by Barbara Nevins Taylor
John Greene, a California retiree, heard about a ten-year investment deal through his financial advisor that offered a 7.22 percent return. The advisor called it a “structured asset,” and it seemed “reasonable” to Greene.
At the other end of the deal, James Trujillo, a 43-year-old retired California police officer, suffering from PSTD and a compulsive gambling habit, needed money to pay off his debts. He found himself willing to trade his monthly disability pension payment for a lump sum of $117,000.
It seemed like a perfect marriage of needs. But the story of how it played out offers a cautionary tale for people at both ends of these kinds of transfers. Pension advances for people who need quick cash and structured assets for those who want monthly income can turn easily into financial disaster for the lender and the borrower.
For Trujillo and Greene it began in 2011. Voyager Financial Group (VFG) reached out to Trujillo, who told ConsumerMojo.com his PSTD-fueled gambling addiction racked up debts and made him feel “desperate.” He had lost his home and filed for bankruptcy.
Trujillo signed a contract with VFG to sell what it called his “structured asset.” The agreement called for him to sign over a portion of his rights to future pension payments for ten years.
Greene, described in court papers as “semi-retired and in the property management business,” learned about this investment possibility from his financial advisor Leo Bertucci in Rondo Beach, California. Bertucci, a licensed insurance agent, testified that he discovered the plan through a marketing company called Mainline Guarantee. He said he thought it was like an annuity but offered a better return because of California taxes on annuities.
Voyager Financial Group prepared the documents for Trujillo and Greene. It required Trujillo to take out a life insurance policy as security in case he died during the ten-year term of the contract. He also signed a special Power of Attorney that allowed a title company to distribute the money to Greene, and changed the direct deposit for his California pension from his bank to an escrow account controlled by the title company in Arizona.
Greene agreed to put up $215,000, although he did not know how much Trujillo would receive. He entered into the deal even though he and his financial advisor knew that Trujillo had filed for bankruptcy. Court papers say that Greene was told by his financial advisor that the bankruptcy covered only Trujillo’s previous debts.
In mid-February 2012, Trujillo received $117,000. The remainder of the up-front money apparently went to the companies that put the deal together. Green would get $2,496.00 for 120 months. But the deal spelled trouble for Trujillo. He needed more money than he made as a labor representative for a local of the California Teachers’ Union.
The bankruptcy settlement required him to pay certain debts. So he did what he’d done before. He gambled to supplement his salary.
The deal worked out as planned for almost two years.
Greene received 21 payments totaling $52,429.00. And then an error by the California pension system delayed a payment and got Trujillo thinking. He told ConsumerMojo, “I felt awful about it. I realized I couldn’t make ends meet between my gambling and my job and I needed that pension money.”
Trujillo asked the pension system to return the monthly direct deposits to his personal account. That left Greene out over $164,500.
Greene sued Trujillo in state court in Los Angeles to try to get the contract enforced, but that court ruled that Trujillo’s earlier bankruptcy filing protected his pension. Greene and his legal team considered suing Voyager Financial Group but they discovered the company no longer had any assets. They took the case to federal bankruptcy court and asked a judge to exempt the pension from the bankruptcy.
U.S. Bankruptcy Judge Stephen L. Johnson in the Northern District of California considered Trujillo’s gambling addiction and his need for money. He found that under the 1974 Employment Retirement Security Act (ERISA), Trujillo’s pension couldn’t be reassigned. He ruled that the contract was drafted to “circumvent ERISA’s prohibition on assignment of pension benefits as well as to provide a misleading sense of security to the buyer.” He said, “In reality then, the ‘purchase’ amounted to nothing more than an unsecured loan.”
That’s exactly what consumer advocates say when they warn against entering into these deals.
But still, the issue in the Trujillo-Greene case involved something else. The judge had to decide if the pension was protected under the bankruptcy law. Judge Johnson ruled that because Trujillo had declared bankruptcy, his assets and pension were protected. Trujillo got to keep his pension. Greene was left holding a mostly empty bag.
In the middle of all of this, Greene’s financial advisor Bertucci voluntarily gave up his insurance license in an agreement with the California Insurance Department in connection with an investment fraud that cost elderly Californians $1.5 million. Bertucci did not admit wrongdoing and his attorney told the Daily Breeze.com that his client “did not profit and in fact lost substantially in the process.” In addition, he said Bertucci “was extremely instrumental in obtaining the return of 80 percent of his clients’ losses.”
In April 2013, the Arkansas Securities Commission issued a cease and desist order to Voyager Financial Group and its Managing Member Andrew Gamber along with his partners Kevin McNay, Jonathan Sheets and Robert Henry for violating Arkansas laws and selling pension advances.
John Greene did not return our request for an interview, but James Trujillo told us he is in recovery from his gambling addition and said, ‘I was tremendously relieved by the judge’s decision. But the whole thing is pretty embarrassing.” He says he feels badly about Greene and, “didn’t realize that he had given the company more than $200,000.”
For consumer advocates who caution against these deals, the story serves as a warning to others. Stuart Rossman of the National Consumer Law Center told us, “It shows why the pension advance companies try so hard to keep the claims out of bankruptcy estate while avoiding the anti-assignment provisions of various statutes that protect pensioners. It is a tightrope that they try to walk and fortunately when challenged they usually fail.”