SEC COMPLAINT

The Securities and Exchange Commission (“Commission”) deems it appropriate
and in the public interest that public administrative and cease-and-desist proceedings be,
and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities
Act”), Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”),
Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b)
of the Investment Company Act of 1940 (“Investment Company Act”) against Michael A.
Horowitz (“Horowitz”) and Moshe Marc Cohen (“Cohen”) (collectively, “Respondents”). Respondents”).
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II.
After an investigation, the Division of Enforcement alleges that:
SUMMARY
1. These proceedings arise from a fraudulent scheme to profit from the
imminent deaths of terminally ill hospice and nursing home patients through the purchase
and sale of more than $80 million in deferred variable annuities (“variable annuities”)
between July 2007 and at least February 2008.
2. The scheme was orchestrated by Respondent Horowitz, then a registered
representative of a large broker-dealer firm (“Broker-Dealer 1”). Horowitz, together with
others, made material misrepresentations and used deceptive devices to obtain the personal
health and identifying information (“ID and Health Data”) of terminally ill hospice and
nursing home patients in order to designate them as annuitants on variable annuity
contracts that Horowitz marketed to wealthy investors. Horowitz marketed these variable
annuities – which are designed by their issuers to be long-term investment vehicles – as
opportunities for short-term gains with a hedge against market losses. Horowitz recruited
Respondent Cohen to facilitate the sale of additional “stranger-owned” annuities and they
each obtained their firms’ approval of variable annuity sales by making material
misrepresentations and omissions on trade tickets, customer account forms and/or point-ofsale
forms, which the broker-dealer principals used to conduct investment suitability and
related reviews. As a result of the Respondents’ fraudulent acts and practices, certain
insurance companies unwittingly issued variable annuities that they would not otherwise
have sold. The annuities sold during the scheme – which included five annuities sold to
Horowitz’s close relatives for profits in excess of $900,000 – generated lucrative upfront
sales commissions for the Respondents, with Horowitz receiving more than $300,000 and
Cohen receiving more than $700,000 in commissions.
3. By virtue of the foregoing conduct and as alleged further herein,
Respondents, directly or indirectly, singly or in concert, have engaged in acts, practices,
schemes and courses of business that violated Section 10(b) of the Exchange Act and Rule
10b-5 thereunder. Respondents Horowitz and Cohen also violated Sections 17(a)(1) and
(2) of the Securities Act, and aided and abetted and caused violations of Section 17(a) of
the Exchange Act and Rule 17a-3 thereunder. In addition, Respondent Horowitz violated
Section 15(a) of the Exchange Act.
RESPONDENTS
4. Michael A. Horowitz, age 39, the scheme architect, resides in Los Angeles,
California. Horowitz is currently a registered representative of an SEC-registered brokerdealer.
Horowitz also manages Monarch Capital, Inc., an investment adviser formerly
registered with the SEC. Between June 2000 and August 2008, Horowitz was a registered
representative at Broker-Dealer 1. He resigned during Broker-Dealer 1’s investigation into
his sale of the variable annuities at issue. Horowitz holds Series 7 and 66 licenses.
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5. Moshe Marc Cohen, age 38, was a registered representative recruited to
the scheme by Horowitz, and resides in Brooklyn, New York. He is not currently
associated with any SEC-registered entity. From 2003 to February 2008, Cohen was a
registered representative at Broker-Dealer 3. Broker-Dealer 3 terminated Cohen’s
employment on February 25, 2008 after he refused to cooperate with Broker-Dealer 3’s
internal review of Cohen’s variable annuity sales at issue. Cohen held Series 6, 7, 24 and
63 licenses.
OTHER RELEVANT ENTITIES
6. Broker-Dealer 1 is a broker-dealer and investment adviser registered with
the Commission and headquartered in New York, New York.
7. Broker-Dealer 2 is a broker-dealer and investment adviser registered with
the Commission and headquartered in New York, New York.
8. Broker-Dealer 3 is a broker-dealer and investment adviser registered with
the Commission and headquartered in Oakdale, Minnesota.
9. Charity 2 was established by “Annuitant Finder 1” in or about June 2007,
as a registered d/b/a of an existing non-profit 501(c)(3) organization. Also in or about June
2007, Annuitant Finder 1 set up a web page for Charity 2, which described Charity 2 as an
organization “dedicated to helping patients with a life limiting illness to live their
remainder days in comfort and dignity.” In fact, the purpose of Charity 2 was to obtain ID
and Health Data of terminally ill patients for use in the purchase and sale of variable
annuities.
THE RESPONDENTS’ SCHEME
Variable Annuities
10. Variable annuities are designed to serve as long-term investment vehicles,
typically to provide income at retirement. Although variable annuities offer investment
features similar in many respects to mutual funds, a typical variable annuity offers certain
features not commonly found in mutual funds, including death benefits1 and/or bonus
1 The typical variable annuity death benefit provides for a payment to the beneficiary at the contract
annuitant’s death equal to either the value of the underlying investment portfolio or the purchase price of
the annuity less any withdrawals, whichever is greater. This death benefit option allows an investor to
profit from positive investment performance as part of the death benefit while providing a hedge against
losses in the portfolio’s value by providing for a payout equal to at least the amount invested in the annuity
less any withdrawals. In the typical variable annuity, the contract owner is also the contract “annuitant.”
However, in the scheme described herein, hospice and nursing home patients unrelated to the contract
owners were designated as the annuitants.
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credits.2 Horowitz solicited wealthy individual and institutional investors to make large
investments in variable annuities that offered these benefits.
Horowitz’s “Stranger-Owned” Variable Annuities Investment Strategy
11. In or about May 2007, Respondent Horowitz devised the scheme that is the
subject of this proceeding after learning about the features of certain variable annuity
contracts offered by an annuity issuer (“VA Issuer”).
12. In particular, Horowitz learned that, unlike traditional life insurance, these
variable annuity contracts—as long as they were purchased under a certain dollar
threshold—required neither a physical examination of, nor proof of an “insurable interest”
in, the “annuitant,” i.e., the person whose death would trigger the products’ payout
provisions. Horowitz further determined that with respect to certain of the VA Issuer’s
deferred variable annuity products: (i) the VA Issuer provided an immediate “bonus credit”
of up to 5% of the amount invested, which was credited to the contract owner’s investment
account; (ii) the contract owner could invest his or her premiums in mutual funds available
under the contract; (iii) the annuities contained death benefit options; (iv) although
substantial “surrender charges” were ordinarily assessed if the annuities were liquidated
within the first 7-10 years, such charges were typically not incurred in the event of a death
benefit payout; and (v) even if the annuitant died before the “surrender charge” period had
run, the VA Issuer would not “claw back” any of the sales commissions it paid to the
selling representative.
13. Horowitz developed a strategy to exploit these benefits by using
terminally ill hospice and nursing home patients as the contract annuitants and soliciting
wealthy individual and institutional investors to make large investments in variable
annuities that offered these benefits.
14. In each of these contracts, a terminally ill hospice or nursing home patient
was designated as the contract annuitant. At least 16 terminally ill hospice patients were
designated as annuitants in more than 50 variable annuities sold by Horowitz, Cohen, or
other registered representatives recruited to the scheme. All of the hospice patients were
residents of southern California or Chicago, Illinois.
15. The hospice patients designated as annuitants had no familial or business
relationship with the investors who purchased the annuities. Instead, they were selected
based on their terminal illnesses and the likelihood that they would die soon, and thereby
trigger death benefit payouts in variable annuity contracts in the very near term. As part
of his pitch to investors, Horowitz told them that he would supply the annuitants, with
investors needing to furnish only their funds.
