On December 17, 2021, the Consumer Financial Protection Bureau settled its lengthy, five-year litigation with Access Funding, LLC, Access Holding, LLC, Reliance Funding, LLC, Lee Jundanian, Raffi Boghosian, Michael Brokowski, and Charles Smith for a paltry disgorgement of $40,000 and a $10,000 civil penalty. The settlement was approved by Judge Ellen Lipton Hollander, who took over the case after the retirement of Judge J. Frederick Motz in 2017. The stipulation states that Lee Jundanian was the CEO of Access Funding from February 2013 – May 2014, and an advisor to the company thereafter, and had an ownership interest in Access Funding from its inception to its dissolution. Boghosian was the chief operating officer of Access Funding from May 2014 to October 2015. According to the settlement stipulation, the Access Funding Defendants neither admitted or denied the allegations in the CFPB’s complaint, except those necessary to establish jurisdiction over the settling defendants.
On December 21, 2021, Maryland Attorney General Brian Frosh issued a press release announcing the indictment of three individuals in connection with the Access Funding structured settlement factoring scheme involving victims of lead paint poisoning. Raffi Michael Boghosian, Charles Edward Smith, and Anuj Sud were charged with Theft Scheme over $100,000 and Conspiracy to Commit Theft Scheme Over $100,000. According to the complaint filed by Attorney General Frosh in 2015, Boghosian was the chief operating officer of Access Funding and related affiliates. Sud filed most of the structured settlement transfer petitions on behalf of Access Funding, and Smith purportedly provided professional advice to the sellers. The Maryland Structured Settlement Protection Act, Md. Code Ann., Cts. & Jud. Proc. Section 5-1101, et seq., requires sellers to obtain independent professional advice in connection with any proposed transfer.
Kudos to a group of investigative journalists at the Minnesota Star Tribune for what is to be a four part series on abuses in the structured settlement factoring industry. The interactive article, with the first two parts published on October 3, 2021 is a wealth of data on more than 700 cases approved by Minnesota judges, as well as the personal stories of individuals impacted by some of those cases.
As pointed out by the Star Tribune, “In Minnesota, records show that one in eight transactions approved by local judges involved a seller with documented mental health problems. Many of those individuals received settlements after suffering traumatic brain injuries that permanently disrupted their lives.”
Further, according to the Star Tribune, “In interviews conducted over the past two years, a dozen judges complained about an approval process that seems stacked in favor of the settlement purchasing companies, with key information — such as civil commitment records — usually left out of files.”
Check back for additional posts on this exposé after Parts 2 -4 are published.
Last month, on July 12, 2021, in Consumer Financial Protection Bureau v. Access Funding, LLC, et al, (Case No. 16-3759, U.S. District Court, District of Maryland) Judge Ellen Hollander denied a motion to dismiss the amended complaint and a motion for a judgment on the pleadings. The amended complaint filed in 2017 against Access Funding, LLC, Access Holding, LLC, Lee Jundanian (former CEO of Access Funding), Raffi Boghosian, COO of Access Funding, Michael Borkowski, CEO of Access Funding, and Charles Smith, Esq., an advisor for Access Funding alleged that the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The case was stayed for several years pending the Supreme Court’s decision in Seila Law LLC v. CFPB, __ U.S.__, 140 S. Ct. 2183 (2020). In her July 12th memorandum opinion, Judge Hollander found that while Seila Law was not binding, the facts in that case were similar to the Access Funding case. As such, she denied defendants motion and the CFPB’s enforcement action against Access Funding, Jundanian, Boghosian, Borkowski, and Smith will continue.
Here at Edward Stone Law, we get phone calls every day from people who feel they have been taken advantage of by factoring companies when selling their structured settlement payments.
One of the most common things we hear is that sellers have been told it is legal to go to another state and sell their payments. The courts in some states, like New York, Maryland, and Pennsylvania look very carefully at transfer petitions. Factoring companies don’t like this because they make a big profit when they buy a seller’s payments.
This practice of a factoring company moving a seller from one state to another in order to buy their structured settlement payments is called “forum shopping.” Factoring companies are telling sellers it is legal to do this. It is not. The transfer petition must be brought in a court in the state in which the seller lives or is domiciled.
Every state except New Hampshire has a Structured Settlement Protection Act that sets forth the requirements a factoring company must follow in filing a transfer petition. The factoring company must comply with those laws, and a Federal statute, 26 U.S.C. Section 5891. Section 5891 imposes an excise tax on a factoring transaction that does not qualify for exemption under the conditions specified in Section 5891(b).
If you are a seller who was victimized by a factoring company that filed a transfer petition in a state that you did not reside in, please contact Edward Stone Law by email at eddie@edwardstonelaw.com or by phone at (203) 504-8425.
Forum shopping in the transfer of structured settlement payment rights transfer is not legal.
26 U.S.C. Section 5891 imposes a 40% excise tax on any structured settlement transfer that does not qualify for one of the exemptions set forth in Section 5891(b).
In order to qualify for one of the exemptions, a transfer petition must be brought in the state that the seller is domiciled in, if that state has a Structured Settlement Protection Act. The only state that does not have a Structured Settlement Protection Act is New Hampshire.
