Secretive industry makes big profits off the injured

Rex Muller has had lots of tenants over the years, but none quite like Terrence Taylor. He moved into a house miles outside of town but couldn’t drive. He was 30 years old but played with toy cars. His face was badly disfigured by burns, but attractive women often accompanied him. Muller nonetheless trusted Taylor more than most. He had lots of money.

When Taylor moved from Virginia to Muller’s Martinsburg, W. Va., townhouse in 2012, agreeing to pay $870 in monthly rent, he flashed an insurance document bearing impressive numbers. It said New York Life Insurance was paying him $10,000 every month as a result of a lawsuit settled in 1989. Muller learned that a malfunctioning electric heater had burst into flames when Taylor was a boy, leaving him disfigured — and rich. His settlement would pay him many millions of dollars over the course of his life.

Two years later, in June 2014, Muller watched as a local deputy

knocked at Taylor’s door. Muller had just taken his tenant, who had not paid rent in three months, to court and evicted him. He stepped into the darkened home as Taylor, an amputee, descended the stairs and, without a word, limped past him on a prosthetic leg.

Taylor had left behind a mess of toys, dirty dishes and cards written by “go-go girls,” Muller recalled. Strange documents were strewn across the kitchen table. “It was a lot of legal mumbo jumbo,” Muller said. “A lot of lawyer talk.”

The landlord, however, understood enough to know the tenant had been doing a lot of business deals. What Taylor had been selling, chunk by chunk, for pennies on the dollar, was a settlement that had a lifetime expected payout of $31.5 million. Taylor sold everything owed to him through 2044 and was now broke and homeless.

For more than a decade, the Portsmouth Circuit Courthouse in Virginia has operated much like an assembly line for the secretive industry of structured-settlement purchasing. When four companies struck 10 deals with Terrence Taylor in two years, they hired Portsmouth lawyer Stephen Heretick. Nine of those deals were then assigned to now-retired Portsmouth judge Dean Sword, the authority tasked with deciding such cases. And Sword approved every one, putting five of the deals under seal.

In all, according to Taylor’s bank records and court documents, the burn survivor sold $11 million of his structured settlement — which had a present value of about $8.5 million — for roughly $1.4 million, or 16 cents on the present dollar. He has sued the companies, focusing on a South Florida firm named Structured Asset Funding, which did six deals with him.

That Taylor, who had received diagnoses of learning and emotional disabilities, could so quickly hemorrhage 30 years’ worth of income in deals approved in a courthouse he never visited is the result of Virginia’s failure to properly regulate an industry that makes tens of millions off vulnerable residents, a Washington Post investigation has found.

Unlike traditional settlements, which are paid out in one sum, structured settlements dispense the payout in portions over a lifetime to protect vulnerable people from immediately spending it all. Since 1975, insurance firms have committed an estimated $350 billion to these agreements, spawning a secondary market in which companies compete to buy payments for a smaller amount of upfront cash.

Such deals, industry advocates say, get desperate people the money they need for emergencies and big expenses, such as home purchases. But they also expose sellers to the risk that they will exchange lifetimes’ worth of income for pittances.

Until 2014, when the judge retired from the bench, Heretick’s petitions were almost exclusively assigned to Sword,

The Post examined every case Heretick filed in 2013 that was assigned to Sword, when he approved seven of Taylor’s deals. That year, Heretick petitioned Sword at least 594 times and frequently filed deals in bulk. Weeks later, the judge would rule on dozens — and once, 52 — in an hourlong hearing. Overall, Sword approved 95 percent of the deals.

Sword didn’t respond to multiple requests for comment. A survey of the 300 or so cases Heretick filed this year shows that Judge William Moore Jr., who now acts as the primary Portsmouth judge handling the settlement sales, approved deals at a rate of nearly 85 percent. Moore did not respond to three requests for comment.

The Post reviewed 160 deals, randomly selected, of the 566 that Sword approved in 2013. Ninety-one of the 160 cases The Post reviewed were sealed — a rate that five experts, in interviews, called highly unusual.

In an interview, Heretick said the discrepancy between purchase price and present value comes down to risk. For instance, life contingent payments, which stop if a recipient dies, aren’t guaranteed to purchasers. Payments scheduled decades in the future, he said, have less value because of uncertain economic forecasts.

Sellers who strike these deals, he said, do so out of necessity, securing money through the transactions that they could not get otherwise. “If they didn’t have that ability, there could be lots of people out there who could be getting hundreds of thousands of dollars ... years from now who might be homeless today.”

