| NEW YORK
NEW YORK Aug 25 A New York broker went on trial
on Monday over a U.S. securities regulator's claims he
participated in a scheme designed by a Morgan Stanley
employee to profit from the death of terminally ill patients
through variable annuity sales.
The U.S. Securities and Exchange Commission called its first
witnesses in an administrative proceeding in New York against
Moshe Marc Cohen, a former Woodbury Financial Services broker
who the agency said deceived the firm to obtain approval to sell
Variable annuities are investment vehicles designed to help
retirees maintain a source of income, with insurers typically
agreeing to make periodic payments to purchasers.
The annuities also include a death benefit, in which
insurers pay the policyholder's beneficiary under certain
The SEC, which initiated the case in March, said that
feature was at the heart of a scheme developed by Michael
Horowitz, a Los Angeles broker then with Morgan Stanley who
advised investors on buying the variable
The SEC said Horowitz recruited people to help him obtain
personal health information of terminally ill hospice and
nursing home patients in California and Chicago.
At least 16 patients were ultimately linked to the policies,
despite the lack of ties to the investors buying the products,
the SEC says.
Brian Jedwab, a portfolio manager at New York hedge fund
Platinum Partners, which invested in the annuities, testified
Monday the plan was attractive since the insurers would
guarantee the principle, making it risk-free if the portfolio's
value decreased before the patient died.
The deals were also short-term, he said, since the people
were expected to die "within a few months," providing for
potentially exponential profits.
"It was a key part of the strategy," he said.
Jedwab testified that he first spoke about the plan in 2007
with Horowitz, who at the time was looking for an institutional
At its height, Jedwab said, Platinum had invested in more
than $60 million of annuities, setting up a firm, BDL Group, to
buy the stranger-owned policies.
The SEC contends while insurance companies did not ask about
the health of the patients, both Morgan Stanley and Woodbury
Financial had review processes that required them to ensure
customers buying variable annuities had long-term investment
Yet both Horowitz and Cohen, who was recruited later to act
as a sales representative for the annuities, falsified forms
their firms used for the reviews, the SEC said. The agency said
the scheme enabled the two to generate more than $1 million in
Horowitz reached a $850,749 settlement in July in which he
The SEC is seeking an order requiring Cohen, who is
representing himself in the proceedings, to forfeit $766,958
plus interest along with civil penalties. The agency also wants
an order barring Cohen from the securities industry.
The SEC is expected to rest its case before SEC Chief
Administrative Law Judge Brenda Murray on Wednesday.
(Reporting by Nate Raymond in New York; Editing by Noeleen
Walder and Tom Brown)