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.
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.
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.
Ruling in a case in mid-December, 2018, the Kentucky Supreme Court held that the Kentucky Structured Settlement Protection Act applied only to “tort claims” and did not apply to workers’ compensation settlement payments. In 2015 Ray Thomas settled a workers’ comp claim against his employer. The settlement agreement provided for certain lump sum payments to him, and monthly payments for a period of 20 years. Less than 6 months after settling his claim, Thomas sought to sell his periodic payments to DRB Capital, LLC. The sale was approved by the circuit court. The insurance company, American General appealed the decision. The Kentucky Court of Appeals upheld the circuit court’s decision, and American General again appealed. In Am. Gen. Life Ins. Co. v. DRB Capital, LLC, No. 2017-SC-000329-DG, 2018 Ky. LEXIS 535 (Dec. 13, 2018), Kentucky’s highest court reversed the decision of the lower court, and found that the settlement agreement, uniform qualified assignment, and annuity policy each contained “clear language prohibiting” assignment of the payments and since they were “the result of a workers’ compensation claim, not a tort claim” the Kentucky Structured Settlement Protection Act did not apply.
In late November, 2018 DRB Capital, LLC filed a lawsuit in Palm Beach Circuit Court, Florida against several other secondary market, factoring companies, including Rightway Funding LLC, BTG Advisors LLC, Sempra Finance LLC, Greenwood Funding LLC, and JLC Capital Funding LLC alleging that these companies interfered with DRB’s business in violation of the Florida Deceptive and Unfair Trade Practices Act by employing “a parasitic approach to obtaining customers from which to purchase the transfer of structured settlement rights.” The defendants have filed a motion to dismiss the lawsuit.
Fraud in the structured settlement secondary market appears to continue unabated. One of the latest scams seems to involve transfer companies that obtain court orders authorizing an annuitant to sell his/her periodic payments, and then the company fails to pay the seller. The seller is then faced with chasing down the company or figuring out a way to go back to court and have the court order set aside. This situation is exacerbated by fly by night companies with no track record and no real business.
Not one of the 49 state structured settlement protections statutes allows a company to obtain a court order authorizing the sale of periodic payments and then fail to pay the Seller. This is fraud. Plain and simple.
If you are a “Seller” and did not receive payment pursuant to a transfer order, please contact us at (203) 504-8425 or via email at eddie@edwardstonelaw.com.
On August 3, 2017, the Miami Herald reported that Jose Camacho, the Broward County attorney who specialized in filing structured settlement transfer petitions was sentenced to one year in jail, and ten years of probation. He plead guilty to 14 felony charges after forging over 100 judicial signatures beginning in 2012.
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© Edward S. Stone 2014-2020.
Photos courtesy of David Lasnick.