JG Wentworth Accused of Skirting $550 Million in Federal Excise Taxes, Says the Structured Settlement Institute
Actions by States' Attorneys General Are Expected
BOCA RATON, Fla., July 19, 2012 /PRNewswire/ -- JG Wentworth Originations, LLC has been accused in a recently filed lawsuit(1) of failing to pay or even report $550,000,000 in federal excise taxes, reports the Structured Settlement Institute. "In a Harris County, Texas district court, JG Wentworth was accused of violating the Texas Structured Settlement Protection Act (TSSPA), which is one of approximately 47 SSPAs put in place to protect the interests of those selling structured settlements," reports attorney Stewart Feldman, speaking on behalf of The Structured Settlement Institute, a not-for-profit organization established to educate sellers of structured settlements regarding fair and equitable industry practices. Wentworth is wholly-owned by New York based JLL Partners, a private equity fund. The suit has since been removed to the United States District Court for the Southern District of Texas.
"For years, Wentworth has been deliberately imposing non-compliant encumbrances on its customers' future payment rights under the guise of a "servicing arrangement," explained Feldman. "The Structured Settlement Protection Act mandates that disclosure statements be issued to annuitants before any payments are assigned, transferred or otherwise encumbered. Wentworth has been accused of imposing encumbrances over non-assigned structured settlement rights that were never disclosed to the annuitant in the state mandated disclosure statement by either refusing to honor a subsequent court order or demanding servicing fees for entering into such an arrangement. The imposition of an encumbrance in the absence of a state mandated disclosure statement approved by a court results in a 40% excise tax on the gross proceeds immediately payable by Wentworth. As a result, it is estimated that Wentworth has failed to pay, or even report, $550 million in excise taxes due over the last eight years." According to Feldman, Wentworth has been doing this in order to secure follow up transactions at a deeper discount, costing customers an estimated $720,000,000.00 in underpayments.
"It is commonplace for annuitants to sell only a portion of their structured settlement payment rights, contingent on their financial need at the time," reports Paul McHugh, Marketing Director of RSL Funding, LLC, a national purchaser of annuity benefits in the secondary market and member of the Structured Settlement Institute. "Clients then have the flexibility to sell future payment rights to any company or vendor of their choosing, pending approval by the courts. Wentworth has been holding its annuitant customers hostage, prohibiting the annuitant from entering into a future transaction with a company that provides a better financial deal and forcing the prior customer to deal only with Wentworth."
"As outlined in the lawsuit, undisclosed encumbrances executed by Wentworth have resulted in an estimated $720,000,000 in underpayments by Wentworth to its customers had they been able to shop their settlements to competitive firms," says Feldman. "Wentworth's actions are an attempt to assert an unwritten right-of-first refusal on structured settlement payment rights not assigned to it."
"JG Wentworth's nationwide efforts to evade the Structured Settlement Protection Acts are subjecting customers to artificially high prices and rates, and stifling competition in the market for acquiring structured settlement payment streams," explains McHugh. "Wentworth's actions are not just limited to the circumstances specific to this case, as their attempts to hold annuitants hostage by encumbering annuitants' rights to enter into subsequent transfer agreements with other firms go beyond this court, this county, and this state. Thousands of transactions are affected." A recent DBRS ratings report states that Wentworth has originated over $3.4 billion in structured settlements since 2002. According to Feldman, "Wentworth's overreaching is common to likely thousands of transactions. Wentworth hasn't paid or reported the called for federal excise tax and Wentworth has violated state law in underpaying customers throughout the U.S. who weren't able to obtain a competitive quote. This is a dangerous combination."
(1) Case No. 2012-18154, 152nd Judicial District Court, Harris County, TX, since removed to the U.S. District Court for the Southern District of Texas, Houston Division as CV. Action No. 12-CV-1872.
Structured Settlement Institute
Boca Raton, FL
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