2 A bonus credit is a sum of money immediately credited to the contract owner’s investment
account by the annuity issuer (typically a percentage of the premiums being invested in the annuity
contract). For example, certain investors that purchased variable annuities through Horowitz made an
initial investment of $1 million and received “bonus credits” that increased the value of their annuity by 5%
($50,000) to $1,050,000.
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16. These “stranger annuitants” likewise had no contractual right to any
portion of the death benefits paid out under the terms of the variable annuities sold during
the scheme. Instead, each of the contracts directed these benefits be paid to one of the
investor’s family members or relatives, or to a family trust created by the investor.
17. Anticipating that the annuitants would soon die, triggering death benefit
payouts in the annuity contracts, Horowitz advised his customers to invest their
premiums aggressively because if the value of their portfolio increased, they would
receive the portfolio value as the death benefit payout. If the value of their portfolio
decreased, the death benefit nonetheless guaranteed them a payout equal to the value of
their premiums paid minus any withdrawals. Horowitz also advised his customers to
invest large sums of money in each annuity they purchased to maximize their “bonus
credit.”
18. Horowitz employed at least two varieties of fraud in carrying out his sale
of “stranger-owned” annuities. First, Horowitz and others fraudulently obtained and used
the ID and Health Data of certain unwitting terminally ill hospice and nursing home
patients who were designated as annuitants. Second, Horowitz and Cohen falsified
broker-dealer trade tickets, customer account forms and/or point-of-sale forms (including
suitability questionnaires) to obtain supervisory approval of the annuities that were sold
pursuant to the scheme. As a result of these fraudulent acts and practices, certain
insurance companies, including VA Issuer, unwittingly issued variable annuities that they
would not otherwise have sold.
Horowitz Obtains Confidential ID and Health Data through Deceptive
Practices
19. To implement his plan, Horowitz needed a ready supply of terminally ill
persons, unrelated to the investors, to use as annuitants in variable annuity sales. Horowitz
recruited certain individuals (“Annuitant Finders”) to identify the terminally ill persons to
be used as annuitants. Working with Horowitz, these Annuitant Finders engaged in a
scheme to obtain the patients’ confidential ID and Health Data, which they then
fraudulently misused. Horowitz needed patients’ Health Data to confirm that the
individuals he designated as annuitants had a terminal medical diagnosis. He needed their
ID Data (including social security number and date of birth) to designate them as annuitants
and to submit death benefit claims to the issuers whose annuities he sold.
The California Annuitants
20. In May 2007, Horowitz approached Annuitant Finder 1and described his
stranger-owned annuities scheme to him. Because Annuitant Finder 1 worked at a nonprofit
501(c)(3) organization (“Charity”), Horowitz asked Annuitant Finder 1 to assist him
with identifying terminally ill patients and obtaining their confidential ID Data.
21. After a series of closed-door meetings between Horowitz and Annuitant
Finder 1 at Charity’s offices in May 2007, Annuitant Finder 1 told his assistant that he was
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going to start a new charity, Charity 2. Charity 2 was purportedly going to focus on
providing charitable assistance exclusively to hospice care patients.
22. Charity 2 was used in the scheme to obtain patient ID and Health Data. On
June 1, 2007, Annuitant Finder 1 filed a fictitious name certificate with the State of
California, allowing one of his existing charities to do business under Charity 2’s name.
23. Annuitant Finder 1 created a website for Charity 2 and set up Charity 2
email accounts. The Charity 2 webpage stated that Charity 2 was:
an organization dedicated to helping patients with a life limiting
illness to live their remainder days in comfort and dignity….
Through the generosity of private and corporate philanthropists
[Charity 2] helps patients who[] have chosen hospice care and are at
home or in a facility….
24. In reality, Charity 2 had no private or corporate donors, and its true purpose
was to obtain patient ID and Health Data for Horowitz’s use in selling stranger-owned
annuities. Charity 2’s website failed to disclose these facts.
25. In July 2007, Annuitant Finder 1 opened a bank account in the name of
Charity 2, and funded it with several thousand dollars from his personal bank account.
These funds were to be used for the charitable donations Annuitant Finder 1 planned to
offer hospice patients as part of the plan to obtain their ID and Health Data.
26. Beginning in June 2007, Annuitant Finder 1 held Charity 2 out as a charity
devoted to providing assistance to hospice patients. Annuitant Finder 1 solicited hospice
care providers in Los Angeles, San Francisco and New Orleans by touting Charity 2’s
purported charitable services. In contemporaneous emails to those hospice care providers,
Annuitant Finder 1 and his assistant described Charity 2 as a “non-profit 501(c)(3)
organization.”
27. In June 2007, Annuitant Finder 1 met with the Director of Development of a
southern California hospice care provider (“HCP”). During the June 2007 meeting,
Annuitant Finder 1 told HCP’s Director of Development that Charity 2
was an organization of some large, very high profile donors, the type
of donors whose names are often on the sides of buildings at
Universities, that sort of donor, Universities, hospitals. And that in
this instance, they wanted to give and remain anonymous in that gift
so that they had established [Charity 2]….[Annuitant Finder 1]
indicated that they would like to see the patient, they would like to
meet the patient. He, specifically. [sic] And the purpose for that was
that they could tell – he could tell their donors or his donors who
those individuals were that they were actually meeting – so he
would be able to tell a story to help receive other donations to
continue those donations to come into the individual patient requests
that they were filling.
28. Annuitant Finder 1’s statements to HCP’s Director of Development were
false because, among other reasons, Charity 2 had no donors other than Annuitant Finder 1.
29. Annuitant Finder 1 implied that there were conditions on the purported aid
to be offered. First, only HCP hospice patients (i.e., those who had been diagnosed with
terminal illnesses and were receiving only palliative care in their home), as opposed to
other HCP patients receiving in-home curative care or treatment, were eligible for Charity
2’s donations. Second, Annuitant Finder 1 capped the amount to be donated per patient at
between $250-$500. Third, Charity 2 required that HCP provide it with the following
information concerning any candidate for a donation: (i) the patient’s name and address;
(ii) the patient’s date of birth; (iii) the patient’s social security number; (iv) the patient’s
medical diagnosis; and (v) confirmation that the patient was receiving hospice care. This
was the information that Respondent Horowitz needed to designate the hospice patients as
annuitants. Finally, Annuitant Finder 1 conditioned the donations on his right to visit the
HCP patient in question. Annuitant Finder 1 told HCP that he wanted to be able to tell his
donors each patient’s “story” to help raise additional donations for other patients. After
visiting Charity 2’s website to confirm the legitimacy of the charity, the HCP
administrator—grateful for what he understood to be Charity 2’s purely charitable
donations to HCP’s hospice patients—agreed to Annuitant Finder 1’s conditions.
30. Annuitant Finder 1 never told HCP that he planned to forward patient
personal identifying information to Horowitz, or that Horowitz intended to sell annuity
contracts to third parties who would profit when HCP patients died.
31. Between late July 2007 and at least December 2007, Annuitant Finder 1 met
with multiple HCP hospice patients and with certain patients receiving care from other
hospice providers. These meetings took place at the patients’ homes. Horowitz attended
many of these meetings.
32. Social workers from HCP also attended the meetings with HCP hospice
patients. Annuitant Finder 1 told HCP social workers that he wanted to meet with the
patients who were receiving charitable assistance from Charity 2 so he could tell their story
to Charity 2’s “donors.” According to one HCP social worker
When – at the meeting when we met with the patient in their home,
before we met, they, [Annuitant Finder 1] and [Horowitz], met me
and stated that the patients – the donors for this money did not want
to give to hospitals. They didn’t want to give to big organizations,
that they would just receive a nameplate.
