Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Coral Springs Co. Wholly Misleading Statement Re "Purchase of Structured Settlement Annuities"

by Structured Settlement Watchdog

Coral Springs Company Makes False Wholly Misleading Statement Re "Purchase of Structured Settlement Annuities"

According to MJ Structured Settlement Annuities' (MJSSA) definition, "a Structured Settlement Annuity (SSA) is an annuity from an insurance company paid over a period of years as a result of a legal settlement for financial restitution". For example, MJSSA says, "the victim of a motor vehicle accident may be awarded an SSA where the guilty party will fund an annuity to pay out to the victim over time"

MJSSA Fails to Comprehend Basic Difference Between Civil and Criminal Lawsuits

Setting aside MJSSA's showing a lack of understanding of the difference between a civil suit (where at the conclusion of trial a civil Defendant may be found liable (as opposed to a criminal trial where a Deendant could be found guilty)**, MJSSA makes a false and wholly misleading marketing claim by holding out  the purchase of factored structured settlement receivables as a purchase of a structured settlement annuity (or structured settlement annuities).  

"MJSSA offers investors the opportunity to purchase Structured Settlement Annuities that deliver a guaranteed, fixed income stream over a defined period of time. These are individual, one-time-only secondary market annuities available for a limited time". See the screenshot immediately below.

Screenshot for critical commentary, retrieved from MJSSA website 9-14-2023

It is well settled that factored structured settlement payment rights are not annuities 

1. Factoring is a sale of receivables. For example, see  A. DRB Capital -- Structured Settlement Receivables Successfully Acquired | News & Insights | Arnall Golden Gregory LLP (agg.com) "DRB Capital, LLC, is a Florida-based specialty finance company that buys and sells structured settlement receivables, such as annuity payments and court-ordered payments"  and "As a result of the deal, DRB, which has over $1 billion in committed capital and employs more than 150 people, was able to add a substantial inventory of structured settlement receivables to its balance sheet". B. Genex Capital Corporation Issues "Recall Notices" on Certain Pre-2015 Genex Capital Receivables - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com);

2. The National Association of Insurance Commissioners (NAIC), in its Statutory Issue Paper No. 160, which was finalized April 6, 2019,  made it clear that acquired structured settlement payment rights are not annuities or insurance products. See NAIC Statutory Issue Paper No. 160 p6 Section 6, footnote which states clearly  " 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." ]

3. In the event of insolvency of the underlying annuity issuer, investors in acquired structured settlement payment rights are screwed in 80% of the US states, have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), which expressly excludes acquired structured settlement payment rights from insolvency schemes. The application of the exclusion expressly applies to acquired structured settlement payment rights that were acquired prior to the effective date that the investor's state adopts the 2017 Revisions to the Model Act. 

4. Section 5891 of the United States Internal Revenue Code of 1986, as amended states that "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".

5. Structured Settlement factored receivables do not meet the definition of annuity under the laws of the State of New York. For example: "An annuity is a contract between a purchaser and an insurance company in which the purchaser agrees to make a lump sum payment or series of payments in return for regular disbursements, beginning either immediately (within 12 months) or at some future date"  Source: New York Department of Financial Services. 
6. Structured Settlement factored receivables do not meet the definition of annuity under the laws of the State of Georgia.  For example "An annuity is a contract you enter into with an insurance company to provide a guaranteed income in exchange for a payment or series of payments"  Source: Annuity | Georgia Office of Insurance and Safety Fire Commissioner
7. Ask MJSSA if any of their current structured settlement receivables offerings (falsely held out as annuities) are covered by your state's life & health guaranty association?  Here is where the MJ Structured Settlement Annuities has been a bit naughty and says that they are (not even a "maybe"). See number 3 from the screenshot of September 14, 2023 10:11 below.
8. 

   Wow, no no, just WOW!  Check out #3 | This is an excerpt retrieved 9-14-2023

Factored Structured Settlement Receivables Are An Unregulated Non-Insurance Product Sold, and Continuing to be Sold by Certain Salespeople and Companies under the Wholly Misleading "Secondary Market Annuities" 

Factored structured settlement receivables have been marketed to investors, including seniors in Florida, injury victims, trial lawyers and fiduciaries as "structured settlement annuities",  "secondary market annuities", even by people they trust that hold insurance licenses. There is little regulation of the the sales practices of structured settlement factoring companies and these receivables being deceptfully marketed as "annuities" or  "secondary market annuities" to investors by the secondary or tertiary markets. With what is known, the lack of regulation is just reckless at this point and has been for more than a decade.

Here MJ Structured Settlement Annuities is holding out a list of stuctured settlement factoring receivables for sale as if they are annuities and advertising them as offerings to investors. See  Available Offerings - MJ Structured Settlement Annuities (mjsettlements.com)

And the operative question is why? Where are Regulators Protecting Consumers and Investors?

Helpful References for Consumers

1. Under Florida law  Chapter 626 Section 99296 - 2023 Florida Statutes - The Florida Senate (flsenate.gov)  titled  Transfers of structured settlement payment rights. As opposed to sale or transfer of a structured settlement annuity contract.
2. annuities-guide.pdf (myfloridacfo.com)
3. Structured Settlements | What Is a Structured Settlement? (4structures.com)
4. What Are Structured Settlement Annuities? Structured Settlements FAQ (4structures.com)

____________________________________________________________________________

**SIDE BAR 

Broward County Confusion? Who led which horse to water?

