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Are You, Your Law Firm, or Your Trial Lawyer Association Patronizing Those Who Would Throw a Drowning Tort Victim An Anchor?

A White Paper By John D. Darer, CLU ChFC CSSC 4structures.com, LLC

Stamford

,

CT

  1/26/2008

Introduction

Legendary trial lawyer Joe Jamail recently told the members The National Structured Settlement Trade Association that a structured settlement was like ?a helping hand? that protects the ?needy from the greedy?. What if the ?greedy? turned out to be the sort of individuals who set up the structured settlement in the first place?

This paper examines an insidious business practice by certain structured settlement brokers and settlement planners, related to structured settlement factoring, that is harmful to tort victims (with possible negative implications to their lawyers) and the grass roots effort that has begun to stop it that is worthy of your support.

Why Would a Tort Victim Contact a Structured Settlement Broker or Settlement Planner to Discuss Structured Settlement Factoring?

The initial interest confusion created by key word manipulation and other misleading factoring industry ?advertising noise? makes it's possible that a person mulling over a ?cash now? sale of their structured settlement payment rights would call a real structured settlement broker or settlement planner in a case of ?mistaken identity?. It is also possible that a tort victim with a structured settlement placed by a trusted structured settlement broker or trusted settlement planner might call them for advice on what to do if they need cash.

What the structured settlement broker or settlement planner (and/or their firm) does with that person (perhaps a client of yours) at that point is offered up for discussion. It is no secret that certain structured settlement brokers and settlement planners are referring business to factoring companies. A number of factoring companies offer financial incentives to structured settlement brokers and settlement planners. Some structured settlement brokers and settlement planners have even permitted their name be used in advertising publications of such entities. More recently others have provided content to a media company that educates investors in cash flow purchases like structured settlement factoring transactions.

It is the opinion of this author that properly triaged (having explored and/or confirming the tort victim has exhausted other options) there is nothing wrong with simply referring business to another service provider. However the taking of disclosed or undisclosed fees is another story.

The Problems

(1) It is common knowledge that some structured settlement brokers and settlement planners are taking fees for referring business to factoring companies. On December 12, 2007 however, Bentzen Funding Solutions, a factoring company favored by structured settlement brokers and settlement planners who are on the ?structured settlement factoring vig? (as well as many that are not) confirmed the extent of the crisis by stating in writing, that a whopping 90% of the brokers that Bentzen has worked with take a referral fee (i.e. structured settlement factoring vig). In one tap of the computer keyboard Bentzen confirmed to the world this unfortunate statistic about primarily covert activity, which could only be seen as a "kick in the teeth" for the integrity of the structured settlement industry.  More recently another factoring company, Woodbridge Investments, LLC advertised that it has paid millions in referral fees as part of its structured settlement professionals program.

The fees are generally commissions based on a percentage of the profit made by the factoring company or a flat fee paid to the broker. Any fee that the structured settlement broker or settlement planner takes COMES DIRECTLY OUT OF THE POCKET OF A DESPERATE TORT VICTIM WHO IS SELLING THEIR STRUCTURED SETTLEMENT PAYMENT RIGHTS BECAUSE THEY PRESUMABLY HAVE NO OTHER ALTERNATIVE!

There is no contractual right to a brokerage fee or commission from a factoring company. There is no professional licensure required, the are unregulated , and it's completely negotiable. If the structured settlement broker or settlement planner tells the factoring company he or she wants a $3,000 fee, THAT can be built into the quote. That fee alone might erase a substantial amount of debt for a person drowning in it. It is believed in some cases that the fee may be built into the discount spread. IS IT DISCLOSED UP-FRONT?

On the other hand, if your structured settlement broker or settlement planner does not take a fee, and takes the step of insisting so to the factoring company, THEN the money saved (from not paying the fee) can be applied to give the tort victim a greater lump sum of cash to help them with their unfortunate situation.

(2) Some structured settlement brokers and settlement planners have used a unilateral authorization from tort victims to permit the release of information by the structured settlement broker or settlement planner to factoring companies for the purpose of aiding in the structured settlement factoring transaction.

(3) A number of factoring companies have approached structured settlement brokers and settlement planners for access to their client lists.  This author understands that some of the same companies have approached trial lawyers with similar requests.

Business Implications For the Trial Lawyer

1.     Client later has ?seller?s remorse? for selling his structured settlement payment rights, discovers the ?vig?, and associates the ?vig taker? with the lawyer due to the introduction.

2.     On those cases subject to a confidentiality agreement, the unilateral release of confidential settlement terms to a third party, if discovered, could expose the tort victim and the trial lawyer

3.     The potential fallout from the sale of client lists and protected information by someone you recommended to the client.

What is Being Done About The Problem?

