By Sarah N. Lynch
WASHINGTON, March 13 U.S. securities regulators
filed civil charges against two brokers and seven others, saying
they were involved in a scheme to profit from the death of
terminally ill patients through variable annuity sales.
The Securities and Exchange Commission's complaint, filed on
Thursday as an administrative action, says Los Angeles-based
broker Michael Horowitz, 39, was the mastermind behind the
scheme to exploit people nearing their death.
Variable annuities are investment vehicles designed to help
retirees maintain a source of income.
Typically, insurance companies who sell the annuities will
agree to make periodic payments to people who purchase the
But another common feature offered is a death benefit, in
which the insurer pays the policyholder's beneficiary under
According to the SEC, Horowitz recruited people to help him
steal personal health information from hospice and nursing home
patients so he could designate them as annuitants and sell the
products to wealthy investors.
The SEC said that at least 16 terminally ill hospice
patients who were designated as annuitants had no family or
business relationships with the investors who ultimately bought
Among the people he recruited was another broker, Moshe Marc
Cohen, 38, of Brooklyn, New York, the SEC said.
Together, they falsified a variety of documents, including
forms designed to help determine if certain investments are
suitable for customers, the SEC said.
As a result, the SEC said, insurance companies "unwittingly
issued variable annuities that they would not otherwise have
Later, the SEC said, Horowitz moved on from just selling to
individual investors and pitched the products to institutional
investors as well in the hopes of boosting profits.
All told, the SEC said, the scheme led to the purchase and
sale of $80 million in deferred variable annuities between 2007
and 2008, with Horowitz reaping $300,000 in commissions and
Cohen getting $700,000.
The brokerage database run by the Financial Industry
Regulatory Authority lists Horowitz as being a current
registered representative with Kovack Securities Inc.
However, the conduct alleged by the SEC occurred while he
was employed with Morgan Stanley, according to both the
filing and to Kovack's Chief Compliance Officer Melinda Wolfe.
Wolfe added that Horowitz only became a registered
representative at her firm in January 2014, but that officials
there were unaware of the extent of the SEC's allegations
"The SEC allegations include information that was not
disclosed by Mr. Horowitz during our hiring process," Wolfe told
"As such, we are opening an investigation and will take
Cohen, meanwhile, is last listed in the FINRA database has
having been affiliated with Woodbury Financial Services.
According to a report filed with FINRA, Woodbury terminated
his employment in 2008 over a failure to cooperate with an
internal review of his sale of annuity contracts.
Lawyers for Horowitz and Cohen could not be immediately
reached for comment. The SEC said the two were fighting the
The remaining defendants, including one investment advisory
firm, all settled without admitting or denying the allegations,
and will collectively pay $4.5 million.