"Let’s start with the basics. A structured settlement is an agreement reached during a lawsuit, where the guilty party agrees to pay the victim a specified amount of money in periodic payments".   -123Lump Sum website 123 Lump Sum in Quandry Over Whether Civil Defendants Are Guilty (or Liable)? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com) August 24, 2022

_______________________________________________________________________________ 

MJ Structured Settlement Annuities appears to also use the name EZStructuredsettlementannuties, based on what was found on its website at time of original posting.

Last updated October 20, 2023

John Darer Reviews the NAIC Warning About Unlicensed Companies Selling Non-Insurance Products

by John Darer CLU ChFC MSSC CEFT RSP CLTC

The National Association of Insurance Commissioners provides expertise, data, and analysis for insurance commissioners to effectively regulate the insurance industry and protect consumers.

NAIC Warns of Unlicensed Legitimate Companies Selling Unregulated Non-Insurance Products

In a June 13, 2023 update, the NAIC warns that

"Legitimate companies that are not licensed by the state to sell insurance might lead consumers to think they are selling “insurance” while evading state insurance regulations"

The NAIC uses as an example "a company selling a health sharing plan might call the plan insurance when it is actually an unregulated, non-insurance product".

Factored Structured Settlement Receivables Are An Unregulated Non-Insurance Product Sold by Legitimate Companies as "Secondary Market Annuities"

Factored structured settlement receivables have been marketed to investors, including seniors, injury victims, trial lawyers and fiduciaries as "secondary market annuities", even by people they trust.

The NAIC, in its Statutory Issue Paper No. 160, which was finalized April 6, 2019 made it clear that acquired structured settlement payment rights are not annuities or insurance products.

80% of the US states have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), which expressly excludes acquired structured settlement payment rights from insolvency schemes. The application of the exclusion expressly includes acquired structured settlement payment rights that were acquried prior to the effetcive date that the investor's state adopts the 2017 Revisions to the Model Act.

The NAIC cautionary statement shows an increasing awareness of what is going on in the structured settlement secondary and tertiary markets. The introduction of HB845 in North Carolina, if enacted, puts the regulation of structured settlement factoring under the auspices of the North Carolina Insurance Department effective 2024.

 

Vermont LHGA to Exclude Structured Settlement Investors from Insolvency Safety Net?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Ongoing efforts to expressly exclude investors in acquired structured settlement payment rights from insurance insolvency protections continue unabated, as Senate Bill 95 officially passed the Vermont Senate on May 10, 2023. 

The version of the bill that passed the Vermont Senate adopted the 2017 revisions to the Life & Health Guaranty Associations Model Act (#520)  under which there is an express exclusion for "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".  BILL AS INTRODUCED AND PASSED SENATE S.95 see page 9 of 75. The Vermont House amendment leaves what the Vermont Senate proposed pertaining to acquired structured settlement payment rights intact

Acquired Structured Settlement Payment Rights Are Not Annuities or Insurance Products

Despite what might be (or have been) advertised by salespeople, acquired structured settlement payment rights (known as structured settlement receivables) are not annuities or insurance products. Ginned up by a misleading sales pitch, acquired structured settlement payment rights may have been sold to Mom and Pop investors, personal injury attorneys and their clients, as annuities when other interest rates were declining in the decade plus following the Great Recession of 2007-2009. But the fact that there is evidence of the marketing of such investments as 'a structured structured annuity solution' to injury victims and their lawyers beginning in at least September 2011 by a settlement planner, despite subsequently admitting in writing that such investments are "not a regulated insurance product", should be troubling. 

Advice Concerning the Acquisition of Structured Settlement Receivables May Be Excluded Under Financial Professional Liability Insurance

Why should Professional Liability Insurers cover non insurance products in a sub-industry where there is little to no regulation of sales practices in the United States?

What properly informed professional liabllity insurance underwriter wants to undertake a risk when consumers are being pitched structured settlement receivables by potential insureds under the fraud that some individual has sold a structured settlement annuity?

Insurance Company Liquidations are Rare, But Liquidations Have Happened

While insurance insolvencies are rare, they do happen. While acquired structured settlement payment rights (structured settlement receivables) are not annuities or insurance, investors are left exposed when they invest in such receivables in the event of insurer liquidations. I doubt that many of them are aware of this exposure. To the extent fiduciary advisors, including settlement planners, have sold and/or have recommended, and/or are still recommending structured settlement receivables (acquired structured settlement payments rights) to residents/investors of states like Vermont that have adopted the 2017 Revisions to the Life & Health Guaranty Association Model Act (#520), surely there is a duty to inform.

What is NOLHGA?

Frequently Asked Questions (nolhga.com)

According to NOLHGA's FAQ, when an insurance company or HMO that is a member of the guaranty association is being liquidated, its policy owners are generally covered by the guaranty associations in the states where the policy owners reside. Depending on the type of contract and other factors, guaranty associations typically continue coverage to the owner of a policy, contract, or group certificate, and to the extent applicable, to the beneficiaries, assignees, and payees of those owners. There are some exceptions to this general rule. For example, most state guaranty association laws provide coverage to resident payees rather than owners of structured settlement annuity contracts.