They wanted to see where their money was being spent; so
therefore, [Annuitant Finder 1] and [Horowitz] showed up. They
had a box of candy for the patient.
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Horowitz was present when Annuitant Finder 1 made these statements to the HCP social
worker and knew them to be false. Horowitz did not, however, clarify or correct them in
any way.
33. The patients, their families and their HCP health care providers all believed
that the purpose of the visits was charitable. However, Horowitz’s true purpose in visiting
patients was to confirm that they were in fact dying, and, therefore, that they were suitable
annuitants. Horowitz actively concealed his true purpose for attending from HCP and the
hospice patients they visited, telling one HCP social worker that he represented persons
“who were going to be making donations.” This statement was materially false because
Horowitz did not represent any donors and in fact there were never any donors to Charity 2,
other than Annuitant Finder 1. Horowitz’s statement was also materially misleading
because he omitted the true purpose for his visit.
34. Unbeknownst to HCP and its patients, after each patient meeting, Annuitant
Finder 1 provided Horowitz with the ID and Health Data that he obtained from HCP under
false pretenses. Horowitz arranged for Annuitant Finder 1 to send the patient ID and Health
Data to Horowitz’s personal email account. Horowitz then used the patient ID and Health
Data to sell variable annuities in which the hospice patients were designated as the contract
annuitants.
35. Between July 2007 and at least December 2007, Annuitant Finder 1
provided Horowitz with the ID and Health Data of hospice patients in southern California.
At least six of these patients were designated as annuitants in at least 18 variable annuities
sold by Horowitz and a second representative whom Horowitz recruited to the scheme,
with some of the patients designated as annuitants in multiple policies. Horowitz paid
Annuitant Finder 1 at least $130,000 for his services to the scheme.
36. As part of the ruse, Annuitant Finder 1 asked HCP to keep him informed of
the health status of each patient whom he had visited, falsely telling HCP that Charity 2’s
“donors” wanted to remain apprised of each patient’s story. In reality, Horowitz and
Annuitant Finder 1 wanted this information so they would know when each patient died so
that Horowitz could timely file annuity death benefit claims for his customers, who then
stood to receive payouts on their variable annuity investments. As part of the scheme,
Annuitant Finder 1 obtained death certificates for each of the patients who had been
designated as an annuitant and provided the death certificates to Horowitz for his use in
filing death benefit claims.
37. HCP, its hospice patients, and their families were completely unaware that
Horowitz had sold variable annuities on the lives of HCP hospice patients and that third
parties stood to profit from their deaths.
38. HCP would not have released patient ID and Health Data to Annuitant
Finder 1 or allowed Horowitz and Annuitant Finder 1 to meet with its patients if it had been
aware of the true purpose of Charity 2 and of Horowitz’s scheme. Similarly, the patients
and their caregivers would not have allowed Horowitz and Annuitant Finder 1 to meet with
them had they known the true purpose of Charity 2 and of Horowitz’s scheme.
Horowitz Travels to Chicago to Recruit Additional Annuitant Finders
39. In Fall 2007, Horowitz decided to grow his variable annuity business by
expanding the pool of terminally ill individuals available to be designated as annuitants.
He travelled to Chicago, Illinois in October 2007, and met with Annuitant Finder 2, an
executive officer of a privately held company that owned and operated nursing homes in
the Chicago area.
40. Horowitz agreed to pay Annuitant Finder 2 in exchange for his
identification of hospice patients and in exchange for supplying Horowitz with the ID &
Health Data of terminally ill individuals in the Chicago area. Annuitant Finder 2
recruited an associate, Annuitant Finder 3, to assist him in identifying terminally ill
patients. As part of their arrangement, Annuitant Finders 2 and 3 agreed to keep
Horowitz and his associates apprised of the health status of the patient-annuitants, and
Annuitant Finder 2 provided Horowitz and his associates with death certificates when the
patients died.
41. Between November 2007 and February 2008, Annuitant Finders 2 and 3
supplied Horowitz, or his associates, with the names and ID and Health Data of at least
10 terminally ill patients in Chicago. These patients were designated as annuitants in at
least 7 variable annuities sold through Broker-Dealer 2, and in at least 28 variable
annuities sold by Respondent Cohen. Horowitz paid Annuitant Finder 2 at least
$150,000 for his and Annuitant Finder 3’s services to the scheme.
Fraud in the Execution of Broker-Dealer Trade Tickets and Point-of-Sale
Forms
Horowitz Falsifies his Broker-Dealer 1 Trade Tickets
42. Between July 2007 and October 2007, Horowitz sold at least 14 deferred
bonus variable annuities to his customers through his registration with Broker-Dealer 1.
43. For each of these 14 annuities, Horowitz designated a terminally ill hospice
patient as the contract annuitant and used the patient ID and Health Data that he and
Annuitant Finder 1 had fraudulently obtained from hospice care providers, through Charity
2 or directly from patients or their family caregivers. By designating patients with terminal
medical diagnoses as the contract annuitants, Horowitz sought to guarantee that his
customers would receive death benefit payouts within months of the annuities sales. For
his part, Horowitz stood to receive lucrative upfront commissions on each stranger-owned
annuity he sold.
44. Horowitz marketed his stranger-owned annuities investment strategy to
customers as an opportunity for obtaining short-term investment gains with a hedge
against investment losses, and Horowitz’s customers intended to use the variable annuities
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as short-term investment vehicles. However, Horowitz also knew that, in the event the
“stranger annuitants” did not die within a matter of months, his customers would be locked
into unsuitable, highly illiquid long-term investment vehicles that they would be unable to
exit without paying substantial surrender charges.
45. To ensure that its registered representatives were selling suitable
investments to their customers, and to ensure that the investment was being used for its
intended purpose, Broker-Dealer 1 required its principals to review and approve each
proposed sale of an annuity. As part of this process, Broker-Dealer 1 mandated that
Horowitz complete an electronic trade ticket, including a suitability questionnaire, for
every variable annuity that he sold. A Broker-Dealer 1 principal reviewed each trade
ticket. Variable annuity applications could be submitted to the issuing insurance company
only after principal approval of the ticket.
46. Each trade ticket required Horowitz to state how long the customer intended
to hold the variable annuity being purchased. As part of the review process, Broker-Dealer
1’s principals closely scrutinized the response to this question to ensure, among other
things, that the customer intended to hold the investment for a period of time exceeding the
surrender charge period in the deferred variable annuity contract being purchased. The 14
annuities that Horowitz sold through Broker-Dealer 1 had a nine year surrender charge
period.
47. Knowing that his stranger-owned annuities sales would be rejected by
Broker-Dealer 1’s reviewing principals if he provided truthful timing information
concerning his customers’ intention to use the annuities as short-term investment vehicles,
Horowitz submitted trade tickets falsely stating that his customers intended to hold their
annuities from anywhere between 20 and 40 years. Horowitz submitted at least 14 trade
tickets containing these materially false statements.
48. The same trade tickets also required Horowitz to state the relationship
between the owner of the annuity and the annuitant. With respect to each trade ticket that
Horowitz submitted for principal review, he falsely stated that there was a “partner”
relationship between the owner and the annuitant.
49. In fact, there was no relationship, either familial or business, between the
customers purchasing the annuities from Horowitz and the terminally ill hospice patients
designated as annuitants. Indeed, the hospice patients had no idea that they had been
designated as annuitants or that investors stood to profit from their deaths. Broker-Dealer
1’s principals would not have approved Horowitz’s annuities sales if they had known that
there was no relationship between the annuity purchaser and the annuitant.
