“Pension Advances” Threaten Retiree Savings

Retirees are being solicited by certain companies to obtain “pension advances,” which regulators say are really disguised loans. The New York Times has determined that pension advances carry (after factoring in fees) interests rates ranging from 27 percent to 106 percent. Jessica Silver-Greenberg, “Loans Borrowed Against Pensions Squeeze Retirees,” New York Times, Apr. 28, 2013, p. A1.

Ads for the pension advances tout to military retirees and others: “Convert your pension into CASH”; “You have put your life on the line for Americans to protect your way of life. You deserve to do something important for yourself.”

According to the New York Times, legal aid offices in Arizona, California, and New York have reported a surge in complaints from retirees about the products.

The New York Times reports:

Pitches to military members must sidestep a federal law that prevents veterans from automatically turning over pension payments to third parties. Pension-advance firms encourage veterans to establish separate bank accounts controlled by the firms where pension payments are deposited first and then sent to the lenders. Lawyers for retirees have challenged the pension-advance firms in courts across the United States, claiming that they illegally seize military members’ pensions and violate state limits on interest rates.

To circumvent state usury laws that cap loan rates, some pension advance firms insist their products are advances, not loans, according to the firms’ Web sites and federal and state lawsuits. On its Web site, Pension Funding asks, “Is this a loan against my pension?” The answer, it says, is no. “It is an advance, not a loan,” the site says.

The advance firms have evolved from a range of different lenders; some made loans against class-action settlements, while others were subprime lenders that made installment and other short-term loans.

P. A4.

One former Marine, Ronald Govan of Snelville, Georgia, states, “I served this country and this is what I get.” The N.Y. Times reported that Govan paid an interest rate of more than 36% on a pension-based loan.

S&P’s Defense: “We Weren’t Really Serious”

In response to a DOJ civil lawsuit that the company committed fraud when it asserted that its ratings were independent and objective, Standard and Poor’s Rating Services has claimed that the assertions were mere “puffery.”

Whether or not the argument is legally viable, the Wall Street Journal notes that the position degrades the reputation of the firm. See Jeanette Neumann, “S&P Has Unusual Defense,” Wall St. J., Apr. 22, 2013, p. C1. In the Wall Street Journal article, Samuel Buell, a law professor at Duke University, questioned what the point of a rating agency is if the firm contends that its ratings are “puffery.”

Forms of mere “puffery” generally include comments by businesses that they are “the best in town,” and have “the lowest prices.” Judges have long regarded these types of assertions as a form of permitted boasting by businesses and upon which a fraud claim cannot be made. However, if the ratings agencies contend that their ratings should be regarded as mere “puffery,” then, as Prof. Buell notes, one has to wonder why rating agencies even exist? S&P seems to be carrying out a legal Houdini act – claiming in court that their representations are not to be depended upon, but on Wall Street that their comments are credible and important. We will see if the street remembers the rating agency’s courtroom assertions.

Securities Brokers to Disclose Financial Incentives for Switching Firms

For years, brokers with sizeable books of business (large and well-funded client bases) often moved between firms in order to receive robust up-front bonuses. The bonuses often measure between $750,000 and $1 million. The bonuses are generally paid to brokers in the form of “forgivable loans” – for each year that the broker is employed by the new firm a portion of the bonus is forgiven (the entire amount is generally extinguished after five years). Clients are generally told that the broker’s move was spurred by a desire to improve client account services or to obtain better research. Until now the clients have never been told the truth behind the move, or for that matter, been informed at all regarding their bottom-line value to the broker. That may be changing. On April 15, 2013, the Wall Street Journal reported that securities regulators are widely expected to start forcing stockbrokers to disclose to clients when they receive big dollars in connectio with a move to a new firm. The disclosure may cause clients to be more circumspect about moves that are touted as being made for the client’s benefit. My own experience in handling securities matters is that at least 90% of clients follow departing brokers to their new firms. Perhaps now, clients will begin to question the logic of such. Also, the circumstances may spur a discussion between the client and broker about the fees and costs being paid by the client. A large client who is informed that the broker is being paid handsomely simply because the client has hitched his wheel to the broker may extract greater price concessions for following the broker to the new firm, or conversely, with the current firm for staying put.

Author: Mark Krudys, a former SEC Enforcement Division attorney and securities federal prosecutor who regularly represents clients in disputes with brokerage firms.

Prisoners “Boiling to Death” In Their Cells

A New York Times article on the Texas prison system entitled, “In Texas, Arguing That Heat Can Be A Death Sentence for Prisoners,” exposes a shameful problem that exists in jails and prisons throughout America–prisoners dying from hyperthermia or cooking to death in their cells. The Times reports that last summer, in a 26-day period in July and August, ten Texas inmates died of heat-related causes. Texas experienced one of the hottest summers on record in 2011. The summer of 2012 looks like it might break heat records across the country.