Structured settlement annuitants do not own the annuity contract funding their structured settlement payments

Neither Structured settlement factoring companies nor tertiary market companies are assessed, nor do they contribute to state guaranty associations in the event of an insurance carrier insolvency and liquidation, unlike admitted insurers doing business in the state.

 

 

Colorado Structured Settlement Investors | No Payment Rights Insolvency Protection (PASSED)

by John Darer CLU ChFC MSSC CeFT RSP CLTC

John Darer reviews Colorado House Bill 23-1303, an Act Concerning Protections in the Event of Insurance Company Failure that was passed and signed into law by Colorado Governor Jared Schutz Polis on May 15, 2023. 

While such occurrences are rare, investors in other people's structured settlement payments should know, before they invest, about the potentially devastating consequences to their investment in the event such an insolvency occurs. Colorado residents who have acquired structured settlement payment rights as an investment will now feel less confident about the prospects for their investment in the event of insolvency of the underlying annuity issuer. 

Colorado prairie dogs express surprise

 "Rocky Mountain N-aye"

Specifies that the act does not provide coverage to a person that acquires rights to receive, or to a payee or beneficiary that transfers its rights in, a structured settlement factoring transaction, as defined in federal law, regardless of when the transaction occurred

"(XX) STRUCTURED SETTLEMENT ANNUITY BENEFITS TO WHICH A
10 PAYEE OR BENEFICIARY HAS TRANSFERRED THE PAYEE'S OR BENEFICIARY'S
11 RIGHTS IN A STRUCTURED SETTLEMENT FACTORING TRANSACTION, AS
12 DEFINED IN 26U.S.C. SEC. 5891 (c)(3)(A), REGARDLESS OF WHETHER THE
13 TRANSACTION OCCURRED BEFORE, ON, OR AFTER THE EFFECTIVE DATE OF
14 26 U.S.C. SEC. 5891 (c)(3)(A)"

Yield Seeking Investors May Have Been Drawn in by a Dishonest Sales Pitch By Those They Trusted

To be crystal clear, I'm not speaking about legitimate structured settlements that were established for a plaintiff at the conclusion of their lawsuit. I am speaking of investments in other people's structured settlement payments rights.

Although somewhat less prevalent today, acquired structured settlement payment rights were heavily and marketed to investors as annuities, secondary market annuities, SMAS, SMIAS and so on, even though acquired structured settlement payment rights were not annuities as defined under the laws of many states.  They are actually structured settlement receivables and what is signed when the purchase is amde is a " Receivables Purchase Agreement" or " RPA". But it wasn't just nameless, faceless "guys on TV" or aliens from outer space, it may have been settlement planners, financial advisors, CPAs or peddlers of "alternative investments".

Settlement Planners Involved in This Activity May not Have Errors & Omissions Coverage

Some settlement planners were involved in such activity, for which there likely would be no errors & omissions coverage in the event of insolvency. The scary thing for some of them is that not only will the settlement planners' clients not have a remedy in Colorado if/when the bill is signed into law, and the majority of states which have already adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Acti (#520), but the subject settlement planners may not have coverage under their errors & omissions insurance. Hopefully, Time for investors to start asking questions of those settlement planners and advisors and revise expectations. 

What is an annuity under Colorado Insurance law?

An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid to the insurance company. Annuities are often purchased for future retirement income.  Life Insurance & Annuities | DORA Division of Insurance (colorado.gov)

The majority of US states have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), incuding the killer retro provisions. Notable hold outs surprisingly include the states of California and New York

John Darer Reviews

Why States Now Exclude SMA Investors From Annuity and Insurance Insolvency Schemes? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)

Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary: Risks of Investing in Payment Rights (typepad.com)

Bad News for Structured Settlement Investors as NAIC Encourages Adoption of Model Act #520 - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary typepad.com) March 15, 2022

Are Structured Settlement Investments Covered by State Guaranty Funds? (4structures.com) August 1, 2020

Last updated May 4, 2024

 

NJ Investors in Structured Settlement Receivables Now EXCLUDED in the Event of Insolvency

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Transfers or assignments of other people's future structured settlement payment rights or receivables, have been deceptfully marketed to investors as secondary market annuities by certain members of the structured settlement secondary market and even certain settlement planners and structured settlement brokers, who incorporated the structured settlement receivables in settlement plans and (as the evidence showed last year), some have even used them in purported qualified assignment documents with a related factoring company. 

If you buy someone else's structured settlement payments in NJ, you're not buying an insurance product. You get nothing if the insurer fails.

Then came the 2017 Revisions to the Life & Health Guaranty Associations Model Act(#520), which is has been approved by the majority, but not all US states, which expressly excludes structured settlement annuity benefits where a payee or beneficiary has transferred rights in a structured settlement factoring transaction regardless of whether the transaction occurred before or after the adoption of the 2017 Revisions became effective.

See  Bad News for Structured Settlement Investors as NAIC Encourages Adoption of Model Act #520 - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)

Why States Now Exclude SMA Investors From Annuity and Insurance Insolvency Schemes? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)

New Jersey Adopted No Insolvency Coverage For All Investors in Factored Stuctured Settlements August 2022. No Exception for Existing Investors

The progress report on the clarity for investors in structured settlement receivables isn't good news. I reported that it was coming and it is now effective in New Jersey.

