A broker charged with scouring nursing homes and hospices for terminally ill patients so wealthy clients could reap death benefits from annuities contracts agreed to pay $850,000, admit limited wrongdoing and be barred from the securities industry, the U.S. Securities and Exchange Commission announced Thursday.
Los Angeles broker Michael Horowitz used unwitting patients in a scheme designed to reap short-term benefits for his clients, who designated the terminally ill as annuitants whose death would trigger a benefit payout, the SEC said.
Variable annuities are supposed to be long-term investments, typically used to provide income after retirement. But many also provide death benefit and bonus credit features if the annuitant—who need not be a relative—should die.
“Horowitz devised a scheme in which he used terminally ill patients’ private information for personal gain, and misled his brokerage firm into approving the variable annuity sales,” said Julie Riewe, co-chief of the SEC Enforcement Division’s asset management unit, in a news release.
According to the SEC, Horowitz paid associates who set up fake charities or organizations to identify dying people and obtain their Social Security numbers and dates of birth—information that was necessary to name them as annuitants.
In one instance, the SEC said, the fake charity paid for a woman dying of stomach cancer to take her children to Disneyland—but first required her to give them her personal information. Horowitz then allegedly arranged for the associate, Harold Ten, to buy a $1 million annuity on the woman’s life. She died a few weeks later, and Ten made $50,000.
Ten settled with the SEC in March, agreeing to pay disgorgement of $181,000, prejudgment interest of $21,000 and a penalty of $90,000.