The Securities and Exchange Commission today charged two brokers for an alleged scheme to profit from the deaths of terminally ill patients via the sale of variable annuities.
 
SEC enforcers say  that the architect of the scheme, Michael A. Horowitz of Los Angeles, and another broker he enlisted in the plan, Moshe Marc Cohen of Brooklyn, N.Y,  generated more than $1 million in sales commissions from stranger-owned annuities in 2007 and 2008.
 
The brokers are charged with violating the antifraud provisions of federal securities laws and aiding and abetting violations of books-and-records rules by submitting false applications for annuity purchases.
 
The SEC says the cases against Horowitz and Cohen are continuing.
 
Horowitz’s attorney, Richard Beckler of Bracewell & Giuliani in Washington D.C., and Cohen’s attorney, Michael Deutsch at Singer Deutsch in New York, did not return calls.
 
During the alleged scheme, Horowitz worked for Morgan Stanley in Beverly Hills, Calif. The SEC says he resigned in August 2008 during a firm investigation into the sale of the variable annuities. Cohen was fired by Woodbury Financial Services Inc. in February 2008 over the same issue.
 
Horowitz is now affiliated with Kovack Securities Inc., according to Finra records. Cohen is no longer in the industry.
 
The SEC claims Horowitz named terminally ill hospice and nursing home patients as annuitants on contracts owned by unrelated investors. The annuitants’ deaths triggered death-benefit payouts equal to the greater of the portfolio value or the amount invested, without surrender charges or commission clawbacks.
 
As a result, Horowitz advised his customers to invest their premiums aggressively, the SEC said, and to invest large sums of money to maximize bonus credits offered on the annuities.
 
The SEC claims that Horowitz paid a hospice care provider in Southern California more than $130,000 and a nursing home executive in Chicago $150,000 for the names and personal information of terminally ill patients used as annuitants.
 
The SEC also said that it had settled related charges against the individuals Horowitz used to find terminally ill patients and with a commodities trader who arranged nominee purchasers of annuities. Two other brokers who submitted annuity applications for Horowitz also settled charges. More than $4.5 million will be paid in the settlements, the SEC said.