This is long but bear with me. It’s important.
I practiced law for over 20 years, almost 17 of them as a sole practitioner. I’ve seen a lot of shady practices, from bail bondsmen to online lawyer referral outfits, and more. Probably the worst thing I’ve ever seen was funding companies looking to arrange structured settlements.
In the vast majority of personal injury or other tort cases, when the car gets settled, insurance companies or corporate defendants pay the full value of settlements all at once, immediately. In rare circumstances - I’ve never done one, although it was occasionally raised in a few cases - a structured settlement will be arranged, with a down payment (usually to pay the legal fees and costs) up front and monthly payments made over time. Insurers and businesses will arrange an annuity to make the monthly payments. The devil in these deals is in the details: what kind of discount rate is appropriate, what’s the present value of a monthly payment stream over 10 years, etc. Defendants try to use a higher discount rate and spread the payments over longer periods. Scrupulous lawyers try to get lower discount rates, raising the present value of any given settlement.
Why ever even think about doing things this way? Because in some situations, such as lead paint cases or other cases with grievous injuries, the person receiving the money is in no position to manage a large sum of money. If they got it, they might blow it: drugs, gambling, moocher friends, and the like. We’re talking brain damage, serious impairment, and sometimes simply the lack of education and skills to manage one’s own affairs. So a $1,000 or $1,500 per month payout can help with personal expenses while keeping the recipient from blowing several hundred thousand dollars - sometimes more.
I still don’t like structured settlements and never did them when I worked for myself, because they create what I see as an enormous and irreconcilable conflict of interest for a lawyer. I’d get my money up front in these deals, based on some calculated present value that may or may not have been based in reality, while the client would be left to best the risk of any unforeseen economic downturn. That’s just wrong, although it clearly does happen and I acknowledge that there are times when it should be considered.
What is happening now - right here in the Free State - is an appalling abuse of an already ethically shaky system. Having negotiated an income stream from an annuity company, lead paint victims are being preyed upon by the vilest of scumbags, who seek to buy these payment streams out for pennies on the dollar - and that’s after factoring for present value. The Post has the repulsive details.
There are sleazy companies looking to buy income streams. There are lawyers out looking for clients to “advise,” which usually result in form court submissions that nobody bothers to change from one case to the next, and although the sellers are almost all from Baltimore City, the cases get filed in Montgomery, Prince George’s and Howard counties, because judges there are more likely to sign off on the details no matter how one-sided they might be.
The letter arrived in April last year, a mishmash of strange numbers and words. This at first did not alarm Rose. Most letters are that way for her — frustrating puzzles she can’t solve. Rose, who can scarcely read or write, calls herself a “lead kid.” Her childhood home, where lead paint chips blanketed her bedsheets like snowflakes, “affected me really bad,” she says. “In everything I do.”
She says she can’t work a professional job. She can’t live alone. And, she says, she surely couldn’t understand this letter.
So on that April day, the 20-year-old says she asked her mom to give it a look. Her mother glanced at the words, then back at her daughter. “What does this mean all of your payments were sold to a third party?” her mother recalls saying.
The distraught woman said the letter, written by her insurance company, referred to Rose’s lead checks. The family had settled a lead-paint lawsuit against one notorious Baltimore slumlord in 2007, granting Rose a monthly check of nearly $1,000, with yearly increases. Those payments were guaranteed for 35 years.
“It’s been sold?” Rose asked, memories soon flashing.
She remembered a nice, white man. He had called her one day on the telephone months after she’d squeaked through high school with a “one-point something” grade-point average. His name was Brendan, though she said he never mentioned his last name. He told her she could make some fast money. He told her he worked for a local company named Access Funding. He talked to her as a friend.
Rose, who court records say suffers from “irreversible brain damage,” didn’t have a lot of friends. She didn’t trust many people. Growing up off North Avenue in West Baltimore, she said she’s seen people killed.
But Brendan was different. He bought her a fancy meal at Longhorn Steakhouse, she said, and guaranteed a vacation for the family. He seemed like a gentleman, someone she said she could trust .
