The SEC filed charges against Los Angeles broker Michael A. Horowitz and Brooklyn broker Mosche Marc Cohen, alleging the duo were party to an $80-million fraudulent variable annuity ("VA") scheme from 2007 through 2008. The SEC claims Horowitz served as architect of the fraud, which operated by looking to profit from the death of terminally ill patients in hospice and nursing homes.
VAs often feature a death benefit paid to the annuity's beneficiary if the annuitant dies, plus optional bonus credits. According to the SEC, Horowitz looked to exploit these benefits by identifying terminally ill patients in southern California and Chicago, Illinois. SEC's Enforcement Division alleges that Horowitz, anticipating that a patient would soon die, sold VA contracts with death benefits and bonus credit features to wealthy investors, designating the terminally ill patients as annuitants and marketing the scheme as a way to win short-term investment gains.
Horowitz allegedly learned that unlike traditional life insurance, these variable annuity contracts, when purchased under a certain dollar threshold amount, did not require a physical examination nor even proof of the annuitant's insurable interest.
The SEC found that the primary criteria Horowitz employed in selecting hospice patients to designate as annuitants were "their terminal illness" and "the likelihood that they would die soon."
Accordingly, when the annuitants died, the investors collected death benefit and bonus credit payouts, and because Horowitz solicited wealthy investors to make large investments in the associated variable annuities, these payouts could be quite significant. SEC investigators allege that Horowitz and Cohen, through deception, falsification and other fraudulent practices, generated more than $1 million in sales commissions alone.
To maximize profits, Horowitz allegedly advised his customers to invest their premiums "aggressively" when he anticipated that a particular annuitant was near death.
The SEC also implicated Los Angeles-based Harold Ten and Chicago's Menachem "Mark" Berger and Debra Flowers as Horowitz's accomplices. The investigation states Ten, Berger and Flowers agreed to receive compensation for various roles in the scam. Ten and Berger, for instance, were allegedly directly recruited by Horowitz to identify terminally ill patients to use as annuitants.
The group purportedly convinced their alleged victims to invest in the fraud by advertising a false charity and using other forms of deception. Through these methods, the SEC claims Ten, Berger and Flowers were able to fraudulently obtain confidential health data about patients, which were forwarded to Horowitz. The SEC states that Horowitz then decided whether to target the patient as an annuitant or not.
The SEC claims Horowitz's illicit behavior didn't stop there. He allegedly created BDL Manager LLC in order to facilitate further investment in the VA scheme, recruiting trader Howard Feder of Woodmere, New York to serve as the firm's sole principal. The SEC claims Feder fraudulently secured over $56 million broker-dealer approvals in annuities sold through the Horowitz scheme.
The investigation states that the BDL Group received over $1.5 million in proceeds from the annuity investments.
Though Ten, Berger, Floewrs, Feder and BDL Manager consented to the SEC findings without admitting nor denying the findings, and agreed to securities industry or penny stock bars in addition to significant monetary sanctions—including total disgorgement of nearly $1.75 million and penalties amounting to nearly $1.9 million—Michael Horowitz and Moshe Cohen did not.
The SEC furthermore found former Los Angeles registered representatives Richard Mark Horowitz and Marc Steven Firestone negligent in allowing the submission of 12 annuities' point-of-sale forms. Enforcement found that the pair authorized submission of the forms with inaccurately exaggerated answers that led to each annuity's issuance and commissions for both Horowitz and Firestone.
Richard Horowitz agreed to pay disgorgement of nearly $300,000 and a $40,800 penalty. Firestone's disgorgement amount was over $127,000 with a $40,800 penalty.
Horowitz and Cohen also received an SEC order instituting cease-and-desist proceedings arising from the fraudulent scheme looking to profit from the imminent deaths of terminally ill hospice and nursing home patients.
If you have invested with any of the financial professionals party to this scheme—Michael A. Horowitz, Moshe Cohen, Harold Ten, Menachem "Mark" Berger, Debra Flowers, Howard Feder, Richard Mark Horowitz or Marc Steven Firestone—or with the BDL Manager LLC firm or with any other broker, adviser or firm whose illicit and potentially fraudulent schemes regarding variable annuities benefit exploitation or another insurance contract or complex investment vehicle and such deceptive or misleading practices that led to the investment activity have proven harmful to or resulted in losses of your investments or financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
Press Release: SEC Announces Charges Against Brokers, Adviser, and Others Involved in Variable Annuities Scheme to Profit From Terminally Ill (Securities & Exchange Commission)