Investing in Structured Settlements A Guide for the Unwary

structured settlement investment risk

A Few Important Warnings for Structured Settlement Investors

Investors seeking stable income can receive offers from investment advisors and hear offers from them to invest in structured settlements. But things are not as they seem. Investment in structured settlements may or may not be suitable for vulnerable retirees and victims of personal injury. Here are some things to consider:

Regarding the term “structured settlement” …

1. The acquisition of rights to structured settlement payments by others as part of a structured settlement factoring or subsequent assignment is not structured settlement.

Note that the definition of structured settlement in Section 5891 (c) (1) of the IRC, which became effective in January 2002, is preceded by the words “for the purposes of this section” (directly related to the imposition of excise tax on structured settlement). factoring operations). Despite this limitation, the use of the definition is often extended by settlement planners, structured settlement brokers, settlement buyers, and industry commentators. Structured settlements had existed for over 20 years before the Victims of Terrorism Tax Incentive Act (VTTRA) of 2001, which introduced IRC Section 5891, ostensibly to curb the abuse of business practices by structured settlement factoring companies. VTTRA also provides a regulatory framework for excise tax exemptions that will be levied under an Act of Congress and levied by the IRS in the event that a structured settlement factoring transaction does not comply with applicable state structured settlement protection law.

2. Investors should be wary of inaccuracies used by proponents of structured settlement investments.

Some structured settlement investors and intermediaries are calling on investors to outright lie that structured settlement payment streams are annuities. Unfortunately, some settlement planners may be the culprit. On February 25, 2019, at the annual meeting of the Society of Settlement Planners, a presentation was held with the ominous title “Dealing with the Secondary Annuity Purchase That Went South.” Lawyers who patronize settlement planners who lie about these investments to injury attorneys or attorney clients should avoid diverting money such people pay to state bar associations.

In its regulation 160, initially weakened in December 2018 and completed on April 6, 2019, the National Association of Insurance Commissioners (which knows a thing or two about annuities) explicitly expressed the view that the acquired structured payment rights (structured settlement flows with factoring) are neither the one nor the other. annuities, no insurance products. [ see  NAIC Statutory Issue Paper No. 160 p6  Section 6 Footnote 1 ]
A “secondary market annuity” is not an annuity.

This has not stopped secondary market players from mistakenly calling them annuities. One Californian settlement planner, who had and still has a valid insurance license in California, filed a California court case under penalty of perjury in 2012 as part of a careful attempt to persuade a California Supreme Court judge to approve such an investment for use by a Trustee. Special Needs Fund for a Disabled Claimant using a Qualified Settlement Fund. The misuse of the term “annuity” was repeated over and over again in the declaration. The statement was allegedly aimed at “tricking” the judge by falsely stating that “there were no changes in the funding assets.” Creative? Yes. Lie? Yes. The California Settlement Planner’s Declaration was found online in 2021. I wonder how many times a similar declaration has been used by the same or different judges and how many transactions have been approved for disabled or underage plaintiffs under the false assumption that the annuity was once an investment.

3. Litigation over structured settlement payment rights resulted in the threat or total loss of the investor’s money.

A.
The lawsuit has already ended, with the result that structured settlement payment investors lost all of their investments due to fraud. Robert and Linda Wall invested in pension funds and acquired structured settlement payout rights on the advice of their Pittsburgh-based financial advisor, who after the ouster stated that Walls “invested in 5 structured settlement annuities.” The Altium Group, LLC intermediary that Walls sued advertised: “Invest in secondary market annuities … Up to 8% return without volatility and unparalleled principal security.”

It was a lie. It was impossible. The walls are not were sold, and Walls did not invest in annuities, although they thought they did. After some time, a disaster struck when a fake was discovered in the source. The Walls are suing their financial advisor and the middleman behind the deal. In the end, they lost everything, their investment, the return on investment deal, the legal fees they had to spend, and to add insult to injury, they had to pay their opponent’s legal fees according to the loser pays clause in their contract. … Robert Wall and Linda Wall v. Altium Group, LLC. U.S. Civil District Court, Act 16-1044

B.
The Jacksonville retiree invested most of his savings plan in what he calls “secondary market annuities.” The worlds collided when the payments received were found to come from victims of access to finance, and investment payments were ultimately put on hold pending legal action brought by the Maryland attorney general. The grief-stricken retiree filed a lawsuit with FINRA against a financial advisor and one of his former employees and was able to receive a small amount of compensation after significant mental pain.

