By Ann C. Logue
This week, the SEC charged a Florida firm, Synergy Settlement Services, and two of its principals with misappropriating client funds. What makes this especially awful is that the firm specialized in managing money for people with disabilities who had received funds from a personal injury settlement.
You read that right. They allegedly stole money entrusted to them by people with disabilities.
If true, it’s worse than the guy who stole from a rabbi.
Many people with disabilities are eligible for Medicaid and SSI benefits. They could lose them if they had significant assets. There is a safe harbor that allows them to place assets, including awards or settlements from personal injury lawsuits, into an irrevocable trust that is established and managed by a nonprofit organization. Synergy Settlement Services set up a non-profit organization, The Foundation for Those with Special Needs, that was the trustee for the Settlement Solutions National Pooled Trust. When a beneficiary died, the remaining amount of their settlement was given to the Foundation to be used for charitable purposes. The SEC alleges that The Foundation for Those with Special Needs was a shell organization; its money was spent on sponsorships for beach parties and golf outings that benefitted Synergy Settlement Services employees and promoted the company name.
Synergy’s defense is that those beach parties and golf outings were actually charitable fundraisers and thus within the letter of the law. And yet, the IRS doesn’t allow a tax deduction for non-profit donations that carry a personal benefit. Ordinary taxpayers who buy tickets to a charity golf tournament will have their deduction reduced by the value of the food, drink, and swag received at the event.
The SEC charges go further, claiming that the defendants diverted at least $775,000 in trustee and joinder fees to their for-profit business, and used the funds from deceased beneficiaries’ accounts to reimburse themselves, sponsor events and parties, and promote Synergy’s for-profit business. Furthermore, apparently none of the parties involved told beneficiaries that their money was being invested in mutual funds with higher fees than those quoted to the beneficiaries. The financial advisory firm involved settled with the SEC.
Sometimes, people think they are doing the right thing by following the letter of the law, and they aren’t even doing that. $775,000 could do a lot of good in the world—or pay for a lot of golf.