was set up with a probable rate of 2 % return, and now your payment is being purchased at a minimum of 10 % return. Each transfer is unique so do quote exact numbers is impossible, but what you can expect to be to lose a large portion of the “face” value of your payments".

Structured Settlement Watchdog Commentary:  Tritely inarticulate balderdash.  Where do I start? 

1. "...probable 2% return, and now your payment is being purchased at a minimum 10% return". Aren't we speaking about discounted present value? Ergo, the latter reference is an effective discount rate?

2. Where does the random "probable 2% return" come from?  If an annuitant is in their late 20s and has a structured settlement established when they were  a child, that could have had a considerably higher Internal Rate of Return.  Consider that in 2002, the 10 year United States Treasury ranged from 5.04% in January to 4.03% in December. the 20 Year Treasury yield ranged from 5.43 in January 2002 to 5.63% in December 2002.  See How Structured Settlements Compare to Alternative Investments

D. "Structured settlement has to be underwritten & approved by a court. The underwriter is responsible for making sure that the payments can be sold and transferred without liens or liabilities. The court is responsible to ensure the seller has the right to sell the payments, and that it is in the best interest of the person receiving the payments to sell".

Structured Settlement Watchdog Commentary:  

1. No structured settlement is underwritten by a court.

2. No structured settlements have to be underwritten by a court

3. Courts are not underwriters

4. Some structured settlements have to be approved by a court, such as where the settlement is on behalf of a minor, an incompetent, or the matter is subject to probate.

5. A structured settlement factoring transaction (i.e. IRC 5891(c)(A)" transfer of structured settlement payment rights") must be approved by a Court and all requirements to comply with State Structured Settlement Protection Acts, to avoid a 40% Excise tax imposed under Federal law (see Iimposition of Excuse Tax IRC 5891(a)).

How about having some pride in the profession?

What is Independent Professional Advice in connection with Structured Settlement Transfers?

 

California Lawyer in Highly Questionable New York IPA with 18.82% Discount Rate!

by Structured Settlement Watchdog

California Lawyer Produces One of the Worst Structured Settlement IPAs I've Ever Seen.

A La Jolla California lawyer formerly associated in an LLC with Richart Ruddie and Ryan Blank, has written a 7 page IPA on September 3, 2018, in support of a pending structured settlement transfer being offered to the fiduciary of a disabled African American New Yorker, bearing a confiscatory 18.82% discount rate  (according to a filed disclosure by the structured settlement factoring company).

What is Independent Professional Advice?

The IPA report written by the California lawyer, who states he is Managing lawyer for a legal services company, a Wharton grad, University of Chicago MBA and University of Michigan Law School grad, is full of obvious typos and cut and paste. For example the fiduciary's ward is a single person (her son) and the La Jolla lawyer refers to her children in the IPA. A Syracuse grad like me took no time at all to marvel at how in the IPA, the California lawyer refers to her son's name in one sentence and in the next sentence refers to him as a country that by coincidence rhymes with the beneficiary's name.  The La Jolla lawyer also gets the factoring company's name spelled wrong in multiple places.

Questionable Representation by La Jolla Lawyer in Structured Settlement IPA for New York Fiduciary

The La Jolla lawyer states in the court filed IPA "we devoted substantial time to the consideration if the being paid was fair. You acknowledged that because the time value of money, the disparity noted above is not as great as it otherwise appears".  Had the La Jolla lawyer merely looked at a prior attempt by Olympic Financial, LLC, associated with Highpoint Funding, which was rejected only 4 months prior, he would have seen an 11.77% discount rate rejected. Thus the credibility of the IPA, in this instance, must seriously be called into question. The disparity is in fact every bit as great as it otherwise appears. A person with a high school equivalency diploma could even see that!

The proposed factoring deal would pay $85,000 for $221,701.71 worth of payments starting in 2019 (according to the actual filed disclosure) when fair value would be in in excess of $150,000 according to my sources. While I have serious doubts that the proposed deal would be approved by a judge in any of the five boroughs of New York City, the fact that the California lawyer, who spent one of the seven pages touting his considerable academic accomplishments, didn't pick up this is mind boggling. The La Jolla lawyer also states that the purchase price is an entirely different, but a still noncompetitive number of $90,000. Like nobody is going to pick this up?  Court clerks, lawyers for the annuity issuer/assignee for instance.

The Same Case Brings Dan Cevallos (or is it Dave now)  Above the Parapet 

When a structured settlement factoring petition is submitted it's not long before other predators emerge. I have a copy of Frank Cevallos' business card from Advance Funding LLC. Frank brought with him his "supervisor" who had an empty wallet and no business cards, but was puportedly running the show.  Hmm. I know of a retired couple from Massachusetts who would love to get their hooks into Dan Cevallos and Advance Funding LLC. I am told that Cevallos' even scoffed at the number that the La Jolla lawyer glossed over. But the talk of finding an address of a cousin in Pennsylvania underscores that forum shopping is alive and well in New York. There is an order in place since 2012, that refers all applications to transfer to the guardianship part and submitting in Pennsylvania would be in contravention to that order.