The Internal Revenue Service has published an “Excise Tax on Structured Settlement Factoring Transactions Audit Technique Guide” that states “Structured settlement factoring companies may sometimes be trying to avoid an unfavorable SSPA or an unfavorable forum in the payee’s home state. For example, if a factoring company seeks to acquire structured settlement payment rights from a payee domiciled in North Carolina (which limits the discounts and fees that factoring companies can charge), the factoring company may seek to have its transaction approved under the SSPA, and in the courts, of another state. If that occurs, the resulting order is not a qualified order for purposes of section 5891(b), and the factoring company is liable for the excise tax. ”
If you are a seller who was victimized by a factoring company that filed a transfer petition in a state that you did not reside in, please contact Edward Stone Law by email at eddie@edwardstonelaw.com or by phone at (203) 504-8425.
A factoring company may only file a transfer petition in the seller’s state of residence or domicile. If a factoring company causes a transfer petition to be filed in a state other than the state where the seller lives, then the factoring company is not complying with applicable State and Federal laws.
Edward Stone Law has been advised of many situations where a factoring company told a seller that it is legal to file a transfer petition in another state. It is not. Every state except New Hampshire has a Structured Settlement Protection Act that sets forth the requirements a factoring company must follow in filing a transfer petition. The factoring company must comply with those laws, and a Federal statute, 26 U.S.C. Section 5891. Section 5891 imposes an excise tax on a factoring transaction that does not qualify for exemption under the conditions specified in Section 5891(b).
If you have been a victim of forum shopping, contact us now via email at eddie@edwardstonelaw.com or by phone at (203) 504-8425.
Louisiana’s Structured Settlement Protection Act (SSPA) was just revised, adding some additional provisions which may help curb some of the factoring industry abuses. Unfortunately, some of the new provisions are designed to protect the factoring companies, and not those selling their structured settlement payments. The new legislation, which goes into effect on July 1, 2020 provides that (1) factoring companies register with the secretary of state, be qualified to do business in Louisiana, and post a $50,000 bond; (2) any petition must be brought in the parish (county) where the seller resides; and (3) the seller receive independent professional advice. But judicial oversight of structured settlement transfers is crucial, and the revised statute does not set forth any specific criteria that must be considered by the judiciary before approving a transfer of structured settlement periodic payments. Our warnings to all sellers still apply: BE CAREFUL! The factoring companies (and their sales reps) are not your friends. They want you to sell so that they can earn a commission. Most of the “deals” they offer you are no deal at all.
Scams in the structured settlement secondary market abound.
If you are the recipient of a structured settlement annuity and receive a phone call from someone who says “I work with your insurance company and you are owed money” just hang up the phone. The caller doesn’t work with your insurance company, and you aren’t “owed any money.” The caller wants you to sell your annuity payments, and will likely offer you just pennies on the dollar.
Likewise, if you receive a phone call from someone who says “I work with your insurance company and we can restructure your annuity” just hang up the phone. The caller doesn’t work with your insurance company and they can’t “restructure” your annuity. The caller wants you to sell your annuity payments, and will likely offer you just pennies on the dollar.
A recent Appellate Court opinion from the 4th District in Illinois highlights more structured settlement factoring fraud. In this instance, Stone Street Capital, LLC purchased payments in four separate transactions from 2010 – 2013 filed in Sangamon County, Illinois. Stone Street filed four transfer petitions seeking to purchase structured settlement annuity payment streams from a “seller”, each of which was granted by the Sangamon County Circuit Court. The fraudulent transfer petitions were filed by Chicago attorney, Brian Mack. In the petitions, Mack failed to inform the court that the “seller’s” annuity contract contained an anti-assignment provision. As it turned out, the real recipient of the structured settlement annuity knew nothing of the transactions. The signatures on the affidavits and petitions were forged by the seller’s mother, and falsely notarized by a friend of the seller’s mother.
In 2016, the victim of this fraud filed lawsuits claiming the Sangamon Circuit Court orders were void ab initio due to lack of jurisdiction and fraud on the court. Despite the evidence, it was 17 months before Stone Street agreed to vacate the transfer orders and return the funds to the “seller.” After the settlement the court retained jurisdiction to adjudicate any petition filed for sanctions pursuant to Illinois statute. The victim filed a motion for sanctions against Stone Street in September, 2017,, which was denied. On appeal, the trial court’s decision was reversed.
The Appellate Court stated:
We find the trial court abused its discretion in denying the motion for sanctions on this issue. Since 1999, the Illinois Appellate Court has repeatedly held that where a structured settlement agreement contains an anti-assignment provision, that provision must be enforced an renders any attempt to assign structured settlement payments void. Stone Street cannot plead ignorance of this case law as attorney Mack was heavily involved in many of those cases. More importantly, Stone Street was thus bound by that case law when it presented its petitions to the trial court. However, in its first two petitions, Stone Street did not reference the possible existence of an anti-assignment clause, suggesting an attempt to hide this fact from the court. Such conduct cannot be countenanced.
Given the totality of Stone Street’s conduct in connection with the four petitions at issue in this appeal, we find sanctions under Supreme Court Rule 137 (eff. July 1, 2013) are appropriate. As the trial court abused its discretion in denying [the victim’s] motion for sanctions, we remand for further proceedings on her motion.
Not all of the fraud here can be blamed on the factoring company – Stone Street. The victim’s mother had a hand in this as well. However, it is the duty of the petitioner – Stone Street to comply with the Illinois Structured Settlement Protection Act (215 ILCS 153/1 to 35 (West 2010)).
Fraud in the structured settlement secondary market is rampant. If you have a been a victim of fraud, please call us at (203) 504-8425 or (646) 933-3143.
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Photos courtesy of David Lasnick.