New Jersey P.L. 2022, CHAPTER 98, effective August 12, 2022,  AN ACT concerning the “New Jersey Life and Health Insurance Guaranty Association Act” and amending P.L.1991, c.208 has SERIOUS implications for NJ investors in structured settlement payment rights. 

c. Except as otherwise provided in subsection d. of this section, P.L.1991, c.208 (C.17B:32A1 et seq.) shall not provide coverage

(11) structured settlement annuity benefits to which a payee (or beneficiary) has transferred rights in a structured settlement factoring transaction as defined pursuant to section 5891 of the federal Internal Revenue Code, 26 U.S.C. s.5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective.

The in excess of two decade long strategic failure of state legislatures to (1) implement licensing standards and (2) regulate structured settlement secondary market sales practices through licensing standards and regulatory enforcement of a reasonably forseeable problem is astounding.

 

 

 

Genex Capital Arizona Structured Settlement Investment Litigation Update

by Structured Settlement Watchdog

Time for a quick update on the Genex Capital structured settlement investment litigation in Arizona, an important case to follow for investors in structured settlement payment rights or, contemplating making investments in other people's structured settlements (or parts thereof), and their advisers.  If you are an injury victim who is evaluating whether or not to apportion your settlement recovery to a structured settlement, this article is not for you, unless your settlement planner is recommending that you invest in other people's structured settlement payment rights.

In my June 11, 2022 blog, I reported that the Court in its June 9, 2022 under advisement ruling, declined to enter a partial summary judgment in favor of Defendants against Genex Capital Corporation in its lawsuit against New England Annuity Associates, Bulbrook-Drislane, Seeley Capital Management Inc., Income Stream Funding Partners, LLC, John Bulbrook/Jane Doe Bulbrook, and Christopher Seeley (collectively, “Defendants”)

1. The Court found that Genex Capital presented sufficient evidence demonstrating that factual disputes remain as to what damages Genex may have suffered. As a result, the Court declined to enter summary judgment on the issue of damages. The Court found that Defendants have not shown an absence of any genuine issue of material fact regarding causation. Based on its conclusions, the Court declined to enter summary judgment on the issue of damages or causation of damages.

2. The Court found that the Keefer Plaintiffs are entitled to a declaration that they are the owners of and have the right to receive payments arising from the Payment Streams and that Genex has no material right, title, or interest in the Keefers’ Payment Streams.

The Court further reasoned that although the  RPA (Genex Receivables Purchase Agreement) is clear regarding the Keefers’ interest in the Payment Streams, the RPA is equally clear regarding restrictions on reassignment. Section 3.4 of the RPA states: “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.” Statement of Facts, Ex. 1, RPA § 3.4. The Court found that Genex is entitled to a declaration that the RPA does not permit reassignment of the Receivables without Genex’s consent, but denied all other relief.

Following the June 9, 2022 under advisement ruling, Genex Capital requested reinconsideration of the ruling. Subsequently the Court requested New England Annuity Associates Defendants to file a response. New England Defendants filed an amended counterclaim in July to which Genex has filed a response. 

The latest is that local counsel of record for  Genex Capital Corporation and its CEO Roger Proctor filed to withdraw as counsel.

Pursuant to Rule 5.3(a)(2)(B)(ii) of the Arizona Rules of Civil Procedure, Timothy J. Eckstein, Jeffrey B. Molinar, William D. Furnish and BriAnne N. Illich Meeds of the firm Osborn Maledon, P.A. move to withdraw as counsel of record for Genex Capital Corporation and Roger Proctor. The undersigned attorneys seek an Order granting their withdrawal on the ground that the clients failed substantially to fulfill an obligation to the lawyer regarding the lawyers’ services and has been given reasonable warning that the lawyers will withdraw unless the obligation is fulfilled.

On September 13, 2022, The Court granted the Motion of  Timothy J. Eckstein, Jeffrey B. Molinar, William D. Furnish and BriAnne N. Illich Meeds of the firm Osborn Maledon, P.A. to withraw as Counsel for Genex Capital Corporation and Roger Proctor.

GENEX CAPITAL CORPORATION, a Delaware corporation; Plaintiff,
vs.
SEELEY CAPITAL MANAGEMENT,
INC., a Massachusetts corporation; et al.,
Defendants. __________________________________

RICHARD L. KEEFER and VICKI L.
KEEFER, et al.,
Plaintiffs,
vs.
GENEX CAPITAL CORPORATION, a
Delaware corporation; et al.,
Defendants. __________________________________

AND RELATED COUNTERCLAIMS.
Case No. CV2020-004958
(Consolidated with CV2020-013796 and
CV2020-002266)

Why You Should Follow the Arizona Litigation

The Arizona litigation is perhaps the most significant case about the limitations and transactional risks of investing in structured settlement payment rights. It is well worth taking the time to understand what has happened with the investors. 

For years such receivables  (structured settlement payment rights) have been marketed to investors across the secondary and tertiary markets as if they were annuities, in some cases even insinuating, with a disclaimer, that such investors might have the same statutory protections as those who buy real annuities.  Today 37 states, who have adopted the 2017 revisons to the Life & Health Guaranty Associations Model Act (#520) have zero protection for investors in the event of the insolvency of the obligor of the factored structured settlement receivable

See Section 3A(5(c) of the 2017 Revisions tp the LIfe & Health Guaranty Associations Model Act  (#520) which expressly excludes "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".