C… A California financial advisor and a UK company invested money in structured settlement factoring streams that turned out to come from a structured settlement of a Pennsylvania minor who was just 10 years old when somehow a pair of structured settlement factoring companies began to mislead a number of Butler and Beaver County judges for over 8 years. Investors’ money is now at stake. Still pending review at time of publication.

ZACHARI BARBER, JEFFREY BARBER, ROOM ADMINISTRATOR LINDA LEE JENKINS A / C / A / LINDA LEE BARBER, DIED v. BRUCE STANKO, NORT HILLS PHARMACY SERVICE, LLC; PACERCHECK, INC.; OTHER APPEAL: LLC “SEMPRA FINANCE” (“SEMPRA”): IN THE HIGHER COURT OF PENSION No. 615 WDA 2020 Appeal of Order Filed June 5, 2020 in the General Court of the Allegheny County Orphans’ Court at number (s): No. 4037, 2005. See Canceled Appeal by Pinnacle Capital, LLC, Michael Pickett and Habitus Funding published May 14, 2021 and Canceled Sempra Finance ticket, also published May 14, 2021

D… In 2020, investors in designated structured settlement investments initiated by Genex Capital and / or designated by Genex found their investments at risk after they attempted to sell and reassign designated payments to other investors several years later. Genex Capital objected on the grounds that such assignments allegedly violated the terms of the Accounts Receivable Sale and Purchase Agreement, withdrew the payments and turned them over to new investors for review. A number of original investors have sued Genex Capital in an effort to get their investment back.

In its response to Plaintiffs First Amended Complaint and Counterclaims in Ongoing Arizona Litigation on June 11, 2021, Genex Capital Corporation acknowledged in response to paragraph 31 that “one of the components of its business involves the procurement of future structured settlements from payees. for structured settlement annuities and assignments to investors part of these rights... “(emphasis added) (also several other references to” subsets of these rights … “Ibid., 13, 53, 56, 89, 109, 126)

Source: Genex Capital Corporation, Delaware Corporation v Seeley Capital Management, Inc., Massachusetts Corporation; et al. and Related Counterclaim by Richard L. Kiefer & Vicky L. Kiefer, Husband and Wife; other; v Genex Capital Corporation, Delaware Corporation; et al. and Genex Capital Corporation, Delaware Corporation, Delaware Corporation v. Richard L. Keefer and Vicki L. Keefer, husband and wife of Hongmi Park, a married man; E. Duane Walls, married man; and PANABCO, Arizona Superior Court Partnership, Maricopa County, Case Nos. CV 2020-013796 and CV2020-004958 (combined) [the pleadings are a matter of public record]

Important Summary Caveats to Investors in Structured Settlement Payment Rights
  1. When you buy a legal annuity, you are buying an actual annuity contract, which is a real insurance product.
  2. When a structured settlement is created as part of the consideration paid to settle all claims against the Respondent (s), the legal annuity, that is, the insurance product, is acquired to fund the obligations of the Respondent, its insurer or, in the case of a qualified assignment, a qualified assignment company. The premium is paid to the life insurance company that draws up the annuity contract.
  3. The insurance product may only be sold by licensed and designated insurance agents and brokers in accordance with the laws of various states. There is no equivalent licensing standard for the structured settlement factoring industry or tertiary market that is involved in providing such investments to investors.
  4. When the source structured settlement factoring company buys structured settlement payments as part of a transaction factoring with structured settlements, they do not buy an annuity or an insurance product.
  5. In addition, if the investor is not the “direct designated successor” in a court order approving the transfer of structured settlements, the investor buys a portion of the rights to certain payments (see Genex Capital Ibid at 45 as opposed to Ibid at 13, 53, 56, 89, 102 , 126).
  6. Ownership of the actual annuity generating the payments is not transferred to the original structured settlement factoring company.
  7. Since the parent structured settlement factoring company does not buy an annuity or an insurance product, but only rights to payments, it follows that “some of these rights” (as Genex Capital Corporation eloquently says that investors are actually buying in return for their investment), is not an annuity or insurance product.
  8. Investors in rights to structured settlement payments (1) may not have statutory protection in the event of insolvency; (2) are subject to operational risks not found when purchasing legal annuities, which are insurance products.
These risks contribute to why investing in structured settlement payment rights may not be suitable for many investors, including minors, people with disabilities and retirees.

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