Heretick ascribes his high approval rate — “easily” over 90 percent, he said — to his years of experience filing these deals and his understanding of what will and will not be approved in Portsmouth.

So, he said, he met with then-Portsmouth Chief Judge James Cales Jr., who gave him two hourlong slots per month to file as many as he wanted and assigned Sword to the task. Now retired, Cales said he does not recall the meeting with

Heretick or making that decision.

Had he known what he knows now, Heretick said, there is a case he might have declined to take: “The Terrence Taylor case.”

In April 1988, Taylor wandered into the master bedroom at his parents’ Herndon home and closed the door. Warmed by a space heater at his side, the 6-year-old fell asleep. Soon after, black smoke wafted from underneath the door. Taylor’s father found his son collapsed on the floor. Doctors at Children’s National Medical Center worried that they could not save him. He underwent numerous surgeries and several amputations.

In 1989, Taylor settled a lawsuit against the space heater manufacturer and entered into a structured settlement with a lifetime expected payout of $31.5 million. “Because of the severe physical and psychological injuries to Terrence, all parties ... were concerned about Terrence’s ability to care for himself,” Taylor’s attorney, Robert Muse, wrote in an affidavit in August of this year.

The concerns about Taylor, now 33, would prove true. He squeaked through high school with the help of special-education classes and weekly psychotherapy. He later earned an associate’s degree at a nonaccredited, for-profit school that is now defunct, but he never landed a job beyond a few months of work in stores.

His payments protected him financially. By the time he was in his late 20s, his structured settlement was paying him nearly $10,000 monthly in untaxed income.

Taylor said he was leafing through the mail one day when he came across an ad-

vertisement. It was from a South Florida company named Structured Asset Funding, he said, and it promised fast, easy money.

All he had to do was call.

That phone call ushered Taylor into a world where companies compete ferociously to find and poach customers from competitors. They comb through court documents, pay people hundreds of dollars for referrals and even solicit sellers long after they’ve sold everything.

One company that scours records for people like Taylor is Seneca One. Based in Bethesda, Md., it files the majority of its Virginia cases in Portsmouth and has been a client of Stephen Heretick since at least 2006.

Curtis Montgomery, who worked for a few months this year as an account manager at Seneca One, said the firm maintains a database with “thousands of [potential sellers] from all over the country, their names, their phone numbers, their addresses, information we’ve received from court documents and notes — detailed notes.”

A former senior official with Seneca One, who spoke on the condition of anonymity, claiming he feared for his physical safety, said it’s used to “prey on who’s likely to sell their payments the most.” Most people, once they start doing deals, he said, will sell everything within two years — a period referred to as the “perishable period.”

New associates, Montgomery said, go “fishing” by cold-calling people in the database. “They look for the clients that are in bad situations,” he said, adding that he has seen sales agents pay people $50 to stay on the line for five minutes.

“Any way to get in and get them to talk,” he said. An associate might tell a potential client “‘You’re owed money. ... They might not pay you the rest of your money if you don’t do this,’ ” Montgomery said. The goal, he said, is to ultimately build up a “pipeline” of “remarkets” — people who do continuous deals.

Monty Hagler, a spokesman for Seneca One, did not dispute Montgomery’s recollection but questioned his credibility in discussing the company’s work. During his tenure, Montgomery never completed a deal and was terminated because of poor performance, Hagler said, adding that the firing was “ugly. ... He said, ‘I’m going to expose you.’ ”

Industry depictions do not reflect the practices of Structured Asset Funding, said president Andrew Savysky. “We care about our customers and hope they use the proceeds we give them to better their lives,” he said.

Montgomery’s assertions were echoed by the former Seneca One senior official and a current account executive, who spoke on the condition of anonymity out of fear of losing his job. The three said the most important part of the process is securing court approval.

“Lawyers in each company have [a list of ] reasonable explanations that companies will look at,” said the former senior official, such as buying a house or paying off debt. “Then the in-house counsel writes the [seller’s] affidavit knowing what ... the judge who is likely assigned will like.”

He said Virginia is one of the most popular states in which to file these petitions because it is a “rubberstamp state where the [seller] doesn’t need to appear.”

And at the Portsmouth courthouse, their names may not appear on the court docket, as well. Many firms, which file using subsidiaries or shell companies, sometimes only refer to sellers by their initials, which Portsmouth Clerk of Circuit Court Cynthia Morrison said “should not be.”

