SEC Announces Charges Against Brokers, Adviser, and Others Involved in Variable
Annuities Scheme to Profit From Terminally Ill
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541121951#.VFSm8fnF98E
FOR IMMEDIATE RELEASE
2014-50
Washington D.C., March 13, 2014 —
The Securities and Exchange Commission today announced enforcement actions
against a pair of brokers, an investment advisory firm, and several others
involved in a variable annuities scheme to profit from the imminent deaths of
terminally ill patients in nursing homes and hospice care.
Variable annuities are designed to serve as long-term investment vehicles,
typically to provide income at retirement. Common features are a death benefit
paid to the annuity’s beneficiary (typically a spouse or child) if the annuitant
dies, and a bonus credit that the annuity issuer adds to the contract value
based on a specified percentage of purchase payments. The SEC Enforcement
Division alleges that Michael A. Horowitz, a broker who lives in Los Angeles,
developed an illicit strategy to exploit these benefits. He recruited others to
help him obtain personal health and identifying information of terminally ill
patients in southern California and Chicago. Anticipating they would soon die,
Horowitz sold variable annuities contracts with death benefit and bonus credit
features to wealthy investors, and he designated the patients as annuitants
whose death would trigger a benefit payout. Horowitz marketed these annuities as
opportunities for investors to reap short-term investment gains. When the
annuitants died, the investors collected death benefit payouts.
The SEC Enforcement Division alleges that Horowitz enlisted another broker Moshe
Marc Cohen of Brooklyn, N.Y., and they each deceived their own brokerage firms
to obtain the approvals they needed to sell the annuities. They falsified
various broker-dealer forms used by firms to conduct investment suitability
reviews. As a result of the fraudulent practices used in the scheme, some
insurance companies unwittingly issued variable annuities that they would not
otherwise have sold. Horowitz and Cohen, meanwhile, generated more than $1
million in sales commissions.
Agreeing to settle the SEC’s charges are four non-brokers and a New York-based
investment advisory firm recruited into the scheme. Also agreeing to settlements
are two other brokers who are charged with causing books-and-records violations
related to annuities sold through the scheme. A combined total of more than $4.5
million will be paid in the settlements. The SEC’s litigation continues against
Horowitz and Cohen.
“This was a calculated fraud exploiting terminally ill patients,” said Julie M.
Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit.
“Michael Horowitz and others stole their most private information for personal
monetary gain.”
According to the SEC’s orders instituting administrative proceedings, the scheme
began in 2007 and continued into 2008. Horowitz agreed to compensate Harold Ten
of Los Angeles and Menachem “Mark” Berger of Chicago for identifying terminally
ill patients to be used as annuitants. Berger, in turn, recruited Debra Flowers
of Chicago into the scheme and compensated her directly. Through the use of a
purported charity and other forms of deception, Ten, Berger, and Flowers
obtained confidential health data about patients for Horowitz.
According to the SEC’s orders, after selling millions of dollars in variable
annuities to individual investors, Horowitz still desired to generate greater
capital into the scheme. Searching for a large source of financing, he began
pitching his scheme to institutional investors. A pooled investment vehicle and
its adviser BDL Manager LLC were created in late 2007 in order to facilitate
institutional investment in variable annuities through the use of nominees.
Commodities trader Howard Feder, who lives in Woodmere, N.Y., became each firm’s
sole principal. Feder and BDL Manager fraudulently secured broker-dealer
approvals of more than $56 million in annuities sold through Horowitz’s scheme.
Feder furnished the brokers with blank forms signed by the nominees enabling the
brokers to complete the forms with false statements indicating that the nominees
did not intend to access their investments for many years. Feder understood that
the purpose of Horowitz’s scheme was to designate terminally ill patients as
annuitants in the expectation that their deaths would result in short-term
lucrative payouts. BDL Group received more than $1.5 million in proceeds from
its investment in the annuities.
The order against Horowitz and Cohen alleges that they willfully violated the
antifraud provisions of the Securities Act of 1933 and the Securities Exchange
Act of 1934 and they willfully aided and abetted and caused violations of the
Exchange Act’s books-and-records provisions. Horowitz also acted as an
unregistered broker.
Ten, Berger, Flowers, Feder, and BDL Manager consented to SEC orders finding
that they willfully violated Section 10(b) of the Exchange Act and Rule 10b-5.
They neither admitted nor denied the findings and agreed to cease and desist
from future violations. The individuals agreed to securities industry or penny
stock bars as well as the following monetary sanctions:
Ten agreed to pay disgorgement of $181,147.64, prejudgment interest of
$20,858.80, and a penalty of $90,000.
Berger agreed to pay disgorgement of $119,000, prejudgment interest of
$11,579.61, and a penalty of $100,000.
Feder agreed to pay a penalty of $130,000.
BDL Manager agreed to pay disgorgement of $1,550,565.55, prejudgment interest of
$196,608.97, and a penalty of $1,550,565.55.
The SEC’s order against Richard Horowitz and Marc Firestone finds that they
negligently allowed point-of-sale forms for 12 annuities in the scheme to be
submitted to their firm with inaccurately overstated answers to the form’s
question asking how soon the customer intended to access his or her investment.
These inaccurate answers led to each annuity’s issuance, and Horowitz and
Firestone were each paid commissions.
Richard Horowitz and Firestone consented to the order finding that they caused
their firm to violate Section 17(a) of the Exchange Act and Rule 17a-3. Without
admitting or denying the findings, they agreed to cease and desist from
committing or causing future violations of those provisions as well as the
following monetary sanctions:
Horowitz agreed to pay disgorgement of $292,767.89, prejudgment interest of
$36,512.20, and a penalty of $40,800.
Firestone agreed to pay disgorgement of $127,853.20, prejudgment interest of
$17,140.89, and a penalty of $40,800.
The SEC’s investigation was conducted by Marilyn Ampolsk, Peter Haggerty,
Jeremiah Williams, and Anthony Kelly of the Enforcement Division’s Asset
Management Unit along with Christopher Mathews and J. Lee Buck II. The SEC’s
litigation will be led by Dean M. Conway.
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Eagle-eyed Luke Ford spotted the Aish HaTorah connection and noted that both
"Richard Horowitz and Marc Firestone are well known in Pico-Robertson’s Orthodox
community.
He also spotted this on the pair's website:
"…Richard [Horowitz] is the co-founder of Aish HaTorah in Los Angeles. Aish
HaTorah is a worldwide educational organization helping unaffiliated Jews
understand the essence of Judaism. He currently serves as the International
President of Aish HaTorah, has acted as the North American President of Aish
HaTorah and has also served on the Aish HaTorah International Management
committee since its inception in 1997. Richard also serves as the Chairman of
Ashreinu and Vice President of AJOP (Association for Jewish Outreach
Professionals).…"