Genex Capital CEO Roger Proctor has done the structured settlement industry and consumers a substantial service in earlier responsive court filings by defining investments by the investors in this case, particularly when subject to a payment servicing agreement, as a "subset" or "the lesser subset" of payment rights.

[from 1/3/2022 Decl. of Roger Proctor in Response to Seeley Defendants' Motion for Partial Summary Judgment (at #56) IN THE SUPERIOR COURT OF THE STATE OF ARIZONA IN AND FOR THE COUNTY OF MARICOPA

GENEX CAPITAL CORPORATION, a Delaware corporation; Plaintiff, vs. SEELEY CAPITAL MANAGEMENT, INC., a Massachusetts corporation; et al., Defendants. AND RELATED COUNTERCLAIM; RICHARD L. KEEFER and VICKI L. KEEFER, husband and wife; et al., Plaintiffs,vs. GENEX CAPITAL CORPORATION, a Delaware corporation; et al., Defendants.  Case Nos: CV2020-004958 CV2020-013796 (Consolidated) at #1]

 

 

Investing in Structured Settlements | What You Need To Know

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Investing in Structured Settlement Receivables | What You Need To Know

You or your US clients may be pitched investments in other people's structured settlements using the false flag claim that they are annuities. They aren't annuities. They are structured settlement receivables/

Structured Settlement Receivables, as alternative investments, are not without risk and such investments may neither be suitable for minors, nor vulnerable retirees or personal injury victims.

A growing body of litigation suggests that  it's possible that sellers and/or servicers of structured settlemen receivables may not have provided you with enough information, or in a form that you fully comprehend, to have a complete understanding of what you are being solicited to buy, or is being bought for your clients, sufficient to evaulate the potential risks.

Watch this 5 minute video. You will be glad you did. 

 

Why States Exclude SMA Investors From Annuity Insurance Insolvency Schemes?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Investors in Secondary Market "Annuities" have been hoodwinked

Years after investing perhaps tens or hundreds of thousands in investments in structured settlement receivables marketed to them as annuities, some are learning that such structured settlement receivables aren't in fact annuities and, that the investors do not enjoy the protections they may have thought they had (or some case, may have been sold).

Structured Settlement Receivables Are Not Annuities Investors!

40 states in all have adopted the 2017 revisions to the Life & Health Guaranty Association Model Act.  According to the NAIC and states I canvassed, these states presently include AK, AR, AZ, CO, CT, DE, FL, GA, IA, ID, IL, IN, KY, LA, MD, ME, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NV, OH, OK, PA, SC, SD, TN, TX, UT, VA, VT, WA, WV, and WY, as of late 2023.  

The Hammer is Coming Down

The hammer is coming down on the possibility of any investors in structured settlement receivables/ factored structured settlement payment rights, deriving any benefit from insolvency protections designed to protect buyers of annuities and life insurance. For many years it was not unusual to see the companies market investments in factored structured settlements using the false flag of "secondary market annuity". Some even made reference to state guaranty associations as through what they were selling to investors was actually an annuity. It wasn't, and had these companies (and/or their representatives) actually held licenses, the mere mention of the fund's existence in sales presentation might violate state law.

Companies that Sell Structured Settlement Receivables to Investors Do Not Contribute in the Event of Insurer Insolvency

According to the National Association of Life and Health Guaranty Associations  (NOLHGA), "When an insurer fails and there is a shortfall of funds needed to meet the obligations to policyholders, state guaranty associations are activated. Guaranty associations have two main sources of funding when providing coverage to policyholders. First, guaranty associations have subrogation rights to a proportionate share of the assets remaining in the failed insurer. Those assets, which can be substantial, may be used by the guaranty associations to pay covered claims. Second, insurers doing business in that state are assessed a share of the amount required to meet the portion of the guaranty associations’ covered claims not otherwise funded with estate assets. The amount insurers are assessed is based on the amount of premiums that they collect in that state.

Insurance Consumers Indirectly Contribute to State Insolvency Schemes, Investors Do Not

Arguably insurance consumers (including buyers of legitimate annuities) are also contributing to the insolvency schemes by virtue of the initial and/or ongoing payment of premiums for their insurance or annuities to the insurers that issue those products. However an investor who acquires structured settlement payment rights in the secondary or tertiary market is arguably, not contributing anything. The investor is buying a receivable, not an annuity or an insurance product. It's possible that the investor is buying a subset of rights to payments.

While the "pennies on the dollar" merchants may provide a service, history has shown that unethical business practices are rampant. With exceptions in a few states, these companies are essentially unregulated. In any case, neither factoring companies nor tertiary market companies contribute to the insolvency pot in the event there is an insolvency. Investors do not contribute to the pot either since they are not paying insurance premiums.

It's may not end well for Mom and Pop investors in structured settlement receivables. History has shown that many structured settlement factoring companies are very poor bartenders. Theye just keep "pouring and pouring" even after someone is obviously "drunk". They often "bite off the head" the head of the victim's annuity first, figuratively speaking. That is to say they encourage the sale of guaranteed payments, sometimes leaving the annuitant with just life contingent payments way out into the future. Where does that leave a structured settlement annuitant?  Possibly needing public assistance.  Now the public sector (i.e. tax payers ) is affected.

Where does that leave the investor? 