Heretick said in an interview that he files with initials because that is what judges have requested. He said Sword decided to seal the cases to protect sellers’ personal financial information, calling the practice “commendable.”

People familiar with the industry offered a different interpretation. “The main reason they do it is to wall off [sellers] from competitors,” said John Darer, who runs a blog that monitors the industry.

And in the beginning, when he still had tens of millions available for purchase, there were probably few sellers in Virginia more sought-after than Terrence Taylor.

Taylor never dreamed it could be so easy. He had to sign only a few papers. Then whenever he was running short on money, according to a lawsuit later filed in federal court, he called Rhett Wadsworth, a salesman for Structured Asset Funding in South Florida, and Wadsworth would get him whatever he needed.

The first infusion of cash reached his account on April 27, 2012, in the amount of $5,000, his bank records show. Another one for $7,000 arrived on May 2. “In cases where the individual directly requests an advance, we are within our legal means to provide it,” said Savysky, the company president.

Two $3,000 advances then materialized in Taylor’s account, the second landing days before Sword approved Taylor’s first deal in Portsmouth. The burn survivor sold payments that had an aggregate value of $814,999 — and a present value of about $724,000 — for about $300,000, his bank records show.

“LIFE IS GREAT,” he posted on Facebook days after Sword approved the deal. “CANT STOP SMILING AND WONT!!!!!!!!!!!!!!”

It would be the best deal Taylor would strike. Over the next two years, Taylor would do 10 more approved deals with Structured Asset Funding and other companies. One deal, court records show, traded payments that had an aggregate value of $5.3 million — and a present value of $4 million — for $389,000, or less than 10 cents on the present dollar. Another deal, according to filings, exchanged payments that had an aggregate value of $1.6 million — and a present value of $844,000 — for $40,000, or less than 5 cents on the present dollar.

In interviews and court documents, Taylor said the purchasing companies “coached” him in coming up with “false” reasons to explain why he needed the money. In one affidavit that Taylor signed, it said he needed money to pay down credit-card debt. Another said he wanted money to start a nonprofit organization. All of these explanations, he now says, were not true. They “were Rhett Wadsworth ideas. Rhett said it had to look good on paper for the judge to approve it.”

Savysky contested that assertion. “The only reason why Terrence Taylor continues to say this is because he stands to gain by making these and other unfounded allegations,” he said.

Judge Sword sealed five of Taylor’s first six deals, all of which were with Structured Asset Funding. The Post determined the aggregate value of what Taylor received versus the value of what he sold in those sealed transactions by examining his bank records and asking an outside actuary to calculate the present worth of the sold payments at the time the deals were filed.

But one deal, later withdrawn after Taylor’s family realized what had happened, wasn’t sealed. Records show it sold life-contingent payments that had an aggregate value of $9,485,320 and a present value of $4,082,825.

In return, Taylor would have received $12,536.

By late August 2012, the $300,000 Taylor had received from his first deal had nearly evaporated. But Taylor still had plenty left to sell — New York Life was pumping $6,700 into his bank account every month — and on Aug. 22, following a two-month absence, Structured Asset Funding again appeared on Taylor’s bank records with a cash infusion of $1,000.

The company flew him to South Florida and took him to two strip clubs, Taylor has alleged in court filings. His bank statements show several purchases in the area that same week in August, including a few expenditures at a Hollywood massage parlor that state authorities later investigated for prostitution. Then on Aug. 29, Wadsworth wired Taylor $7,000 from his own account, according to Taylor’s bank records. And days after that, Heretick filed another petition in Portsmouth court.

Reached for comment, Wadsworth, who in all wired Taylor $12,000 from his personal account in four transfers between August 2012 and October 2013, said he “would have to consult with our legal counsel to make sure I can make a comment.” Afterward, Wadsworth, now the company’s director of sales, didn’t respond to three requests for comments and one letter asking detailed questions.

“This is not a common practice,” said company president Savysky, commenting on the wiring of money to Taylor by Wadsworth from his personal account. Savysky said Structured Asset Funding sent Taylor money at least 39 times over two years because Taylor asked for it. “Mr. Taylor solicited our business and requested periodic advances,” said Savysky, who did not respond to questions about whether his company took Taylor to strip clubs.

Most of the time, Taylor doesn’t like to dwell on his money problems. But even now, he said, the purchasing companies solicit him, asking if he’s interested in making some easy money.