50. By providing false information about his customers, Horowitz fraudulently
obtained principal approval of his stranger-owned annuities sales, which were then
submitted to the variable annuity issuer. As a result of Horowitz’s fraudulent acts and
practices, the issuer then unwittingly issued stranger-owned variable annuities to
Horowitz’s customers and paid out substantial upfront sales commissions to Horowitz.
Jane Doe 1: An Illustration of How Horowitz Carried Out the Scheme at
Broker-Dealer 1
51. By way of example, Annuitant Finder 1 was approached by John Doe 1,
who requested assistance for his wife, Jane Doe 1, who was dying of colon cancer.
52. John and Jane Doe 1 had a young son, and John Doe 1 had a full-time job.
Jane Doe 1’s condition had reached the point where she required 24-hour nursing, and John
Doe 1 was requesting Annuitant Finder 1’s help with half of the nursing costs. the nursing costs.
53. Annuitant Finder 1 told Horowitz about Jane Doe 1’s condition and
Horowitz decided to designate Jane Doe 1 as the annuitant in a variable annuity contract
that he sold.
54. To that end, in late July 2007, Annuitant Finder 1 and Horowitz met with
John and Jane Doe 1 at their home in Los Angeles, under the pretense of providing
charitable assistance. Horowitz noted the meeting in his day-timer.
55. During their brief meeting, Annuitant Finder 1 discussed the aid that Jane
Doe 1 would need, but neither Annuitant Finder 1 nor Horowitz ever mentioned variable
annuities, or proposed designating Jane Doe 1 as an annuitant in variable annuities to be
sold to third parties.
56. Shortly after this meeting—and unbeknownst to Jane and John Doe 1—
Annuitant Finder 1 emailed Jane Doe 1’s name and ID Data (including her social security
number and date of birth) to Horowitz’s personal email account.
57. On July 31, 2007, Horowitz sold a $1.7 million variable annuity contract to
a close family member in which Jane Doe 1 was designated as the annuitant.
58. In order to process this annuity sale, Horowitz completed an electronic trade
ticket on which he identified Jane Doe 1 as the investor’s “partner.” This statement was
false because there was no business, familial or other relationship between Jane Doe 1 and
the investor.
59. In response to the investment access question on the trade ticket, Horowitz
stated that the investor intended to hold the annuity for “25 years.” In fact, as Horowitz
knew, the investor intended to hold the investment only until Jane Doe 1 died, and
Horowitz had selected Jane Doe 1 to be the annuitant because he understood her death to
be imminent.
60. Based on these false representations, a Broker-Dealer 1 principal approved
the trade ticket and Broker-Dealer 1 electronically submitted the investor’s variable annuity
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application to the variable annuity issuer, which thereafter unwittingly issued a strangerowned
annuity contract.
61. The variable annuity issuer subsequently paid out a commission to Broker-
Dealer 1, with Horowitz netting over $28,500 in commissions on the sale of the annuity.
62. On August 5, 2007, four days after the annuity contract became effective,
Jane Doe 1 died. John Doe 1 notified Annuitant Finder 1 of Jane Doe 1’s death via email
on August 14, 2007. John Doe 1 requested approximately $1,200, representing half the
cost of the 24-hour nursing coverage for Jane Doe 1.
63. Annuitant Finder 1 never responded to John Doe 1’s August 14 email.
Having received no aid or assistance, and no response from Annuitant Finder 1, John Doe
1 wrote to Annuitant Finder 1 again on August 21 and told him to “use the money for
someone else that is more in need.”
64. Unbeknownst to John Doe 1, Annuitant Finder 1 thereafter obtained a copy
of Jane Doe 1’s death certificate and provided it to Horowitz. Horowitz used the death
certificate to prepare a death benefit claim on the investor’s annuity, which was then
submitted to the issuer.
65. On October 19, 2007, the investor received a death benefit payout on the
“Jane Doe 1” annuity of $2,002,073.85. The investor realized a net profit on his initial $1.7
million investment of $302,073.85—representing a 17.7% rate of return over a period of
two and a half months.
Horowitz Falsifies Broker-Dealer 2 Point-of-Sale Forms
66. In mid-November 2007, Horowitz’s supervisors at Broker-Dealer 1
discovered that he was selling stranger-owned annuities and instructed him to immediately
stop doing so.
67. At the time, Horowitz had over $24 million in variable annuities business
pending at Broker-Dealer 1.
68. Unable to sell additional stranger-owned annuities through Broker-Dealer 1,
Horowitz sought assistance from a senior associated person of Broker-Dealer 2 (“Senior
Rep”) in completing the sale of stranger-owned annuities through an affiliate of Broker-
Dealer 2.
69. Working with the office staff of the Broker-Dealer 2 affiliate, Respondent
Horowitz completed the Broker-Dealer 2 new account forms and deferred variable annuity
applications for the deferred variable annuities he had initially intended to sell to his
customers through Broker-Dealer 1.
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70. In each of those annuities, Horowitz designated a hospice patient as the
contract annuitant, utilizing patient ID and Health Data that the Annuitant Finders had
obtained and supplied to him. Horowitz did this in an effort to structure the annuities as
short-term investment vehicles.
71. As was the case at Broker-Dealer 1, variable annuity sales at Broker-Dealer
2 were subject to principal review and approval to ensure that the proposed sale was
suitable and that the investment was being used for its intended purpose. Broker-Dealer 2
representatives were required to complete a new account form that required the
representative to state the customer’s investment time horizon (i.e., when the customer
anticipated accessing their investment) and to disclose certain financial profile information.
72. Broker-Dealer 2 also required its brokers to complete a “Variable Annuity
Acknowledgement” form, specifically identifying the surrender charge period associated
with the annuity being purchased. As part of the review process, a Broker-Dealer 2
principal closely scrutinized each customer’s investment time horizon to ensure that it
exceeded the surrender charge period in the deferred variable annuity contract being
purchased.
73. Knowing that these stranger-owned annuity sales would be rejected by
Broker-Dealer 2’s reviewing principals if he provided truthful investment time horizons,
Horowitz prepared new account forms falsely stating that the customers intended to hold
their annuities from anywhere between 9 to 45 years.
74. The Senior Rep then recruited his subordinate business partner (“Signing
Rep”) to sign the new account forms and variable annuity applications as the selling
registered representative. The Signing Rep agreed to do so in exchange for a percentage of
the commissions to be earned on these annuities sales. The Signing Rep did not complete
any variable annuity application paperwork or Broker-Dealer 2 new account forms, and he
did not consider the purchasers of the annuities to be his customers.
75. By providing false customer information on the Broker-Dealer 2 new
account forms, and by using a nominee broker to sign off on the required Broker-Dealer 2
point-of-sale paperwork, Horowitz fraudulently obtained principal approval of strangerowned
annuities sold through Broker-Dealer 2.
76. Working in this manner, between late November 2007 and mid-December
2007, Horowitz was able to effect the sale of at least 12 additional stranger-owned variable
annuities – 2 of which were sold to a close Horowitz family member – through Broker-
Dealer 2. During the same time period, Horowitz was not an associated person of Broker-
Dealer 2, nor was he separately registered with the Commission as a broker or dealer.

Jane Doe 2: An Illustration of how Horowitz Continued the Scheme through
Broker-Dealer 2
77. On November 19, 2007—after Horowitz had been instructed by Broker-
Dealer 1 to stop selling stranger-owned annuities—Annuitant Finder 1 met with Jane Doe
2, a terminally ill HCP hospice patient, under the pretense of providing charitable
assistance through Charity 2. Horowitz travelled with Annuitant Finder 1 to Jane Doe 2’s
home.