A. The Structured Settlement Clean Vendor List

The purpose of the Structured Settlement Clean Vendor list is to help tort victims and their lawyers distinguish a growing list of vendors, including structured settlement brokers, settlement planners and product providers for tort victims, who have willfully separated themselves from the abhorrent practice of structured settlement factoring compensation and certain related business practices, by some of those in their industry, by having made a declaration under penalty of perjury that, as of the date he or she signs, he or she DOES NOT:

1.   Take, nor plan to take, any compensation of any form for referrals to companies that broker, or fund structured settlement factoring transactions;

2.   Sell, nor intend to sell lists of names of structured settlement annuitants to companies that broker, or fund, structured settlement factoring transactions;

3.   Provide, nor intend to provide, structured settlement documents to factoring companies.

The Structured Settlement Clean Vendor List can be found in the left column of the Structured Settlements 4Real blog located at http://structuredsettlements.typepad.com/structured_settlements_4r/structured-settlement-nofactormoney.html

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A small number of settlement planners attacked the Structured Settlement Clean Vendor List without clear and convincing arguments. Bentzen Funding Solutions, which incidentally is listed as a patron of the group known as the Society of Settlement Planners, made the ludicrous assertion that the fee doesn?t come out of the tort victim?s pocket and that paying a structured settlement broker a fee is actually better financially for the tort victim. This has been disproved by this author?s research with several factoring companies, the existence of the need to itemize such commission /fees under the Florida Structured Settlement Protection Act and just plain old logic.

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Only two settlement planners, both with a ?plaintiff loyal structured settlement firm? and members of the society mentioned in the preceding paragraph, have publicly declared that they take commissions or charge fees for aiding tort victims in selling their structured settlement payments (rights). The question remains, "if vig taking is such a legitimate business practice why have the rest of the structured settlement factoring vig takers been afraid to disclose it??

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B.

New York

Court Leads the Way

A recent change in New York Court procedure requiring a structure broker?s affidavit includes additional warranties, to be made under penalty of perjury, which underscore that the judiciary WILL NOT TOLERATE a structured settlement broker or settlement planner who participates financially in the placement a structured settlement and subsequently solicits, or aids in the solicitation of their own clients to sell future periodic payment (rights), for financial consideration or otherwise. It will be interesting to see if other states follow suit.

For cases involving Court approval, structured settlement brokers and

settlement planners in

New York

will NOW have to attest as part of an affidavit under penalty of perjury among other things:

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

(a) provide any information about this settlement to any

factoring company for any purpose; or

(b) solicit the plaintiff or plaintiff?s family on behalf of any

factoring company for any purpose, including, but not

limited to, the proposed sale of plaintiff?s future periodic

payments, nor will I or (Insert name of company) participate,

assist, promote, or aid in such solicitation by any person, firm,

corporation or entity; or

                                                                    

(c) seek or accept any consideration, financial or otherwise, directly

or indirectly from a factoring company."

The

New York

affidavit affects prospective cases where approval of the Court is required. It DOES NOT address New York General Obligations Law 5-1703 disclosures which must be made by the factoring company when submitting the matter for statutory Court approval of a structured settlement factoring transactions.

In the opinion of this author, Insurance Departments and Courts across the country should revert to a State of

Florida

like disclosure at the time the structured settlement factoring transaction is proposed to the Court.  State of

Florida

factoring disclosures appear to require an itemization of ALL commissions and fees.

         

What Can Trial Lawyers Do About It to Protect Their Clients and Themselves?

1. Every client situation is unique. Maintaining a balance of liquidity is essential whether or not your client accepts a recommendation to structure.

2. Consider working only with vendors who are on the Structured Settlement Clean Vendor List. Tell other lawyers about this project. Support of this grass roots effort will help tort victims.

3. Review your current structured settlement and settlement planning vendors and ask them to declare in writing where they stand on the three points included in the Structured Settlement Business Practices Declaration Concerning Structured Settlement Factoring Compensation. The problem is an individual problem so consider obtaining from each individual broker or planner that you or your firm deals with.

4. The leadership of national and state Trial Lawyer Associations should consider reviewing their current vendor relationships and guidelines for future vendor relationships to avoid future fallout if their endorsed vendors are found to be on the ?structured settlement factoring vig?.

Exhibits

A.     Structured Settlement Clean Vendor List click here

B.     Structured Settlement Business Practices Declaration Concerning Structured Settlement Factoring Compensation  Download exhibit_bstructuredsettlementdeclarationonfactoringpractice.pdf

C.   

Structure

Brokers

Affidavit-Bronx

County

Part IA21 (01/2008)Download exhibit_c_ia21structurebrokersaffidavit.pdf

D.    Bentzen Funding Solutions-90% of Structure Brokers and Settlement Planners that refer to BFS take referral fee (commissions).Download exhibit_dbentzen_funding_solutions_90_pct_take_referral_fees.pdf

E.     Woodbridge Investments advertisement that it has paid ?millions? in commissions as part of its Structured Settlement Professionals ProgramDownload exhibit_ewoodbridge_millions_structured_settlement_professionals_program.pdf

F.     Settlement Professionals Inc. unilateral authorization presented to tort victims to permit release of information for purpose of assisting in the full or partial sale of structured settlement payments.Download exhibit_f_settlement_professionals_inc. AUTHORIZATIONTORELEASEANNUITYCONTRACTINFORMATION for factoring.pdf

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