September 25, 2018

SEC hits L.A. Jewish leaders in alleged variable annuities scheme

The Securities and Exchange Commission (SEC) announced on March 13 that it had taken enforcement actions against participants in what it called a scheme designed to profit off of the deaths of terminally ill patients. Among those charged by the SEC are four leaders from Los Angeles’s Orthodox Jewish community.

According to the SEC, the architects of the scheme first identified terminally ill patients and then sold variable annuities contracts to wealthy investors that designated the patients as “annuitants,” whose deaths would trigger a benefit payout to the investors.

Of the eight individuals mentioned in the SEC’s orders, six have settled with the SEC. The alleged ringleader of the scheme, Michael A. Horowitz, is a broker who lives in Los Angeles and is a major supporter of Adas Torah, an Orthodox Jewish congregation in the Pico-Robertson neighborhood. Horowitz is still fighting the SEC’s action, and said in a statement posted on his firm’s Web site that he “was merely a salesperson selling a product designed and marketed by a major life insurance company.”

Variable annuities allow an individual to invest a certain amount of money with a life insurance company and then to receive both the proceeds of that investment during their lives and to name one or more beneficiaries who will receive a payout upon their deaths. It is illegal for an investor to take out a life insurance policy that names a stranger as the person whose death will trigger the benefit.

The SEC alleges that Horowitz, together with Moshe Mark Cohen, a broker based in Brooklyn, N.Y., organized a scheme that allowed investors to do just that. Horowitz and Cohen, according to the SEC, first deceived their respective brokerage firms in order to sell the annuities, and then submitted fraudulent information to insurance companies who later issued variable annuities that they might not have otherwise sold.

Horowitz and Cohen generated more than $1 million in commissions on the sales of these annuities. The investors in the annuities reaped even more in profits. Both Horowitz and Cohen are fighting the SEC’s charges.

Six others involved in the scheme have settled the charges, paying a total of more than $4.5 million to the SEC. They include Marc Firestone and Richard Horowitz, two Los Angeles-based life insurance brokers who, according to the SEC, “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,” the SEC said in a press release, “and Horowitz and Firestone were each paid commissions.”

According to Horowitz and Firestone’s firm’s Web site, Richard Horowitz, who is Michael A. Horowitz’s father, is the co-founder of Aish HaTorah in Los Angeles, a “worldwide educational organization helping unaffiliated Jews understand the essence of Judaism,” and he serves as the International President of Aish HaTorah. Richard Horowitz also serves as the Chairman of Ashreinu and Vice President of Association for Jewish Outreach Professionals.

Firestone, according to a bio on the firm’s Web site, “instructs a recurring class on Jewish ethics and relationships,” and has appeared on radio and TV stations in that capacity.

Richard Horowitz settled with the SEC for more than $365,000; Firestone settled for more than $180,000. Neither Richard Horowitz nor Firestone responded to emails or to a message left at their firm’s office.

The SEC also settled with Harold Ten, who is the president of Bikur Cholim, a Los Angeles-based nonprofit that, according to its Web site, provides services to seriously ill Jews and their families. According to the SEC, Ten, an Orthodox rabbi who also goes by the name Hershy or Heshy, established a new charity, Raphael Health, which he presented as providing services to terminally ill patients.

In fact, the charity, according to the SEC, merely served to identify terminally ill patients to be named as the annuitants on the fraudulent policies, and received compensation from Horowitz for doing so. Ten, according to the SEC, deceived both hospice care providers and a number of patients in their care in order to obtain private medical information that allowed him to ascertain that the patients were, in fact, dying. In November 2007, Ten himself purchased an annuity on the life of one unnamed woman, who was dying of stomach cancer. Ten invested $1 million, and when she died, less than one month later, Ten realized a profit of $50,000.

Ten agreed to pay the SEC more than $290,000. He did not respond to an email or to a phone message left at the office of Bikur Cholim.

While the scheme, which according to the SEC lasted for at least two years during 2007 and 2008, generated hundreds of thousands of dollars in commissions and profits for investors and the brokers involved, the terminally ill individuals who were named as the annuitants on the policies received next to no compensation at all – between $250 and $500 apiece, according to the SEC’s order against Ten.

“This was a calculated fraud exploiting terminally ill patients,” said Julie M. 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.”