78. Jane Doe 2, dying of stomach cancer, had previously told her HCP social
worker about her desire to take her children to Disneyland before she passed away. HCP
notified Charity 2 about Jane Doe 2’s request for assistance, after first determining that she
likely would not live long enough to have her request processed through another wellknown
charitable foundation.
79. Charity 2 paid $405 towards the cost of the trip to Disneyland, which Jane
Doe 2 was able to take with her children. As a condition of the donation, Annuitant Finder
1 required HCP to provide him with Jane Doe 2’s ID and Health Data prior to the visit and,
thereafter, met with Jane Doe 2 at her home. During the brief meeting, neither Annuitant
Finder 1 nor Horowitz mentioned variable annuities or proposed designating Jane Doe 2 as
an annuitant in variable annuities to be sold to third parties.
80. On the drive back from Jane Doe 2’s home, Horowitz asked Annuitant
Finder 1 if he wanted to purchase an annuity on Jane Doe 2’s life. Annuitant Finder 1
agreed to do so.
81. On the same day, Horowitz arranged for Annuitant Finder 1 to purchase a
deferred variable annuity through Broker-Dealer 2, in which Jane Doe 2 was designated
as the contract annuitant. Annuitant Finder 1 provided Horowitz with Jane Doe 2’s ID
and Health Data (including date of birth, address and social security number) that
Horowitz needed in order to designate her as the annuitant in Annuitant Finder 1’s
annuity. Annuitant Finder 1 invested $1 million in the annuity.
82. To ensure that Annuitant Finder 1’s variable annuity application was
approved by Broker-Dealer 2, Horowitz made several material false statements on
Annuitant Finder 1’s Broker-Dealer 2 new account form. First, Horowitz falsely stated that
Annuitant Finder 1 had a “27” year investment “time horizon” on his annuity. In fact,
Annuitant Finder 1 intended to utilize the annuity as a short-term investment vehicle of no
more than several months.
83. Second, Horowitz falsely stated that Annuitant Finder 1’s net worth was
“$15,000,000” and that Annuitant Finder 1 had liquid assets of “$7,500,000.” In fact,
Annuitant Finder 1’s total net worth was no more than $2 million; he had liquid assets of
no more than $750,000 to $1 million; and he had margined his brokerage account to obtain
the funds to purchase the annuity.
15
84. Horowitz falsely inflated Annuitant Finder 1’s financials because he knew
that Broker-Dealer 2’s principals were unlikely to approve a $1 million investment in an
illiquid, long-term investment vehicle by a customer with liquid assets equal to or less than
that amount.
85. Finally, Horowitz had the Signing Rep sign off as the selling representative
on Annuitant Finder 1’s new account form and variable annuity application while knowing
that Annuitant Finder 1 had never spoken with the Signing Rep concerning the annuity and
that the Signing Rep did not consider Annuitant Finder 1 his customer.
86. Based on Horowitz’s and the Signing Rep’s false representations, a Broker-
Dealer 2 principal approved Annuitant Finder 1’s variable annuity purchase, and the
variable annuity application was submitted to the issuer.
87. On or about November 26, 2007, the issuer unwittingly issued a strangerowned
deferred variable annuity contract to Annuitant Finder 1 in which Jane Doe 2 was
the designated annuitant. Because he invested his $1 million in a “bonus” annuity,supplied Horowitz, or his associates, with the names and ID and Health Data of at least
10 terminally ill patients in Chicago. These patients were designated as annuitants in at
least 7 variable annuities sold through Broker-Dealer 2, and in at least 28 variable
annuities sold by Respondent Cohen. Horowitz paid Annuitant Finder 2 at least
$150,000 for his and Annuitant Finder 3’s services to the scheme.
Fraud in the Execution of Broker-Dealer Trade Tickets and Point-of-Sale
Forms
Horowitz Falsifies his Broker-Dealer 1 Trade Tickets
42. Between July 2007 and October 2007, Horowitz sold at least 14 deferred
bonus variable annuities to his customers through his registration with Broker-Dealer 1.
43. For each of these 14 annuities, Horowitz designated a terminally ill hospice
patient as the contract annuitant and used the patient ID and Health Data that he and
Annuitant Finder 1 had fraudulently obtained from hospice care providers, through Charity
2 or directly from patients or their family caregivers. By designating patients with terminal
medical diagnoses as the contract annuitants, Horowitz sought to guarantee that his
customers would receive death benefit payouts within months of the annuities sales. For
his part, Horowitz stood to receive lucrative upfront commissions on each stranger-owned
annuity he sold.
44. Horowitz marketed his stranger-owned annuities investment strategy to
customers as an opportunity for obtaining short-term investment gains with a hedge
against investment losses, and Horowitz’s customers intended to use the variable annuities
10
as short-term investment vehicles. However, Horowitz also knew that, in the event the
“stranger annuitants” did not die within a matter of months, his customers would be locked
into unsuitable, highly illiquid long-term investment vehicles that they would be unable to
exit without paying substantial surrender charges.
45. To ensure that its registered representatives were selling suitable
investments to their customers, and to ensure that the investment was being used for its
intended purpose, Broker-Dealer 1 required its principals to review and approve each
proposed sale of an annuity. As part of this process, Broker-Dealer 1 mandated that
Horowitz complete an electronic trade ticket, including a suitability questionnaire, for
every variable annuity that he sold. A Broker-Dealer 1 principal reviewed each trade
ticket. Variable annuity applications could be submitted to the issuing insurance company
only after principal approval of the ticket.
46. Each trade ticket required Horowitz to state how long the customer intended
to hold the variable annuity being purchased. As part of the review process, Broker-Dealer
1’s principals closely scrutinized the response to this question to ensure, among other
things, that the customer intended to hold the investment for a period of time exceeding the
surrender charge period in the deferred variable annuity contract being purchased. The 14
annuities that Horowitz sold through Broker-Dealer 1 had a nine year surrender charge
period.
47. Knowing that his stranger-owned annuities sales would be rejected by
Broker-Dealer 1’s reviewing principals if he provided truthful timing information
concerning his customers’ intention to use the annuities as short-term investment vehicles,
Horowitz submitted trade tickets falsely stating that his customers intended to hold their
annuities from anywhere between 20 and 40 years. Horowitz submitted at least 14 trade
tickets containing these materially false statements.
48. The same trade tickets also required Horowitz to state the relationship
between the owner of the annuity and the annuitant. With respect to each trade ticket that
Horowitz submitted for principal review, he falsely stated that there was a “partner”
relationship between the owner and the annuitant.
49. In fact, there was no relationship, either familial or business, between the
customers purchasing the annuities from Horowitz and the terminally ill hospice patients
designated as annuitants. Indeed, the hospice patients had no idea that they had been
designated as annuitants or that investors stood to profit from their deaths. Broker-Dealer
1’s principals would not have approved Horowitz’s annuities sales if they had known that
there was no relationship between the annuity purchaser and the annuitant.
50. By providing false information about his customers, Horowitz fraudulently
obtained principal approval of his stranger-owned annuities sales, which were then
submitted to the variable annuity issuer. Acontract annuitant, utilizing patient ID and Health Data that the Annuitant Finders had
obtained and supplied to him. Horowitz did this in an effort to structure the annuities as
short-term investment vehicles.