Thankfully this blog exists as a resource for potential victims who have a gut feeling that something isn't quite right. The key is to recognize that before you sign anything.

 

Baltimore Lawyer Price Gouged African American $750 for 15 Min Structured Settlement IPA!

by Structured Settlement Watchdog®

Brian Frosh, I just sent someone your way.  Another Baltimore Maryland victim who was incredibly charged $750 for 15 minutes earlier this year, BEFORE the Washington Post articles by Terry McCoy and the Baltimore Sun and the recent judicial reforms.  The lawyer,  who will remain nameless  (for now) operates out of an office on Baltimore Street ostensibly charges $3,000 effing dollars an hour.  Despite the fact that the fee was eventually paid by the  settlement purchaser according to the seller, it is a total outrage.   How can someone properly evaluate a structured settlement factoring transaction and whether or not the transaction is in their best interest in 15 minutes? 

The seller was not a lead paint victim, she was injured in an auto accident. The Maryland system as it existed before, totally failed her, assuring that she has no monthly income to support her and her 1 year old. 

 

 

Judge Rules Lawsuit Against Maryland Structured Settlement IPA Goes Forward

by Structured Settlement Watchdog®

Bad day for Rockville Maryland lawyer Charles E Smith and CES Law Group, LLC as he failed to get his structured settlement IPA legal malpractice lawsuit dismissed. 

The legal malpractice suit against Charles E. Smith and his law firm alleged that Smith advised an illiterate, intellectually disabled young woman on the sale of a structured settlement (designed to protect her throughout her lifetime) for a small and severely discounted amount of cash, without meeting her or providing counsel on the potential consequences of selling the structured settlement payments.

According to the Washington Post, more than 50 of Smith's engagements have arrived from annuitants selling structured settlement payments to Access Funding, the beleaguered Chevy Chase company that the Washington Post accused of targeting and exploiting lead poisoned poor blacks from Baltimore city.

Independent professional advice is required under the Maryland Structured Settlement Protection Act. The allegations against Smith suggest that there needs to be a better definition of what independent professional advice is.

Read MD Lawyer Charles E. Smith Sued for Bad Structured Settlement Advice in IPA

Elijah Cummings Questions Access Funding Re Structured Settlement Buyouts

by John Darer® CLU ChFC CSSC RSP CLTC

The Baltimore Sun reports that Congressional Democrats led by Rep. Elijah E. Cummings of Maryland's 7th District, are questioning Access Funding, a Bethesda MD company established in December 2012, that offers lump sum payments in exchange for monthly settlement checks awarded to people poisoned by lead paint. Elijah Cummings is the Ranking Member of the Committee on Oversight and Government Reform

"We are investigating the structured settlement purchase industry to examine how companies purchase payment streams from settlement recipients for a lump-sum payment upfront, as well as the adequacy of existing legal protections for settlement recipients," Cummings wrote in the letter, according to the Baltimore Sun report.

Experts have questioned how informed structured settlement sellers are about the transactions they are agreeing to. Sellers of structured settlements are required to receive independent professional advice  (structured settlement IPA) before signing an agreement, but in many cases the counseling sessions are perfunctory and are completed in less than a minute.  A Maryland attorney Charles E. Smith is currently defending a lawsuit related to at least one of the 52 cases related to purchases of structured settlement by Access Funding.

"I am troubled by these allegations because it appears that American families -- many of whom are African Americans who have been subjected to devastating lead poisoning -- are now being targeted for their financial settlements," Elijah Cummings said in a statement.

"I want to understand not only how this company (Access Funding) has been engaging in these practices, but also whether broader reforms are necessary to protect vulnerable families from dishonest financial predators."  

Read Elijah Cummings' letter to Access Funding

Read Congressional Democrats Question Firm Buying Lead Paint  (Structured) Settlements

With the business conduct of settlement purchasers now on the radar of the mainstream press, is it only a matter of time before state and federal government legislators and regulators start investigating more settlement purchasers?  Some might say "it's about time".

The Baltimore Sun gets it wrong about the title of Michael Borkowski  who is the Chief Financial Officer of Access Funding.  The Sun erred in stating he was the CEO. The CEO of Access Funding is Lee J. Jundanian

 

Structured Settlement IPA is A Necessity When Selling Structured Settlement

by John Darer® CLU ChFC MSSC RSP CLTC

Is independent professional advice REALLY on the table in Maryland as special interest groups huddle to discuss possible reforms to the Maryland Structured Settlement Protection statutes?

Maryland's structured settlement market has received unwanted attention after it emerged in April 2015, that Freddie Gray (yes THAT Freddie Gray), was in the process of selling his Allstate structured settlement to Peachtree,  just days before his death sparked the recent Baltimore riots.  Issues related to the legal action that gave rise to the structured settlement have been speculation for a possible theory of defense to those accused of causing his death.