The 10 inmates were housed in areas that lacked air-conditioning, and several had collapsed or lost consciousness while they were in their cells. All of them were found to have died of hyperthermia, a condition that occurs when body temperature rises above 105 degrees, according to autopsy reports and the state’s prison agency. One such Texas inmate, Kenneth James, 52, was due to be released in a few months when officials found him in dead in his cell with a body temperature of 108 degrees. His autopsy report stated that Mr. James most likely died of “environmental hyperthermia-related classic heat stroke.” His mother said, “I don’t think human beings should be treated that way.”

A corrections supervisor who works at a prison where one of the inmates died said the number of heat-related fatalities was a cause of concern, as was the larger number of inmates and corrections officers who require medical attention because of the heat. At least 17 prison employees or inmates were treated for heat-related illnesses from June 25 through July 6, according to agency documents. Many of them had been indoors at the time they reported feeling ill.

At the Darrington Unit near Rosharon, Texas, on June 25, a 56-year-old corrections officer fainted in a supervisor’s office and was taken to a hospital. Heat exhaustion was diagnosed. At the four-story Coffield Unit near Palestine, where one inmate died of hyperthermia last August, dozens of windows have been broken out — prisoners slip soda cans or bars of soap into socks and throw them at the windows, hoping to increase ventilation.

“I’m supposed to be watching them, I’m not supposed to be boiling them in their cells,” said the corrections supervisor, who declined to be identified because he was not authorized to speak to the news media. “If you’ve got a life sentence, odds are you’re going to die in the penitentiary. But what about the guy who dies from a heat stroke who only had a four-year sentence? His four-year sentence was actually a life sentence.”

This problem is not limited to Texas. Here in Richmond, Virginia, our local paper reported today that the death rate at the Richmond jail far outpaces the national average.

The mortality rate for inmates at the overheated and chronically overcrowded Richmond jail was 2.5 times higher than the average annual death rate at jails of similar size across the country from 2000 through 2007, the most recent years for which comparable national data were available.

These are the conclusions of Dr. Marc Stern, who does consulting work for the U.S. Department of Justice and the Department of Homeland Security. “The difference is striking enough that it should prompt a review of the original cases,” Stern said, referring to the Richmond jail’s higher death rate.

Stern’s call for an evaluation of Richmond’s jail deaths comes less than three weeks after Katrina Jones, a 19-year-old prisoner, died after she apparently strangled herself at the jail. She fatally injured herself after mental-health workers concluded she was not a threat to herself, even though she had tried to hang herself once before in front of deputies, according to sheriff’s officials.

The City of Richmond, the Richmond Sheriff, and the Sheriff’s Office also are facing a lawsuit involving a man, Grant Rollins Sleeper, 55, who died on June 26, 2010 of “Environmental Heat Exposure” at the Richmond City Jail, which has no air conditioning in the men’s tier where Mr. Sleeper was being held. On June 18, 2010, Jail staff found Mr. Sleeper slumped over in bed, unresponsive to verbal communication, laboring to breathe, and registering a temperature of 104.5 degrees. An autopsy performed by the Office of the Chief Medical Examiner in Richmond noted that Mr. Sleeper’s pre-death bladder temperature was 107.6 degrees. According to the Assistant Chief Medical Examiner, Mr. Sleeper’s body revealed “hyperthermia” and dead tissue and hemorrhaging in the liver and kidneys, which findings were stated to be “attributable to marked increase in body core temperature with consequent multiple organ failure.”

Our firm filed a Complaint on behalf of the personal representative of Mr. Sleeper’s estate asserting that defendants, City of Richmond and C.T. Woody, Jr., Sheriff, were responsible for maintaining and operating the Jail, including in a manner that would not endanger the health and safety of the detainees/inmates held at the Jail. The Complaint further asserts that, for many years, however, the Defendants knew of the life-threateningly high temperatures and other inhumane conditions at the Jail. Nevertheless, at the time of Mr. Sleeper’s death, the Complaint alleges that the Defendants did nothing to remedy these conditions.

In Sunday’s Richmond Times-Dispatch article, the Sheriff appears to lay the blame for all of Richmond’s inmate deaths on the fact that a majority of the inmates come to the Jail with pre-existing physical and mental health problems. This may be true, but it is no excuse for allowing inmates to cook to death. Indeed, the Sheriff is on record for years voicing concern about the poor conditions, including overheating, at the Jail. The Jail was built in the 1960s to house 882 inmates, but the average daily population hovers at more than 1,300. A new jail is under construction and is scheduled to open in 2014, despite concerns that it will be overcrowded immediately. The new facility will have 1,032 beds.

Mark J. Krudys obtained a $2.4 million jury verdict against Sheriff Woody and the Richmond Jail’s former chief physician in a wrongful death case resulting from the death of inmate James D. Robinson. The Robinson lawsuit alleged that Mr. Robinson died in March 2008 after medical staff and the jail failed to diagnose or properly treat his pneumonia.