The Gargan Case: Is the U.S. Government a Victim or a Perpetrator?
The United States Department of Justice announced last week that Joseph E. Gargan, a scion of the Kennedy family and former Chief Executive Officer of The Pension Company, Inc., pleaded guilty to embezzling nearly $8 million that was intended to purchase structured settlement annuities for children who were plaintiffs in medical malpractice cases. The Pension Company was retained by the United States to execute structured settlement agreements between civil litigants, according to the Statement of Facts filed June 15, 2020 that accompanied Gargan’s Plea Agreement. As part of its contractual responsibilities, the Pension Company was required to transfer money and purchase annuities in accordance with the terms of the settlement agreements entered into by the parties.
The United States District Court for the Eastern District of Virginia, summarizes their relationship and result as follows:
“The United States Government entered into civil settlement agreements with plaintiffs in six separate matters. In each of these cases the United States agreed to pay the plaintiffs a sum of money and purchase an annuity as part of the settlement agreement. The United States maintained a property interest in the annuities. The Pension Company was retained to purchase the annuities on behalf of the United States and to execute the settlement agreements.
Note: in each of these cases, according to the Statement of Fact, the United States Government transferred money to a Pension Company account although Gargan was authorized only to use the money to execute the terms of the settlement agreements. Nonetheless:
“Gargan knowingly and willfully embezzled, stole, purloined, and converted to his use …. The money the United States had provided to the Pension Company to purchase the annuities and execute the settlement agreements.”
For his misdeeds involving the United States Government cases, Gargan was charged with Embezzlement of Government Funds and Wire Fraud. He was separately charged in a similar case involving a hospital client.
In his Plea Agreement, Gargan agreed to waive indictment and plead guilty to a two-count criminal charge of embezzlement and wire fraud. He awaits sentencing. Gargan’s Plea Agreement also includes a Restitution paragraph under which he agreed “to the entry of a Restitution Order for the full amount of the victims’ [i.e. the government’s] losses.” (emphasis added)
Question: without disputing whether the United States Government is legally entitled to restitution, how accurate or responsible is it, from a public policy perspective, to refer to the United States Government in these cases as a “victim?”
From a public policy perspective, in these cases, the United States Government appears to be the perpetrator of a miscarriage of legislative intent rather than the victim. Based upon their own business practices in these cases and in previous cases, the Joseph E. Gargan embezzlement appears to represent structured settlement karma for the United States Government – and provide important opportunities and lessons for the structured settlement industry.
Beginning in 1982, Congress established “safe harbors” for defendants and plaintiffs to accomplish the public policy objectives which structured settlements are intended to provide personal injury claimants. These safe harbors include 130 Qualified Assignments and IRC 468B Qualified Settlement Funds (QSFs) – as well as the tax benefit for injury victims in IRC Section 104(a)(2).
The safe harbors provide well-defined methods for defendants to remove themselves from any involvement with structured settlements. The public policy objective and benefits focus exclusively on personal injury victims and their families – not defendants.
Many defendants and insurance companies, including the United States Government itself, refuse to acknowledge that Congress intended structured settlement benefits exclusively for personal injury victims and their families. In addition, the United States Government and some liability insurers, for their own self-interests, have attempted to restrict the use of QSFs.
Unlike the United States Government in the Gargan cases, whose own legislative branch created these safe harbors, defendants and plaintiffs have utilized IRC Section 130 and IRC 468B QSFs to successfully resolve hundreds of thousands of structured settlement cases.
When using safe harbor methods, defendants avoid the risk of embezzlement by issuing checks directly to Qualified Assignment Companies, which are affiliates of U.S. life insurance companies regulated by state insurance departments, or to Qualified Settlement Funds, which are trusts supervised by judges.
So, instead of establishing structured settlement best practices and promoting the “best interest” of personal injury victims and their families, the United States Government, in tort cases, has for years engaged in irresponsible structured settlement business practices. – One of these irresponsible practices has been recklessly and negligently entrusting millions of taxpayer dollars to individual defense brokers like Joseph E. Gargan.
Based upon information from personal injury settlement planners, here are some other historic structured settlement business practices of the United States Government:
- Routinely negotiating to “share” the structured settlement benefit by insisting the United States Government be named as contingent beneficiary on structured settlement annuity contracts.
- Restricting the selection of structured settlement annuity providers available to injury victims and their families.
- Insisting their own broker purchase all structured settlement annuities without allowing the injury victims or their families any role in selecting that individual.
- Refusing to allow plaintiffs to utilize QSFs which offer many settlement planning advantages for both plaintiffs and defendants.
For these reasons, at least from a public policy perspective, the United States District Court for the Eastern District of Virginia has badly mischaracterized the United States Government. The real victims here are the U.S. taxpayers who must pay twice for government’s egregious error and all of the personal injury victims and their families with whom the U.S. Government has historically (euphemistically speaking) “shared” structured settlement benefits.
What should be done to the United States Government and how can these problems be fixed?
The “what” is easy. The United States Government should disgorge and re-pay (with interest), or re-direct to the appropriate injury victims and their families, all past and future structured settlement benefits the government has negotiated to receive as contingent beneficiaries. In addition, in all future cases, the United States Government should not only promote personal injury settlement planning “best practices” but also: encourage every injury victim to be represented by a qualified settlement planner; and respect the right of the injury victim to select their own structured settlement providers. Further, the government should encourage and promote the use of QSFs in appropriate cases.
How can these recommendations best be accomplished?
The best answer is obvious. Voluntarily, for all the right reasons. If not voluntarily, then legislatively by Congress or through litigation.
What lessons should the structured settlement industry learn from the Joseph E. Gargan embezzlement?
Different structured settlement stakeholders are likely to take different lessons from the Joseph Gargan embezzlement. This is not the first time a defense broker has misappropriated structured funds.
For defendants and defense brokers, the lesson may be: never entrust brokers with settlement dollars – and follow (at least some of) the structured settlement safe harbors established by Congress.
For plaintiffs, plaintiff attorneys and settlement planners this case will probably represent more than just Joseph E. Gargan and his embezzlement. For these stakeholders, the Gargan case exposes how the United States Government (and other defendants and their insurers) have perversely converted Congress’ public policy objectives (to benefit injury victims and their families) and turned it to their own advantage.
The United States government’s program not only takes away control of selecting the structured settlement provider but also requires “sharing” part of the injury victim’s benefit without taking advantage of the safeguards Congress has established to protect all parties’ interests.
Not only are the government’s (and many other defendant’s) structured settlement programs paternalistic, they have also created and perpetrated an unclean claim management system as demonstrated by several class action civil lawsuits and criminal lawsuits.
For plaintiffs, plaintiff attorneys and settlement planners, therefore, what Joseph E. Gargan represents is a turning point. A time to change the structured settlement industry to finally focus fully on the “best interests” of personal injury victims and their families and not on defendants and their “best interests”
“Best interest” personal injury settlement planning represents the best methodology for accomplishing this long overdue objective.
Please join Independent Life in July when we launch our new webinar series titled “Best Interest Personal Injury Settlement Planning” which will use the Joseph E. Gargan embezzlement as a counterpoint to discuss and define the characteristics for a dynamic new and improved structured settlement market.