Then a lawsuit with serious allegations against Derwood, MD lawyer Charles E. Smith, Jr. and CES Law Group, an irritating pock mark on the effectiveness of the State of Maryland's Structured Settlement Protection Statute.  Smith is being sued for legal malpractice arising out of his providing a questionable structured settlement IPA to Maryalice Rose, who is said to be a functional illiterate with cognitive deficits.  [ Read my June 27, 2015 post on Maryalice Rose v Charles E. Smith Jr et al ]

Some settlement purchasers argue that structured settlement IPAs, which cost between $500-$1,500, are an unfair tax on the seller and is something that is not encountered in other financial transactions such as opening a bank account, liquidating a bank account, buying a life insurance policy or buying or selling stocks, bonds or real estate. Proponents also see no need for court approval for the same reasons.  The flaw in their argument is that those industries are heavily regulated and  failure to adhere to the law could result in your losing your license, or in some cases some time in jail.  As you read this there is no license required  to work in the structured settlement secondary market AND there is no regulator in any state! Moreover, in many cases the structure is all these people have!

What is needed in Maryland and other states, in my opinion, is the following:

• Mandatory court appearances for sellers
• Filing only in jurisdiction where seller resides.
• Must show proof of having resided in state for 6 months  (acceptable proof standard e.g. electric bills,  auto registration, where children go to school}
• Certified information about prior transfers to accompany petition to transfer submitted for court approval.
• Mandatory independent professional advice [already in place, leave it alone]
• Standards for independent professional advice

And another thing, the cost of independent professional advice is a rough dollar equivalent of the kick backs and swag offered by settlement purchasers. For instance, what is the going rate for a free IPAD?

Here's what Master Funky Chicken, an online rapper with apparent keen interest in structured settlements, has to say in his Independent Professional Adviser Rap

 

 

Structured Settlement Protection Act IPAs | What's the Standard?

by John Darer® CLU ChFC MSSC RSP CLTC

What should be the standard for independent professional advice for those providing such advice to people selling structured settlement payments?

• Is it enough to simply examine the paperwork for the transaction to make sure that the person understands what they have been sold, or should the IPA engagement require more? 
• How do you determine if a person understands what they are doing? 
• What if the individual providing independent professional advice asks a question that leads him or her to believe that the transaction is not in the seller's best interest?

I submit to you that the recently filed Lafontant case against Imperial Structured Settlements (now DRB Capital) provides an example of what should give you pause.

Accordng to the Complaint filed against Imperial Structured Settlement and Andrew Levine, Lafontant was encouraged by Defendants to waive independent professional advice.  

In each of the 4 transactions approved in 6 months by Florida Courts in Sumter and Broward counties, in the alleged forum shopping case, Lafontant did not appear in court.

Shouldn't independent professional advice include, among other things,

• Determining if the prospective seller had sold payments before and when. 
• Getting an understanding of the seller's  cash flow situation, including fixed and variable expenses and sources of income independent of the structure. Would there be enough to live on post sale?
• Getting a clear understanding of whether the prospective seller can articulate his or her needs and plans for the proceeds.
• Determining  to what extent the seller had explored other alternatives.
• Determining the extent to which the seller had shopped around prior to the engagement.
• Asking Lafontant if any contact was made with Allsate Life Insurance Company of New York for a competing quote under the terms of the Allstate Advanced Funding Exchange Notice.
• Attempting to determine if there was any undue influence being exerted on the seller by anyone.

The form IPAs are useless and leave a seller open to abuse.  I also think it leaves the person providing the IPA  exposed.

1. Structured settlement protection acts, if properly enforced provide a measure of protection to structured settlement annuitants who seek to raise cash. 
2. Sellers should not waive their right to independent professional advice even if their state is not one that requires it.
3. When corners get cut by settlement purchasers in an industry in which predatory sale practices are unregulated people can get seriously hurt financially.

 

 

 

 

 

 

 

Annuitant "Forum Shopping" For Independent Professional Advice in Structured Settlement Cash Outs?

by Structured Settlement Watchdog

A California attorney who dispenses independent financial advice to annuitants considering selling structured settlement payments to raise cash called me today. Apparently an annuitant didn't like the fact that his "independent financial advice" was not to sell ("was a bad deal"), so the annuitant sought other "independent financial advice" until they heard what they wanted to hear.

To top it off the factoring company attempted to stiff the attorney providing the "independent financial advice"

It's nice when a statute has teeth in it!

Reference

Here's the relevant section of the California Insurance Code.

California Insurance Code Section Section 10139.5 concerning structured settlement transfers (structured settlement factoring transactions):

(d) All court costs and filing fees shall be paid by the transferee.

(e) No later than the time of filing the petition for court approval, the transferee shall advise the payee of the payee's right to seek independent counsel and financial advice in connection with the transferee's petition for court approval of the transfer agreement, and shall further advise the payee that if the payee retains counsel, a licensed certified public accountant, or a licensed actuary in connection with a petition for an order approving the transfer agreement, that the transferee shall pay the fees of the payee's counsel, accountant, or actuary, regardless of whether the transfer agreement is approved, and regardless of whether the attorney, accountant, or actuary files any document or appears at the hearing on the application for transfer, in an aggregate amount not to exceed one thousand five hundred dollars ($1,500). The transferee's accountant, counsel, or actuary may not advise the payee.

(f) The court shall retain continuing jurisdiction to interpret and monitor the implementation of the transfer agreement as justice requires.