OBSERVATIONS

States Where Factoring Companies are Located

It's an interesting observation that the states where many structured settlement factoring companies are located have such exclusions [FL, DE, PA, NJ], having adopted the 2017 revisions to the Life & Health Guaranty Associations Model Act (#520).

States Where There Have Been Allegations of Significant Cases of Reported Abuse of Annuitants

One can further observe that states which have had some of the worst cases of annuitant abuse by structured settlement factoring companies have adopted the 2017 revisions [MN, FL, VA, IL, TX, NC, SC, MD, WA]. It's notable that several of what were for many years the leading purveyors of scam labeled "secondary market annuities" are/were based in Oregon, a state that has not yet adopted the 2017 revisions. It's a pity for investors that Oregon could not do a better job of regulating SMA Hub distributed payments to investors originated from from Advanced Funding and Access Funding as well as purported cash flows from professional athletes where things didn't go so well for investors. What is Oregon waiting for?

States Where Senior Investors Are Located

According to the US Census Bureau 2020 population estimates, 52 million Americans are 65 years or older, according to the U.S. Census Bureau, and a quarter of them live in just three states: California, Florida, and Texas**. While Florida and Texas have adopted the 2017 revisions, California had not done so at time of publication. Seniors with retirement accounts have been targeted for investment in factored structured settlement payment streams marketed under the false flag "secondary market annuity". What is California waiting for?

In response to my query, the Life Insurance Company Guaranty Association of New York responded June 9, 2022 that at present, there is no factored structured settlement exclusion under the New York insolvency statute. 

Illinois, Michigan, New York, North Carolina, Ohio, and Pennsylvania—account for roughly another quarter of the 65+ population. Maine has the the highest senior population as a percentage of its total population. What are New York and Michigan waiting for?  

Gullible and vulnerable New Yorker's have been preyed upon by Florida structured settlement factoring companies for years. New Yorkers are lured to Florida and other states under false pretenses inveigled in fraud to "establish residence" to circumvent the structured settlement protection laws of their own state, so they can get pennies on the dollar deals approved in Broward County, Palm Beach, Dade County Florida, Middlesex County New Jersey and even New Haven County Connecticut, when they had less chance of getting approved in New York. Despite the inducments to commit fraud, when called out in a legal dispute, the standard procedure is to attack the seller for being complicit in the fraud.  [ see, for example Philip Lape v 123 Lump Sum NY Sup. Monroe Cty E2020003377]

Investors in New York, Massachusetts, Oregon and Oklahoma, among others, have been victimized by alleged frauds perpetuated by Dan Cevallos and Advanced Funding. 

ADVANCE FUNDING LLC, Petitioner, For Judicial Approval of a Transfer Agreement with JEREMY ALCANTARA. In accordance with New York General Obligations Law § 5-1701 et seq., v JEREMY ALCANTARA, METROPOLITAN LIFE INSURANCE GROUP, and METLIFE TOWER RESOURCES GROUP, INC. Index 20842/2014E Orders Vacated in Bronx Structured Settlement Cash Now Scam by Convicted Felon | Bad News For Investors

MELISSA DIEGO Plaintiff, v. ADVANCE FUNDING LLC, ALLSTATE SETTLEMENT CORPORATION, ALLSTATE LIFE INSURANCE COMPANY
OF NEW YORK, and HABITUS FUNDING 808043/2022E Filed May 26, 2022  Download 2022.05.26 1 Diego v Advance Funding Summons and Complaint 808043_2022E [originally plead as Melissa Diego, Plaintiff v Advance Funding LLC, Defendant New York State Supreme Court, Bronx County Index 25376/2020E] Described in the Complaint against Advanced Funding as a "Madoff like Ponzi scheme". 

First Trinity Life Ins. Co. v Advance Funding LLC | Insurer Was Victim of Secondary Market Lottery Receivable Scam

TRINITY LIFE INSURANCE COMPANY, Plaintiff v ADVANCE FUNDING LLC, Dan Cevallos, Monica L. Ray and Citibank, N.A., Defendants. Supreme Court of New York New York County No. 652780/2020  This matter involves an Oklahoma bank that invested in a number of investment in structured settlement payment rights with Advance Funding. It didn't go well.

Again, what is New York waiting for?  

What If You Are An Investor in Structured Settlement Receivables?

If you were sold structured settlement receivables ( the rights to payments someone else's structured settlement) directly, or as a subset of payment rights, and the financial advisor or settlement planner solicited your purchase using the term "annuity" or "annuities", I am interested in hearing from you.

**Which U.S. States Have the Oldest Populations? | PRB

Last updated March 19, 2024

 

 

 

 

TRINITY LIFE INSURANCE COMPANY, Plaintiff v ADVANCE FUNDING LLC, Dan Cevallos, Monica L. Ray and Citibank, N.A., Defendants. Supreme Court of New York New York County No. 652780/2020  This matter involves an Oklahoma bank that invested in a number of investment in structured settlement payment rights with Advance Funding. It didn't go well.

Again, what is New York waiting for?  

What If You Are An Investor in Structured Settlement Receivables?

If you were sold structured settlement receivables ( the rights to payments someone else's structured settlement) directly, or as a subset of payment rights, and the financial advisor or settlement planner solicited your purchase using the term "annuity" or "annuities", I am interested in hearing from you.

