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Betting on Big Verdicts
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"The industry they are in is very controversial and was once referred to as 'the gray market' because it had to be done almost surreptitiously," Hindert said. "There's still people that have very strong, negative opinions about the business because, one, of the aggressive advertising; and two, because of the perceived high discount rates," which can reduce the amount the seller would receive over the life of the payments.
Hindert said Stone Street and other companies in the structured settlement business meet a need in the marketplace by providing immediate cash to people who can't wait for a state lottery to dribble out years of annual payments or for an insurance company to cover the cost of a malpractice award over 10 or 20 years.
Customers are as varied as a handicapped accident victim who needed a new house and a lottery winner who needed cash for a college education. Most lotteries pay their winners upfront, but there are still a few lotteries in which the winners must take the cash over time, which creates opportunities for Stone Street and others.
Customers' needs drive the advanced verdict funding business as well. Gene Stearns, the Miami attorney who represented the 11,000 Exxon service station dealers in the class-action suit, said some of his clients went to Stone Street because they were desperate for money.
"The interest rate, while not the Fed funds rate, was not so outrageous that you could find it unreasonable," Stearns said. "The dealers that did business with them got less money up front than they would have gotten later, but they eliminated the risk of loss."
Gary Turner of Chelsea, Ala., sold part of his annuity from his father's estate to Stone Street in return for a $400,000 payment that enabled the 25-year-old banker to buy a house and pay his debts. Turner still collects about $2,000 a month from his father's estate, which is far less than the $9,594 he would have collected had he not sold part of the annuity. His monthly payment will increase over the rest of his life.
"It helped me get married and start my life and buy a home that I have 80 percent equity in," Turner said. "Now I am just saving my money. I am not in debt at all."
