Big Tobacco Settlement Offer May Not Be What It Seems

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Many questions have been raised about an advertisement campaign promising large, tax-free payments from a Big Tobacco settlement to anyone who can claim them.

In a 40-minute teaser video published on the website Money Map Press, viewers are offered an opportunity to “claim a portion of the historic $206 billion tobacco settlement.”

The videos says that potentially billions of dollars from the 1998 Big Tobacco settlement are just waiting to be claimed, even by persons who have never smoked a cigarette.

The video further states that claimants could expect a monthly payment of $2,300, all of it tax-free. Certain individuals are depicted who allegedly receive payments of as much as $8,000 or more per month.

The video also says that potential claimants can cash in on payments like these after making an initial investment of $250.

The “opportunity” presented in this video may look like the claims processes used to distribute settlement payments from ordinary civil class action settlements. But what the video is actually advertising is more likely an investment opportunity, not a way to claim a Big Tobacco settlement payment.

The Big Tobacco Settlement

It’s true that the 1998 Big Tobacco settlement resulted in the creation of settlement funds in most U.S. states. These funds do continue to receive regular payments from the settlement. But the money in those funds isn’t just sitting there waiting to be claimed.

According to the investment analysis website Stock Gumshoe, the supposed opportunity offered in this video appears to be linked to the municipal bonds that some states issue in relation to their Big Tobacco settlement payments. While municipal bonds are considered relatively safer investments, they’re unlikely to ever result in an extraordinary windfall for investors.

Under terms of the Big Tobacco settlement, the companies who were defendants in the litigation agreed to make ongoing payments into each state’s Big Tobacco settlement fund.

Stock Gumshoe says that at first, many states intended to use the money from the Big Tobacco settlement payments to fund anti-smoking campaigns and to cover the states’ costs of healthcare linked to smoking.

But in the nearly 20 years since the Big Tobacco settlement was reached, many states have had to seek out new sources of revenue. To raise money, some states began to issue municipal bonds guaranteed by the revenue stream from those states’ Big Tobacco settlement payments.

Investors can purchase these bonds. The state then pays back the bond debt to the investor over the term of the bond, and with those payments the investor also receives an investment return in the form of tax-free interest.

Many such Big Tobacco settlement bonds have been issued. They now make up a significant portion of the high-yield municipal bond market, which often refers to them as Tobacco Settlement Securitization Bonds, or TSSBs. Mutual funds that focus on high-yield municipal bonds are likely to include a significant portion of TSSBs.

While TSSBs offer higher returns than other kinds of municipal bonds, those returns are no windfall.

According to Stock Gumshoe, it’s a reasonable guess to expect these bonds to yield an average return of around five percent. At that rate, an investor would have to invest several hundred thousand dollars to get the monthly $2,300 payment in the advertisement.

So returns like that may not be obtainable for the low- or even average-income investor. And the yield from the proposed “initial investment” of $250 wouldn’t be anywhere near that amount.

Big Tobacco Settlement Bonds vs. Class Action Settlement Payments

While it’s true that TSSBs are related to the Big Tobacco settlement, the returns they provide investors are not the actual payments from the settlement. Those payments go to the states that are parties to the settlement, not to individuals.

Moreover, these bonds don’t function anything like the payments that Class Members can claim from an ordinary class action settlement.

Class action settlements generally offer qualifying claimants a one-time benefit, not continuous monthly payments.

They also do not require Class Members to make an “initial investment.” There’s usually an online form to fill out or some paperwork involved. The most a claimant may have to pony up might be the cost of some postage to mail that paperwork in.

And frankly, real class action settlement payments are generally pretty modest. They’re practically never as life-changing as the payments described in the video.