50. By providing false information about his customers, Horowitz fraudulently
obtained principal approval of his stranger-owned annuities sales, which were then
submitted to the variable annuity issuer. As a result of Horowitz’s fraudulent acts and
practices, the issuer then unwittingly issued stranger-owned variable annuities to
Horowitz’s customers and paid out substantial upfront sales commissions to Horowitz.

Jane Doe 1: An Illustration of How Horowitz Carried Out the Scheme at
Broker-Dealer 1
51. By way of example, Annuitant Finder 1 was approached by John Doe 1,
who requested assistance for his wife, Jane Doe 1, who was dying of colon cancer.
52. John and Jane Doe 1 had a young son, and John Doe 1 had a full-time job.
Jane Doe 1’s condition had reached the point where she required 24-hour nursing, and John
Doe 1 was requesting Annuitant Finder 1’s help with half of the nursing costs.
53. Annuitant Finder 1 told Horowitz about Jane Doe 1’s condition and
Horowitz decided to designate Jane Doe 1 as the annuitant in a variable annuity contract
that he sold.
54. To that end, in late July 2007, Annuitant Finder 1 and Horowitz met with
John and Jane Doe 1 at their home in Los Angeles, under the pretense of providing
charitable assistance. Horowitz noted the meeting in his day-timer.
55. During their brief meeting, Annuitant Finder 1 discussed the aid that Jane
Doe 1 would need, but neither Annuitant Finder 1 nor Horowitz ever mentioned variable
annuities, or proposed designating Jane Doe 1 as an annuitant in variable annuities to be
sold to third parties.
56. Shortly after this meeting—and unbeknownst to Jane and John Doe 1—
Annuitant Finder 1 emailed Jane Doe 1’s name and ID Data (including her social security
number and date of birth) to Horowitz’s personal email account.
57. On July 31, 2007, Horowitz sold a $1.7 million variable annuity contract to
a close family member in which Jane Doe 1 was designated as the annuitant.
58. In order to process this annuity sale, Horowitz completed an electronic trade
ticket on which he identified Jane Doe 1 as the investor’s “partner.” This statement was
false because there was no business, familial or other relationship between Jane Doe 1 and
the investor.
59. In response to the investment access question on the trade ticket, Horowitz
stated that the investor intended to hold the annuity for “25 years.” In fact, as Horowitz
knew, the investor intended to hold the investment only until Jane Doe 1 died, and
Horowitz had selected Jane Doe 1 to be the annuitant because he understood her death to
be imminent.
60. Based on these false representations, a Broker-Dealer 1 principal approved
the trade ticket and Broker-Dealer 1 electronically submitted the investor’s variable annuity
application to the variable annuity issuer, which thereafter unwittingly issued a strangerowned
annuity contract.
61. The variable annuity issuer subsequently paid out a commission to Broker-
Dealer 1, with Horowitz netting over $28,500 in commissions on the sale of the annuity.
62. On August 5, 2007, four days after the annuity contract became effective,
Jane Doe 1 died. John Doe 1 notified Annuitant Finder 1 of Jane Doe 1’s death via email
on August 14, 2007. John Doe 1 requested approximately $1,200, representing half the
cost of the 24-hour nursing coverage for Jane Doe 1.
63. Annuitant Finder 1 never responded to John Doe 1’s August 14 email.
Having received no aid or assistance, and no response from Annuitant Finder 1, John Doe
1 wrote to Annuitant Finder 1 again on August 21 and told him to “use the money for
someone else that is more in need.”
64. Unbeknownst to John Doe 1, Annuitant Finder 1 thereafter obtained a copy
of Jane Doe 1’s death certificate and provided it to Horowitz. Horowitz used the death
certificate to prepare a death benefit claim on the investor’s annuity, which was then
submitted to the issuer.
65. On October 19, 2007, the investor received a death benefit payout on the
“Jane Doe 1” annuity of $2,002,073.85. The investor realized a net profit on his initial $1.7
million investment of $302,073.85—representing a 17.7% rate of return over a period of
two and a half months.
Horowitz Falsifies Broker-Dealer 2 Point-of-Sale Forms
66. In mid-November 2007, Horowitz’s supervisors at Broker-Dealer 1
discovered that he was selling stranger-owned annuities and instructed him to immediately
stop doing so.
67. At the time, Horowitz had over $24 million in variable annuities business
pending at Broker-Dealer 1.
68. Unable to sell additional stranger-owned annuities through Broker-Dealer 1,
Horowitz sought assistance from a senior associated person of Broker-Dealer 2 (“Senior
Rep”) in completing the sale of stranger-owned annuities through an affiliate of Broker-
Dealer 2.
69. Working with the office staff of the Broker-Dealer 2 affiliate, Respondent
Horowitz completed the Broker-Dealer 2 new account forms and deferred variable annuity
applications for the deferred variable annuities he had initially intended to sell to his
customers through Broker-Dealer 1.
70. In each of those annuities, Horowitz designated a hospice patient as the
contract annuitant, utilizing patient ID and Health Data that the Annuitant Finders had
obtained and supplied to him. Horowitz
71. As was the case at Broker-Dealer 1, variable annuity sales at Broker-Dealer
2 were subject to principal review and approval to ensure that the proposed sale was
suitable and that the investment was being used for its intended purpose. Broker-Dealer 2
representatives were required to complete a new account form that required the
representative to state the customer’s investment time horizon (i.e., when the customer
anticipated accessing their investment) and to disclose certain financial profile information.
72. Broker-Dealer 2 also required its brokers to complete a “Variable Annuity
Acknowledgement” form, specifically identifying the surrender charge period associated
with the annuity being purchased. As part of the review process, a Broker-Dealer 2
principal closely scrutinized each customer’s investment time horizon to ensure that it
exceeded the surrender charge period in the deferred variable annuity contract being
purchased.
73. Knowing that these stranger-owned annuity sales would be rejected by
Broker-Dealer 2’s reviewing principals if he provided truthful investment time horizons,
Horowitz prepared new account forms falsely stating that the customers intended to hold
their annuities from anywhere between 9 to 45 years.
74. The Senior Rep then recruited his subordinate business partner (“Signing
Rep”) to sign the new account forms and variable annuity applications as the selling
registered representative. The Signing Rep agreed to do so in exchange for a percentage of
the commissions to be earned on these annuities sales. The Signing Rep did not complete
any variable annuity application paperwork or Broker-Dealer 2 new account forms, and he
did not consider the purchasers of the annuities to be his customers.
75. By providing false customer information on the Broker-Dealer 2 new
account forms, and by using a nominee broker to sign off on the required Broker-Dealer 2
point-of-sale paperwork, Horowitz fraudulently obtained principal approval of strangerowned
annuities sold through Broker-Dealer 2.
76. Working in this manner, between late November 2007 and mid-December
2007, Horowitz was able to effect the sale of at least 12 additional stranger-owned variable
annuities – 2 of which were sold to a close Horowitz family member – through Broker-
Dealer 2. During the same time period, Horowitz was not an associated person of Broker-
Dealer 2, nor was he separately registered with the Commission as a broker or dealer.
Jane Doe 2: An Illustration of how Horowitz Continued the Scheme through
Broker-Dealer 2
77. On November 19, 2007—after Horowitz had been instructed by Broker-
Dealer 1 to stop selling stranger-owned annuities—Annuitant Finder 1 met with Jane Doe
2, a terminally ill HCP hospice patient, under the pretense of providing charitable
assistance through Charity 2. Horowitz travelled with Annuitant Finder 1 to Jane Doe 2’s
home.
