A former broker who masterminded an annuity scheme to profit from the deaths of terminally ill patients has agreed to an $850,000 fine and to be banned from the securities industry, the U.S. Securities and Exchange Commission said on Thursday.
The broker, Michael Horowitz of Los Angeles, also admitted to wrongdoing as part of the settlement, the SEC said. The agency filed a civil action against Horowitz in March.
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 product.
But another common feature offered is a death benefit, in which the insurer pays the policyholder's beneficiary under certain conditions.
Horowitz, the SEC said, 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 people he recruited included another broker, Moshe Marc Cohen, of Brooklyn, the SEC said.
Cohen was also named in the SEC's March civil complaint. An administrative hearing in Cohen's case is set for late August, according to the SEC.
"It's very expensive to litigate against the government and the inducement is to move on," said Robert Rose, Horowitz's lawyer in San Diego, California. "So, he's moved on."
Horowitz and Cohen falsified forms their brokerage firms used to conduct reviews as to whether the annuities were suitable for their customers, the SEC said.
At least 16 terminally ill hospice patients who were designated as annuitants had no family or business relationships with the investors who ultimately bought the products.