by John Darer CLU ChFC MSSC CeFT RSP CLTC
The gluttony of National Association of Settlement Purchasers (NASP) members Seneca One and Novation Funding whose obscene 
profit spreads, respectively, in the Lauren Nesbitt and Cedric Martez Thomas cases raised an alarm that suggests that a closer look at the solicitation practices of these settlement purchasing companies, companies like them and the investors in these deals, may be necessary.
Facts
- Some plaintiff structured settlement consultants and settlement planners market themselves as “plaintiff exclusive” or “plaintiff loyal”
- Some of the same individuals have had their clients invest in structured settlement receivables (rights to structured settlement payments that have been transferred)
- A California settlement planner has even previously signed an affidavit to a state court under penalty of perjury, that such investments (in lieu of structured settlement annuities) result in no change of funding asset.
- Some plaintiff financial advisers purport to be fiduciaries to act in their client’s best interest
- Structured settlement payment rights are initially created when a structured settlement is established pursuant a suit or agreement that ends a legal claim or lawsuit.
- The internet is littered with websites of companies (and in some cases websites that purport to be companies) who advertise that they buy the rights to receive structured settlement payments.
- The companies (and in some cases websites that purport to be companies) who advertise that they buy the rights to receive structured settlement payments. may be brokers or may be direct funders using their own money or a combination of both
- These brokers and companies then sell the structured settlement receivables, directly to investors, through brokers, including some primary market structured settlements brokers/ settlement planners, through websites that in some cases purport to be exchanges, or through securitizations.
- There is no regulation of how sellers can be solicited or sales practices, save for a few states that have responded to blistering media exposure in Maryland, Minnesota, South Carolina and Virginia.
- There is no regulation of solicitors of sellers
- There is no regulation of solicitors of investors.
- There is no regulation governing (1) who can solicit anyone and (2) how they can be solicited.
- While a judge is required to approve a structured settlement transfer, the judge does not have the power to fine, suspend or revoke a license of any participant because there is no license or regulatory standard permitting him/her to do so.
- The term “Secondary Market Annuity” is sometimes used to market structured settlement receivables to investors. It is wholly misleading. Structured settlement receivables are not annuities according to the plain reading of the definition of annuity under most states’ insurance laws.
- The fact that a life insurance company is paying the investor the payments is irrelevant, neither the original annuitant (seller), nor the transferee (or any assignee of the transferee ) own the underlying annuity that funded the original seller’s structured settlement and is only buying the rights to receive payments (i.e. the structured settlmeent receivable).
- Transferred structured settlement payment rights are not an annuity, what is being purchased is an unregulated structured settlement receivable. Considering that the investor signs a “Receivables Purchase Agreement”, it’s case closed.
How does this impact plaintiffs?
- Some plaintiff structured settlement consultants and settlement planners market themselves as plaintiff exclusive or plaintiff loyal
- Some of the same individuals encourage trial lawyers to refer business to them on the basis of such plaintiff loyalty.
- Some of the same individuals have lawyers’ clients invest in structured settlement receivables
- Some plaintiff financial advisers purport to be fiduciaries to act in their client’s best interest
Can a fiduciary for a buyer plaintiff investing in structured settlement receivables act as a fiduciary for a seller adviser plaintiff in the same structured settlement factoring transaction?
I am going to take a stab at this and say “No”, but I would like to hear the opinions of others.
- A buyer’s fiduciary must seek the best yield he or she can for the buyer and assure that the transaction is done correctly.
- The seller’s fiduciary must first advise the seller if the transaction is in the seller’s best interest and THEN, if it is, must seek out the lowest cost of transaction from a competent buyer.
- At what point can a fiduciary for a buyer plaintiff adviser say that the discount rate is unfair for the seller (a former plaintiff), the seller could do better (even if that were his or her personal belief)