SEC Takes Aim at Structured Settlements
The SEC’s Office of Investor Education and Advocacy has issued an Investor Bulletin about selling and investing in pension or settlement income streams (aka structured settlements). The Bulletin cautions against selling pension or settlement income streams because of the significant discount rate and transaction costs. The Bulletin also warns against investing in such income streams because of the high commission rates, absence of securities regulation, and illiquidity.
OUR TAKE: There have been companies that have taken advantage of lower-income people and committed fraud in packaging settlement streams. However, legitimate factoring companies offer some real benefits to sellers of income streams: immediate cash, removing credit risk, severing a sometimes difficult relationship with the payor. It is noteworthy that the SEC is wading into this area because structured settlement payments are not securities, and the SEC hasn’t identified structured settlements as a priority in recent public statements.