One day soon after, a notary arrived at her house and slid her a 12-page “purchase” agreement. Rose was alone. But she wasn’t worried. She said she spoke to a lawyer named Charles E. Smith on the phone about the contract. She felt confident in what it stated. She was selling some checks in the distant future for some quick money, right?
The reality, however, was substantially different. Rose sold everything to Access Funding — 420 monthly lead checks between 2017 and 2052. They amounted to a total of nearly $574,000 and had a present value of roughly $338,000.
In return, Access Funding paid her less than $63,000.
Maryland has a law that is supposed to regulate this kind of naked theft. It doesn’t work.
Over the past two decades, state legislatures and the U.S. Congress have passed measures to protect vulnerable people selling structured settlements. In 2000, Maryland inked the Structured Settlement Protection Act, which enumerated a series of requirements. First, a seller must seek the counsel of an independent professional adviser. Then the proposed deal must go before a county judge, who decides whether that agreement reflects the seller’s best interests.
Here’s the problem, among others.
To balance clients’ vulnerabilities with purchasing companies’ desire for profit, most state legislatures called upon county judges to decide the cases. But Maryland’s law, according to longtime structured settlement expert Craig Ulman, is “substantially weaker” than in most states. For example, it doesn’t require that settlement recipients appear in court, as Illinois’ law does. It also doesn’t make purchasing companies file their petitions in the seller’s county of residence, as in New York, Oregon and other states.
Critics say such conditions can give rise to something called “forum shopping,” in which purchasing companies seek out less-scrutinous judges. Those firms “find the squeaky wheels, where things aren’t as enforced as much … and the judge simply looks at the affidavit,” said John Darer, who operates a blog monitoring the industry.
Petitions involving Maryland’s lead victims cluster in Montgomery, Howard and Prince George’s counties — anywhere but Baltimore City, the jurisdiction where most of those lead victims live. Access Funding says it has overwhelmingly filed in Prince George’s County because that’s where their attorney’s office is located.
Maryland’s court system also makes it easy to find the right clientele. Its case search puts lead-paint lawsuits into their own category, meaning a few keystrokes can call forth thousands of names. This unique confluence of factors constitutes the “perfect storm of bad stuff,” said Earl Nesbitt, executive director of the National Association of Settlement Purchasers.
How “bad” is the “stuff”? Very. Read the whole thing, but here’s a few lowlights. Meet Charles Smith, a lawyer who provides “legal, tax and financial” advice to sellers of structured settlements. He’s supposed to be “independent.” Not so much.
Charles E. Smith is another lawyer who does this work. A review of 52 Access Funding deals revealed that Smith worked as the independent adviser on every one. . Smith entered the same letter in every case stating the lead victim understood the deal’s “legal, tax and financial implications” and that he was not “affiliated” with Access Funding. Borkowski said his company has no contractual or business relationship with Smith, declining to answer additional questions.
Smith said such transactions “represent an extremely small percentage of my practice. I have no business partnerships with any company in the structured settlement purchasing industry. . . . In all instances, I am directly contacted by the [settlement recipient.] . . . I’m not exactly sure how [they] come to me. . . . My independence is in no way compromised or at risk.”
Critics condemned the practice of an independent adviser working deal after deal for the same company. “It’s a total conflict of interest,” lawyer Kerpelman said. “He’s doing business for them and with them all the time. Imagine if he ever said, ‘No, she can’t read. She can’t understand what she’s signing.’ ” That partnership, he said, would evaporate.
52 cases with the same company, identical affidavits, and he claims not to know where the clients come from? Somebody subpoena the documents - my guess is it comes out of the pittance that the sellers get. Not out of their own pocket. Another bloodsucker.
A final point: take one guess whose family sold their lead paint income streams to Access Funding several years ago? That would be the late Freddie Gray. Predatory practices come full circle.
Like I said, go read the whole thing.
This system is an outrage. These companies should be shut down and prosecuted. Their investors should be made to pay back every penny. And the Maryland legislature and court system must reform this process. An outright ban on the sale of structured settlements for anything less than a certain percentage of the present value of the future payments should be created. Failure to act is complicity in what is now a systematic theft of money from victims of lead paint exposure and other significant harms. We’re allowing victims to be victimized again. It’s repellent.