The Securities and Exchange Commission on Thursday 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.
The SEC Enforcement Division alleges that Michael A. Horowitz, a broker who lives in Los Angeles, developed an illicit strategy to exploit VAs’ death benefits by recruiting 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 benefits 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 says.
“This was a calculated fraud exploiting terminally ill patients,” said Julie Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Michael Horowitz and others stole their most private information for personal monetary gain.”
The 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.
Both 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,” the SEC states. Horowitz and Cohen, meanwhile, generated more than $1 million in sales commissions.
The SEC states that, after selling millions of dollars in variable annuities to individual investors, Horowitz still wanted to generate greater capital into the scheme and began pitching it to institutional investors.