**Which U.S. States Have the Oldest Populations? | PRB

Last updated March 19, 2024

Is an Investment in Structured Settlement Receivables Suitable for Injury Victims?

by Structured Settlement Watchdog

The market for structured settlement payment rights and other cash flows and receivables, like lotteries) became available to individual investors as the result of the 2008-2009 financial crisis and grabbed the attention of individual investors (including plaintiff attorneys!) and their financial advisers, as investment alternatives for their IRAs and Pension Plans.

Are structured settlement receivables of a risk profile suitable for injury victims?

The Suitability of Factored Structured Settlement Receivables Has Been Called Into Question

Some settlement planners began offering them to tort victims, including minors, one even swearing in an affidavit to a California court that there was "no change in funding asset". Another has used it in an Arizona case, a state that does not protect investments in other people's structured settlements in the event of insolvency, since Arizona adopted the Life & Health Guaranty Association Model Act (#520). The question is "are they suitable investments for tort victims"? 

Are Structured Settlement Receivables an Attractive Nuisance?

Not every lawsuit plaintiff is unsophisticated. But, in the words of Elvis Costello "accidents do happen". When they do, the victims are the poor and the rich, young and old, the unsophisticated and sophisticated, the financially adept and the financially inept, as well as the risk averse and those with some appetite for risk. And there are those who have no business being in such investments. Would the investment pass a suitability test? Does such an investment meet a fiduciary standard of best interest?

What are Risks of Investing in Structured Settlement Receivables?

1. Health of Insurer The security of the structured settlement investment is related to the financial health of the life insurance company that issued the underlying annuity and the insurer's ability to pay on its contracts and the terms of the court order that is a prerequisite to each structured settlement factoring transaction. The purchaser of the structured settlement derivative is buying the payment rights, or a subset of the payment rights being transferred.
2. Not Deposits Structured settlement payment rights are not deposits and thus not insured by the FDIC.
3. Not Annuities The National Association of Insurance Commissioners has expressly stated in its Statutory Issue Paper No. 160 (finalized April 6, 2019), that acquired structured settlement payment rights are not annuities or an insurance product. Furthermore, acquired structured settlement payment rights  (factored structured settlement payments) are not annuities as defined under the insurance law of many states. Nevertheless you may be solicited by lawyers, settlement planners, accountants and even licensed insurance agents and financial advisers calling them annuities. Don't be fooled!
4. Not a Qualified Funding Asset for use with legitimate structured settlements. If you're a plaintiff attorney or guardian ad litem, keep an eye out for this sort of conjuration from settlement planners or finanical.

MetLife Doesn't Sell Structured Settlement Annuities to Other Assignment Companies

This author has had the opportunity to review an excerpt of a " Qualified Assignment and Release prepared by a settlement planning firm or one of its related entities. The Assignor was a qualfied settlement fund  (QSF), believed to be administered by a related company to a settlement planning firm that heavily promotes QSFs. The Assignee was an assignment company, related to the settlement planner.  The Qualified Assignment and Release lists the " Qualfied Funding Asset" as " Annuity" and the "Issuer of Qualfied Funding Asset" as Metropolitan Life Insurance Company. Paragraph 12 of the QAR states " In exchange for "legal paymnet rights" pursuant to 5891 of the IRC, to the Periodic payments specified in Paragraph 15, Claimant hereby forever discharges the defendants and.or Respondents with regard to the Periodic Payments, and agrees to only look to (settlement planning firm's related assignment company) for satisfaction of the obligation to pay periodic payments. Paragraph 13 of the QAR prepared by the settlement planner's related firm states " In the event of notice of an application to any court for the transfer of structured settlement payment rights established under this agreement, (settlement planner's related assignment company)  reserves the right to  transfer the ownership of the  "Qualified Funding Asset(s)". Upon the transfer of ownership to Claimant and/or Payee this contract shall terminate".  This author has confirmed with MetLife that it does not sell structured settlement annuities to anyone other than a self-insured defendant, an insurer that wants to buy-and-hold, or it's own qualified assignment company.

    5. May not be any coverage under statutory insolvency schemes Structured settlement payments rights are not covered under the statutory insolvency streams in a majority of the United State, whereas they might apply to legitimate insurance products. As of July 2023 (updated), 40 states had an express prohibition, and the NAIC is pushing to have all 50 states fall in line to adopt the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520) which introduced the exclusion.

The scary thing for any investor, (and an essential piece of knowledge for any fiduciary providing advice under the "best interest" standard) of an investment in structured settlement payment rights is that the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520), adopted by 40 states so far, has to be the retroactive application, so you're not safe if the investment was purchased before the eventual effective date of the adoption of the 2017 Revisions (#520) in your state. 

Most states have a prohibition on advertising the existence of said funds in sales presentations. However, some of the actors soliciting investors in structured settlement payments are not licensed to sell annuties and operate in no-man's land, promoting the investments as annuities, which they are not, while "violating" a law that would apply to them if they were licensed to sell legitimate annuities, which many are not.  

  6. Exposure to interest rate risk. If market interest rates rise, the rate of return on the structured settlement derivative is locked-in. Longer term purchases are more sensitive, similar to long bonds or traditional structured settlement annuities. This can be mitigated somewhat by hedging through an "structured settlement derivative ladder" by making several purchases over an extended period of time.

