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.
Luke says: Richard Horowitz and Marc Firestone are well known in Pico-Robertson’s Orthodox community.
According to Aish.com: “Richard M. Horowitz received his MBA from Pepperdine University in California. Mr. Horowitz is the President of Management Brokers Insurance Agency, and Chairman of Dial 800 L.P. Mr. Horowitz also serves on the Board of Triotech (OTC) as well as numerous non-profit organizations.”
According to their website ManagementBrokers.com:
Well-Regarded In The Community
For Richard and Marc, life insurance was not merely a business choice; it was a lifestyle choice as well. They deliberately chose a profession that would improve the quality of others’ lives.
Richard HorowitzRichard Horowitz is a master at identifying unique and creative solutions for family wealth transitions and then negotiating to ensure his clients obtain the greatest possible value. Richard graduated with an MBA from Pepperdine University and has been the President of Management Brokers, Inc. from 1974 to the present. He serves as the Chairman of Dial 800 Inc., a national telecommunications company, and has been a board member of Trio Tech International (ASE) since 1990.
Richard 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).
Richard’s wife, Beverly, grew up in the Hyde Park area of Chicago. She moved to Los Angeles in the Sixties when she came for a visit and never went home. Beverly and Richard are parents of two sons and two daughters-in-law, and the proud bubby and zaidie of eight grandchildren.
Marc Firestone has been in financial services for over 30 years and has a unique background that equips him to diagnose and prescribe the best life insurance solution based on the totality of an individual family’s financial circumstances. Originally a CPA managing the personal finances of well-known entertainers, Marc moved into the life insurance business when he saw a need for more objective advisors with long-range vision. He continues to work with entertainers and their CPAs, as well as a vast array of clients all with their own fascinating stories.
Marc regularly speaks to professional business associations in his capacity as a life insurance expert. Marc also instructs a recurring class on Jewish ethics and relationships. In this latter capacity he has appeared on CNN, KABC-AM and KFI-AM talk radio. However, it is Marc’s wife and five children who keep him well focused on the real priorities in life.
Discover the life insurance advisors who can negotiate better life insurance rates on your behalf: Horowitz and Firestone. Contact them today.
Michael Horowitz is the founder of Adas Torah, located at 1135 South Beverly Drive, Los Angeles, California 90035. It is the most outwardly religious shul in Pico-Robertson.
Rabbi Michael “Baruch” Gradon is the president of the kollel and Michael Horowitz is the Director, treasurer, and secretary of Merketz Kollel.
Report: “Rav Baruch Yehuda Gradon, Rosh Kollel of Kollel Merkaz HaTorah, flew in from Los Angeles specifically for the purpose of addressing the crowd, commencing the program with inspiring Divrei Chizuk. Rabbi Gradon reinforced the message that the hard, often thankless work of fundraising is a holy and essential task despite the personal challenges to self and family. He also emphasized that every fundraiser should do his best to embody the high moral principles represented by his institution, a responsibility that entails avoiding any compromise of those principles.”
Merkaz HaTorah has over four million dollars in assets. I wonder how many of these assets come from ill-gotten gains?
This is no shock. Many, if not most, yeshivas in the United States rely on dodgy funding (money laundering, tax cheating, etc). The Lord works in mysterious ways.
I read about the Horowitz/Firestone scandal on your site and on Failed Messiah. I think you both missed a key link in the case, and I will send it to you, because your addendum that mentioned “Rabbi Hershy Ten” made the whole thing click for me. Besides, you’re local, and you always give me a nice hello on Pico Boulevard even though we’re not acquainted.
First, one of the perpetrators in this case was a certain Harold Ten, who identified terminally ill patients to the scammers. One wonders what position one must be in to identify terminally ill patients. You can easily Google his name and link to his Facebook page, and see that he owns some company called Tenco IMI. Ha-ha, very catchy. Note the photo.
Now Google Rabbi Hershy Ten, and look at his Facebook page. Same photo. Could they be twins? No, no Jewish parent names twin boys Harold and Hershy; Hershy is a common Yiddish pairing of Harold, and goes with the Hebrew name Tzvi (deer).
And who is Rabbi Hershy Ten? He is the director of Bikur Cholim — the Jewish organization that helps sick people. In other words, the director of a religious organization that helps sick people identified terminally ill patients to his benefactors so that they can make more money and share some of the proceeds with him.
This is far worse, in my opinion, that what the scammers did. Yes, they’re high-profile members of the Orthodox community; Firestone in particular was the exemplar of the sincere and successful ba’al t’shuva. But they’re business people. Ten is a rabbi.
Charles posts to Failed Messiah:
If I understand this right, the fraud was perpetrated against the insurance companies writing the variable annuities, _not_ against the old, sick patients.
What the SEC doesn’t specify is whether Aish haTorah was one of the “institutional investors” who participated in the fraud. And whether Aish _knew_ it was a fraud.
PS — there’s a lesson here:
. . . If you defraud an insurance company,
. . . it will be unhappy.
. . . And it will have the resources to
. . . chase you down.