78. Jane Doe 2, dying of stomach cancer, had previously told her HCP social
worker about her desire to take her children to Disneyland before she passed away. HCP
notified Charity 2 about Jane Doe 2’s request for assistance, after first determining that she
likely would not live long enough to have her request processed through another wellknown
charitable foundation.
79. Charity 2 paid $405 towards the cost of the trip to Disneyland, which Jane
Doe 2 was able to take with her children. As a condition of the donation, Annuitant Finder
1 required HCP to provide him with Jane Doe 2’s ID and Health Data prior to the visit and,
thereafter, met with Jane Doe 2 at her home. During the brief meeting, neither Annuitant
Finder 1 nor Horowitz mentioned variable annuities or proposed designating Jane Doe 2 as
an annuitant in variable annuities to be sold to third parties.
80. On the drive back from Jane Doe 2’s home, Horowitz asked Annuitant
Finder 1 if he wanted to purchase an annuity on Jane Doe 2’s life. Annuitant Finder 1
agreed to do so.
81. On the same day, Horowitz arranged for Annuitant Finder 1 to purchase a
deferred variable annuity through Broker-Dealer 2, in which Jane Doe 2 was designated
as the contract annuitant. Annuitant Finder 1 provided Horowitz with Jane Doe 2’s ID
and Health Data (including date of birth, address and social security number) that
Horowitz needed in order to designate her as the annuitant in Annuitant Finder 1’s
annuity. Annuitant Finder 1 invested $1 million in the annuity.
82. To ensure that Annuitant Finder 1’s variable annuity application was
approved by Broker-Dealer 2, Horowitz made several material false statements on
Annuitant Finder 1’s Broker-Dealer 2 new account form. First, Horowitz falsely stated that
Annuitant Finder 1 had a “27” year investment “time horizon” on his annuity. In fact,
Annuitant Finder 1 intended to utilize the annuity as a short-term investment vehicle of no
more than several months.
83. Second, Horowitz falsely stated that Annuitant Finder 1’s net worth was
“$15,000,000” and that Annuitant Finder 1 had liquid assets of “$7,500,000.” In fact,
Annuitant Finder 1’s total net worth was no more than $2 million; he had liquid assets of
no more than $750,000 to $1 million; and he had margined his brokerage account to obtain
the funds to purchase the annuity.
84. Horowitz falsely inflated Annuitant Finder 1’s financials because he knew
that Broker-Dealer 2’s principals were unlikely to approve a $1 million investment in an
illiquid, long-term investment vehicle by a customer with liquid assets equal to or less than
that amount.
85. Finally, Horowitz had the Signing Rep sign off as the selling representative
on Annuitant Finder 1’s new account form and variable annuity application while knowing
that Annuitant Finder 1 had never spoken with the Signing Rep concerning the annuity and
that the Signing Rep did not consider Annuitant Finder 1 his customer.
86. Based on Horowitz’s and the Signing Rep’s false representations, a Broker-
Dealer 2 principal approved Annuitant Finder 1’s variable annuity purchase, and the
variable annuity application was submitted to the issuer.
87. On or about November 26, 2007, the issuer unwittingly issued a strangerowned
deferred variable annuity contract to Annuitant Finder 1 in which Jane Doe 2 was
the designated annuitant. Because he invested his $1 million in a “bonus” annuity,
Annuitant Finder 1’s account was credited with $50,000.
88. On December 20, 2007, Jane Doe 2 died. Annuitant Finder 1 obtained a
copy of her death certificate and provided it to Horowitz. Horowitz used the death
certificate to prepare a death benefit claim on Annuitant Finder 1’s “Jane Doe 2” annuity,
which was then submitted to the issuer.
89. Annuitant Finder 1 subsequently received death claim payouts from the
issuer totaling $1,050,322.60, realizing a net profit of over $50,000 on his initial $1 million
investment.
Cohen’s Role
90. By early Fall 2007, Horowitz had sold over $20 million of the strangerowned
variable annuities to individual investors but desired to pump greater capital into the
scheme. Searching for a large source of financing, Horowitz began pitching his scheme to
institutional investors.
91. On or about October 25, 2007, Horowitz met with the principals of two
affiliated hedge funds in New York City. As a result of the meeting, the principals decided
to establish an affiliated entity, Institutional Investor 1, to facilitate the funds’ joint
investment in Horowitz’s annuity scheme.
92. In December 2007, a certain variable annuity issuer terminated Horowitz’s
and the Signing Rep’s appointments

93. Unable to sell annuities through Broker-Dealer 1 or through the Signing
Rep, Horowitz sought out a new broker through whom he could perpetuate his scheme.
94. In December 2007, Horowitz met with Cohen in Las Vegas and described
his stranger-owned annuities investment strategy to him. At the time, Cohen was a
registered representative with Broker-Dealer 3.
95. Horowitz told Cohen that he had a “hedge fund” client, who wanted to
invest in stranger-owned variable annuities on a short-term basis. Horowitz told Cohen
that Horowitz or his associates would supply Cohen with the customers and the hospice
patient annuitants, while Cohen would serve as the registered representative on the
additional tranche of stranger-owned variable annuities sales. In exchange, Cohen would
pay Horowitz’s associates a “consulting fee.” Cohen agreed to the arrangement.
96. Between January and February 2008, Cohen, while an associated person of
Broker-Dealer 3, sold at least 28 deferred variable annuities contracts to nominees of
Institutional Investor 1, utilizing the deferred variable annuity products of at least 7
different insurance companies. Collectively, these nominees purchased approximately $40
million in variable annuities.
97. In each of the annuities he sold, Cohen designated a hospice or nursing
home patient as the contract annuitant, utilizing patient ID and Health Data supplied to
Cohen by Horowitz’s associates (who, in turn, had received the data from Annuitant
Finders 2 and 3). Accordingly, Cohen knew that the annuities were being purchased with
the intention of using them as vehicles for short-term investment.
98. As was the case at Broker-Dealers 1 and 2, variable annuities sales at
Broker-Dealer 3 were subject to principal review to ensure that the proposed sale was
suitable and that the investment was being used for its intended purpose. With respect to
each annuity contract that he sold, Cohen was required to complete a “variable annuity
point of sale” form. Among other information, Cohen was required to state when his
customers intended to begin accessing their annuity investment, and whether they intended
to do so during the surrender charge period.
99. As part of the principal review, Broker-Dealer 3 principals scrutinized the
investment access information that Cohen provided on behalf of his customers to ensure
that that each customer would not need access to their investment during the surrender
charge period in the annuity being purchased. Each of the variable annuity products that
Cohen sold had a surrender charge period of at least 7 years.

.

100. Knowing that Broker-Dealer 3 would not approve his variable annuity sales
if he provided truthful investment access information for his customers, Cohen provided
false information regarding how soon the customers intended to access the investment (i.e.,
not before “11 to 15 years”) on each of the 28 Broker-Dealer 3 “Annuity-Point of Sale”
forms that he completed. 17
101. By providing false investment access information for the nominees of
Institutional Investor 1, and by failing to disclose that they intended to access their
annuities well within the surrender charge period, Cohen was able to fraudulently obtain
principal approval of his stranger-owned annuities sales. As a result of Cohen’s fraudulent
acts and practices, the insurance companies whose variable annuities Cohen sold
unwittingly issued stranger-owned variable annuities to Cohen’s customers, and paid out
substantial upfront sales commissions to Cohen.
