Editor’s Note: I have been contacted by a number of individuals who invested in Future Income Payments or FIP through Utah-based Live Abundant, which is referenced in the article below. This article appeared in the Wall Street Journal today and has a pretty good summary of the FIP situation. Spoiler alert: it’s not good.
Private Pension Product, Sold by Felon, Wipes Investors Out
Investors accuse Future Income Payments of taking them for more than $100 million
By Jean Eaglesham of the Wall Street Journal – July 23, 2018 5:30 a.m. ET
Mr. Kohn’s company, Future Income Payments, appears shut, according to court filings. His investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week. At least 25 states have taken enforcement actions or are investigating the company, it said in April.
The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.
Private-market products, including the ones offered by Future Income, are frequently sold by financial advisers. Sales targets are often retirees looking to beat the anemic returns on bonds and other savings products.
Future Income essentially sold investors other people’s pensions. Mr. Kohn’s firm would find workers entitled to pension payments and temporarily buy the rights to those payments—effectively lending the beneficiaries money against their future pension income in what is called a “pension advance.” Then, Future Income would sell the rights to investors for a lump sum. An investor might put up $100,000 in exchange for an income of 7% for five years, for example.
But Future Income’s apparent collapse has left investors stranded. The company is no longer collecting the pension money that funds its own payments to investors, according to court documents. Mr. Kohn couldn’t be reached for comment. It isn’t clear if he has a lawyer.
Unlike publicly traded investments, there are few rules on how pension advances can be sold or by whom. “They illustrate the problems with the financial services industry selling opaque, high-commission private investments,” says Joe Peiffer, a New Orleans-based plaintiffs’ lawyer representing some purchasers of Future Income’s products. “We have clients who were advised to cash in their pensions and refinance their homes to buy these things.”
In a letter sent to investors in April, Mr. Kohn said his company was suffering from “intense regulatory pressure and legal expense,” and investors had been told there were “no guarantees [they] would receive all payments.” Future Income didn’t respond to emails, and its phones appear to be down. Christopher Jones, a lawyer representing the company over a civil investigation by the Consumer Financial Protection Bureau, didn’t respond to requests for comment. The CFPB declined to comment.
Future Income called itself “America’s largest pension cash-flow originator,” boasting of a “global footprint of over 200 employees.” Its mailing address is a mailbox at a United Parcel Service Inc. store in a strip mall outside Las Vegas. The same address has been used by Mr. Kohn for dozens of other companies, most of them now defunct, state records show.
Mr. Kohn formed Future Income in 2011, company records show. In 2016, he set up a separate company, FIP LLC, controlled via a Philippines-based corporation of which he is the sole owner, according to a complaint filed last year by Minnesota regulators. He pleaded guilty to trafficking in counterfeit goods in 2006 and served 15 months in federal prison.
State regulators took action against Future Income as early as 2014 over the terms on which it was buying pension benefits, saying the firm was lending illegally. Some states said the company was breaching state laws limiting the interest that can be charged on loans. A disabled Gulf War veteran who borrowed $2,700 was required to send $450 a month from his benefits for five years—a total of $27,000, or an annual percentage rate of 200%, according to one example cited in the Minnesota lawsuit. Mr. Kohn in his April letter said the company was in the process of agreeing, or had agreed to, settlements with the states that limited the amounts it could collect.
“Future Income Payments’ illegal loans were outrageously expensive,” said Lisa Madigan, the Illinois attorney general, who filed a suit against the firm on the same grounds this year.
The string of regulatory actions didn’t stop advisory firms and others selling the commission-rich products, many as part of a retirement-savings strategy. A Future Income marketing presentation urged retirees to “give your savings the opportunity to grow,” with “competitive fixed rates,” according to a copy reviewed by The Wall Street Journal.
The sellers included Live Abundant, a firm based in Salt Lake City that promises on its website to “empower you to live a more abundant life by replacing your old, outdated retirement philosophy.” It has sold products from both Future Income Payments and Woodbridge Group of Cos. LLC, another private-market investment that collapsed, according to lawyers representing investors who said they intend to sue Live Abundant.
Loren Washburn, an attorney for Live Abundant, said the firm plans to review what it “could have done better” in vetting the deals. “This outcome where we’re having to explore options to collect [the money due to investors] is obviously not optimal.”
The sellers also included independent advisers registered with the Securities and Exchange Commission, such as Gus Marwieh of Austin, Texas. Mr. Marwieh “used his strong religious beliefs to engender trust from investors,” said Mr. Peiffer, who is representing some of them. Mr. Marwieh confirmed he sold Future Income products but declined to comment further.
An SEC spokesman declined to comment.
Investors are now scrambling to try to recover money. Mr. Peiffer said he is “highly confident that the losses suffered by investors are well over $100 million.”
Faw Casson & Co., an escrow company in Dover, Del., that held funds on behalf of investors, sued Future Income Payments in May. Faw Casson, whose lawyer declined to comment, said in a court filing it has received calls from several investors including a “retired secret service agent [who] said that if we do not return his phone call, he is coming to the office and trust me that is not what we want.”