A Statement from Somerset Wealth Strategies, LLC
A Secondary Market Annuity “SMA” is not an annuity at all. It is actually a Factored Structured Settlement, (FSS) whereby one is purchasing the rights to receive payments from a structured settlement that is funded by an annuity, and is not purchasing the annuity itself. The entity that issues the annuity (and therefore responsible to make such payments) is usually a highly rated insurance company. It is important to understand that while the payments are funded by annuities, FSS’s are not annuities.
While FSS’s are generally considered to be safe and stable, there have several developments over the past several years in the factored structured settlement industry that have identified new risks and concerns which need to be seriously considered, along with other factors described in this site, prior to investing in a FSS. Specifically, the Attorney General of the State of Maryland has filed a lawsuit against a factoring company that originated FSS’s, the companies’ principals, and others associated with the company, to declare invalid certain court orders obtained in Maryland that approved the transfer of payments.
The lawsuit alleges that a factoring company that purchased and then resold to investors the right to payments fraudulently misled annuitants who sold their rights to payments and the courts that approved the transfers and did not follow the Maryland law that governs the sale of these rights to payments. In addition, court orders in other states have been attacked by litigious plaintiffs lawyers on behalf of sellers of payments who claim that their laws have been violated. Even law firms have been sued for fraudulently obtaining court orders.
More recently, there have been allegations of alleged venue shopping (moving sellers of payments to states in which it is easier to obtain court approval in order to transfer payments), mishandling transfer proceedings by guardians, capacity challenges, and a recent class action alleging other improprieties in obtaining transfer orders. These lawsuits, if successful, could result in investors who purchased FSS’s not receiving a portion or even any of the payments they purchased.
While these actions are certainly not wide-spread throughout the industry, and represent only a very small fraction of FSS’s , in an abundance of caution, Somerset decided some time ago, for the protection of potential purchasers of FSS’s, to suspend its retail Factored Structured Settlement program indefinitely. Somerset is monitoring these developments closely on an ongoing basis. As a service to our clients and others who may have purchased and currently own Factored Structured Settlement payment rights, Somerset will continue to inform investors of what we learn. If you would like further information and would like to discuss your existing FSS payment stream(s) please contact Somerset Wealth Strategies at (800) 813-4000.
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