Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

J.G. Wentworth

J.G. Wentworth Enters Chapter 11 Bankruptcy Protection

For about a dozen years now, late-night TV has frequently had advertisements from a financial firm known as J.G. Wentworth. On June 1st 2009, that firm, formally known as JGW Holdco LLC, and two of its subsidiaries, J.G. Wentworth LLC and J.G. Wentworth Inc., entered Chapter 11 bankruptcy protection after the company allegedly "encountered liquidity problems amid a tightening credit market".

This relatively-small financial firm repeatedly pitched the concept that one could sell insurance contracts known as structured settlements "to raise cash now". Rather than receive a stream of payments in future years as specified in an annuity insurance contract that is part and parcel to a structured settlement, the beneficiary of that structured settlement could receive a sum of cash from J.G. Wentworth "now". In exchange, the beneficiary would give up all future claims to the annuity cash flows and the funder, J.G. Wentworth, would receive them instead.

Many individuals and firms have long avoided the structured settlement sector of the financial markets, particularly on the purchase side of the transactions. Most sellers of structured settlements are what one would call "retail" customers. Frequently, these customers are less sophisticated in one way or another. Often the customer is at least middle-aged, if not older; is in a diminished physical state; and has encountered some type of financial stress that is leading to the consideration of the sale of the structured settlement annuity contract.

In such a condition, it often is not clear to a seller whether a proposed transaction price is fair or not, especially when potentially pressured by an aggressive broker who promises to get the seller cash now. As with all retail-oriented businesses, the "downsides" (risks) of entering into the transaction are rarely well-explained. Further the total fees to be paid to the broker and/or principal are often concealed or less than completely disclosed.