  7. Transactional Risk There is originator risk (think Access Funding, Barry Cooper among those whose payments were scheduled to begin and never did. They were suspended due to competing claims),  forgery (happened in 200 cases in New York and Florida, forgery by a law firm paralegal in New York and by a lawyer in Florida) and imposters (Wall case-retirees lost $152,000). In 2018, a whole slew of investors in "secondary market annuities" were noticed as creditors in the Woodbridge Structured Funding/Woodbridge Wealth bankruptcy (2018). The Barber case in Allegheny County PA, involved a raid on a minor's structured settlement and forum shopping by the originator.  One of the investors was a California settlement planner with retirement funds who found himself competing with an 18 year old for the payments when they came due.  Very unfortunate and it could have been any retiree. The deal in which the California settlement planner invested was originated by a company controlled by the current President of the National Association of Settlement Purchasers.

 8. Fraud e.g. Dan Cevallos and Advance Funding

 9. Currency Rate Risk (To Foreign Investors) Payments are made in US dollars.

10. Liquidity Structured settlement derivative investments may need to be held to term and are not liquid.  Complex litigation between a structured settlement factoring company, investors and an intermediary pending since 2020 in Maricopa County Arizona and branching out into other states provides an illustration of what can happen. Genex Capital is litigating against multiple investors who it alleged breached its Receivables Purchase Agreement(RPA) when they sold their receivables and did not obtain Genex's consent or go through Genex. According to a Motion filed by Genex in Castro County Texas

" When Genex discovered that the Leonard IRA had wrongfully attempted to reassign payments to NEAA it issued a default notice, which went unresponded. It is uncontroverted that Genex confiscated the payments and reassigned them to other investors as it was expressly permitted under the Leonard IRA RPA"  In Re: Juan Oltivero  In the District Court of Castro County Texas Cause No. B9545-1211 Genex's Motion to Strike, Motion in Limine...Filed May 23, 2022 441pm

Some of the above risks are similar to the purchase of most fixed income annuities. However, most purchases of fixed annuities do not require a court order to be concluded, have such an exposure to transactional risk.

So is an investment in structured settlement payment rights appropriate for tort victims? 

In very rare circumstances, and then only after very careful deliberation. 

Last updated July 17, 2023

It's Just Not an Annuity | Buying and Selling Structured Settlement Payments as an Investment

by Structured Settlement Watchdog

Here are fast facts and statements to set you straight on some of the dubious claims made by individuals and companies to investors in structured settlement payment rights (also known as structured settlement receivables).

Seven Facts about Structured Settlement Receivables

1. Buying structured settlement annuity payments (receivables)is not the same as buying an annuity policy
   
2. Selling structured settlement annuity payments (receivables) is not the same as selling an annuity policy
3. Buying structured settlement payment rights (receivables) is not buying an annuity policy
4. Selling structured settlement payment rights (receivables) is not selling an annuity policy
5. Buying a subset of assigned structured settlement payments rights (receivables) is not buying an annuity policy
6. Selling a subset of structured settlement payment rights (receivables) is not selling an annuity policy
7. A structured settlement transfer is not a transfer of an annuity policy

Just because they say it doesn't make it so

• Something the insurance agent calls a "secondary market annuity", if it originated from someone else's structured settlement or lottery winnings is not an annuity policy
• Something the financial adviser calls a "secondary market annuity", if it originated from someone else's structured settlement or lottery winnings is not an annuity policy
• Something the settlement planner calls a "secondary market annuity", if it originated from someone else's structured settlement or lottery winnings, is not an annuity policy
• What somebody who gives a lot of money to be a partner of your trial lawyer association calls a "secondary market annuity" or " SMIA", if it originated from someone else's structured settlement or lottery winnings, is not an annuity policy
• What someone at your country club calls a secondary market annuity is not an annuity if it originated from someone else's structured settlement or lottery winnings.
• If your accountant tells you to buy what they call a secondary market annuity, be forewarned that it's not an annuity policy
• An annuity is not a transaction
• Selling structured settlement payments is not restructuring your settlement. The settlement agreement does not change.

Verify Insurance Coverage

If you decide to buy structured settlement payment rights, you should confirm the existence of errors & omissions insurance that expressly includes factored structured settlement investments as a covered product.

1. Be sure to get evidence from the policy form. It is possible that the settlement planner or financial adviser will try to claim that their advice on the specific product is covered under their policy, pointing to annuities as a covered product.
2. Since investments in structured settlement payment rights are not investments in annuities there may in fact be no insurance coverage at all.
3. Even where they are covered products, errors & omissions policies generally do not cover insolvencies.  

Don't count on state insolvency schemes to provide a safety net either as 40/50 states at time of this post's latest update, expressly exclude such investments with 2 states having such exclusions under consideration. The National Association of Insurance Commissioners is aggressively encouraging its members to adopt the 2017 revisions to the Life & Health Guaranty Associations Model Act (#520), which provides for a retroactive exclusion. In plain words, you're not safe if you acquired one of the investments prior to your state's adoption of the revisions.

E&O Insurance Policies May Exclude Annuities Below a Certain A.M. Best rating

Many E&O policies require a minimum A.M. Best rating.  A credit rating agency assesses the creditworthiness of an obligor as an entity or with respect to specific securities or money market instruments. A credit rating agency may apply to the SEC for registration as a nationally recognized statistical rating organization ("NRSRO"). While a securitization from JG Wentworth may be rated, random factored structured settlement payments are unlikely to have such a rating.

Last updated February 8, 2024