Ill-Gotten Gains
102. Horowitz and Cohen earned lucrative upfront commissions on each
stranger-owned variable annuity they sold. These commissions were paid by the insurance
companies that unwittingly issued the stranger-owned annuities to the representatives’
customers. The Signing Rep was also paid commissions on the stranger-owned variable
annuities he purported to sell through Broker-Dealer 2. As alleged above, those sales were,
in fact, facilitated by Horowitz. The Signing Rep kept only 10% of those commissions and
paid the balance over to Broker-Dealer 2’s affiliate, which was managed by the Senior Rep,
who received more than 20% of the aforementioned commissions.

103. The table below shows the total number of annuities sold by each
representative, the total value of the annuities each representative sold, and the total
commissions they received on their stranger-owned variable annuity sales.



Registered Total # of Variable Collective Initial total commissions
Representative Annuities Sold Investment Value of Realized
Contracts sold

Horowitz 14 over $20,000,000 over $300,000

Signing Rep 12 $28,000,000 over $127,000

Cohen 28 over $35,000,000 over $700,000


104. The registered representatives collectively received in excess of $1 million
in upfront commissions on more than $80 million in stranger-owned annuity contracts they
sold.
105. These commissions were obtained only through the fraudulent and
deceptive conduct described herein.

VIOLATIONS
106. As a result of the conduct described above, Horowitz and Cohen each
willfully violated Sections 17(a)(1) and 17(a)(2) of the Securities Act, which make it
unlawful for any person, in the offer or sale of any securities, directly or indirectly, (1) to 18
employ devices, schemes or artifices to defraud, or (2) to obtain money or property by
means of any materially false statement or materially misleading omission.
107. As a result of the conduct described above, Horowitz and Cohen each
willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which
make it unlawful for any person, directly or indirectly, in connection with the purchase or
sale of a security, to (a) employ devices, schemes, or artifices to defraud, (b) make untrue
statements of material fact or omit to state a material fact necessary in order to make
statements made, in light of the circumstances under which they were made, not
misleading, or (c) engage in acts, practices or courses of business which operate or would
operate as a fraud or deceit upon persons.
108. As a result of the conduct described above, Horowitz willfully violated
Section 15(a) of the Exchange Act, which makes it unlawful for any person, directly or
indirectly, while acting as a broker or dealer, to effect transactions in, or to induce or
attempt to induce the purchase or sale of, securities when they are not registered with the
Commission as a broker or dealer or associated with any entity registered with the
Commission as a broker or dealer.
109. As a result of the conduct described above, Horowitz willfully aided and
abetted and caused Broker-Dealer 1’s violations of Section 17(a) of the Exchange Act and
Rule 17a-3(a)(6) thereunder, and Cohen willfully aided and abetted and caused Broker-
Dealer 3’s violations of the same provisions. Section 17(a) of the Exchange Act and Rule
17a-3(a)(6) thereunder require that every registered broker or dealer make and keep a
memorandum of each brokerage order, and of any other instruction, given or received for
the purchase or sale of securities. Implicit in these provisions is the requirement that
information contained in a required record or report be accurate.
110. As a result of the conduct described above, Horowitz willfully aided and
abetted and caused Broker-Dealer 1’s and Broker-Dealer 2’s violations of Section 17(a) of
the Exchange Act and Rule 17a-3(a)(17) thereunder. Section 17(a) of the Exchange Act
and Rule 17a-3(a)(17) thereunder require that every registered broker or dealer, and for
each account with a natural person as a customer or owner, make and keep an account
record, including, among other required information, the account owner’s name, tax
identification number, address, annual income, net worth, and the account’s investment
objectives. Implicit in these provisions is the requirement that information contained in a required record or report be accurate.


III.
In view of the allegations made by the Division of Enforcement, the Commission
deems it necessary and appropriate in the public interest that public administrative and
cease-and-desist proceedings be instituted to determine
A. Whether the allegations set forth in Section II hereof are true and, in
connection therewith, to afford Respondents an opportunity to establish any defenses to such
allegations;
B. What, if any, remedial action is appropriate in the public interest against
Respondents pursuant to Section 15(b) of the Exchange Act including, but not limited to,
disgorgement and civil penalties pursuant to Section 21B of the Exchange Act;
C. What, if any, remedial action is appropriate in the public interest against
Respondents pursuant to Section 203(f) of the Advisers Act including, but not limited to,
disgorgement and civil penalties pursuant to Section 203 of the Advisers Act;
D. What, if any, remedial action is appropriate in the public interest against
Respondents pursuant to Section 9(b) of the Investment Company Act including, but not
limited to, disgorgement and civil penalties pursuant to Section 9 of the Investment
Company Act;
E. Whether, pursuant to Section 8A of the Securities Act and Section 21C of
the Exchange Act Respondent Horowitz should be ordered to cease and desist from
committing or causing violations of and any future violations of Section 17(a) of the
Securities Act and Sections 10(b), 15(a) and 17(a) of the Exchange Act and Rules 10b-5
and 17a-3 thereunder; whether Horowitz should be ordered to pay a civil penalty pursuant to
Section 8A(g) of the Securities Act, Section 21B(a) of the Exchange Act, Section 203(i) of
the Advisers Act, and Section 9(d) of the Investment Company Act; and whether Horowitz
should be ordered to pay disgorgement pursuant to Section 8A(e) of the Securities Act,
Sections 21B(e) and 21C(e) of the Exchange Act, Section 203 of the Advisers Act, and
Section 9 of the Investment Company Act; and
F. Whether, pursuant to Section 8A of the Securities Act and Section 21C of
the Exchange Act Respondent Cohen should be ordered to cease and desist from committing
or causing violations of and any future violations of Section 17(a) of the Securities Act and
Sections 10(b) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder;
whether Cohen should be ordered to pay a civil penalty pursuant to Section 8A(g) of the
Securities Act, Section 21B(a) of the Exchange Act, and Section 9(d) of the Investment
Company Act; and whether Cohen should be ordered to pay disgorgement pursuant to
Section 8A(e) of the Securities Act, Sections 21B(e) and 21C(e) of the Exchange Act and
Section 9 of the Investment Company Act.
IV.
IT IS ORDERED that a public hearing for the purpose of taking evidence on the
questions set forth in Section III hereof shall be convened not earlier than 30 days and not
later than 60 days from service of this Order at a time and place to be fixed, and before an
Administrative Law Judge to be designated by further order as provided by Rule 110 of the
Commission's Rules of Practice, 17 C.F.R. § 201.110.
20
IT IS FURTHER ORDERED that Respondents shall file an Answer to the
allegations contained in this Order within twenty (20) days after service of this Order, as
provided by Rule 220 of the Commission's Rules of Practice, 17 C.F.R. § 201.220.
If Respondents fail to appear at a hearing after
being duly notified, the Respondents may be deemed in default and the proceedings may be
determined against the defaulting Respondent upon consideration of this Order, the
allegations of which may be deemed to be true as provided by Rules 155(a), 220(f), 221(f)
and 310 of the Commission's Rules of Practice, 17 C.F.R. §§ 201.155(a), 201.220(f),
201.221(f) and 201.310.
This Order shall be served forthwith upon each Respondent personally or by
certified mail.
IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an
initial decision no later than 300 days from the date of service of this Order, pursuant to
Rule 360(a)(2) of the Commission’s Rules of Practice.
In the absence of an appropriate waiver, no officer or employee of the Commission
engaged in the performance of investigative or prosecuting functions in this or any factually
related proceeding will be permitted to participate or advise in the decision of this matter,
except as witness or counsel in proceedings held pursuant to notice. Since this proceeding is
not “rule making” within the meaning of Section 551 of the Administrative Procedure Act, it
is not deemed subject to the provisions of Section 553 delaying the effective date of any
final Commission action.
By the Commission.
Jill M. Peterson
Assistant Secretary