Jay Daniel Seinfeld, his purported charity and a social worker he employed have agreed to pay a combined total of $812,787 to settle charges arising out of a fraudulent scheme to exploit terminally ill investors and then profit from their deaths, the SEC announced on Tuesday.

The SEC's complaint, which was filed in federal court in Texas, alleged that Seinfeld, who was based in New York, hired Texas-based social worker Sara Beth Postma and founded Traditions Capital Management LLC, the Hospice Patient Aid Program, to gain access to hospices and terminally ill patients throughout Texas.

The complaint said between 2010 and 2012, Seinfeld and Postma convinced more than  a dozen such patients to provide their personal information and sign transaction documents as purchasers of corporate bonds that would pay out upon their deaths while simultaneously relinquishing most of the bonds' anticipated proceeds.

Seinfeld and Postma operated the HPAP program in two stages. In Phase 1, Postma’s would visit patient, confer about the charitable aid and obtaining executed forms that included HIPAA releases. HIPAA (Health Insurance Portability and Accountability Act of 1996) provides data privacy and security provisions for safeguarding medical information.

Seinfeld would then perform certain follow up steps, which included using the HIPAA releases to obtain detailed medical records and then to consult with a physician, with whom Seinfeld was close, concerning how imminent the patient’s death appeared to be.
The complaint noted that HPAP’s medical records request form stated in a misleading manner that the records would be used “to assure that qualifying patients are able to receive financial assistance from our program in a timely fashion.” This phase also included running credit and background checks on the patients, the complaint said.

In Phase II, Postma revisited those patients whose deaths Seinfeld had determined to be most imminent and whose credit and background checks had yielded no potential encumbrances. During the visits, Postma sought to procure the patients’ signatures as securities purchasers as well as their waivers of the large majority of the securities’ anticipated proceeds, ostensibly in order to assist other terminally ill hospice patients, the complaint said.

The SEC said she did disclose that the patients’ execution of the tendered documents would result in the opening of securities accounts in which purchases of securities would be made. But Postma’s statements to the patients indicated that this was all part of HPAP’s charitable program, and that the documents she was presenting to them for signature would ensure that the securities’ proceeds—other than the $2,000 to $2,500 the documents reserved for them—would be applied to help others similarly situated.

Seinfeld and Postma never expected the large portions of investment proceeds disclaimed by the patient-purchasers to be paid to other similarly situated patients or their families, and these sums never paid, the complaint noted.

Instead, when patient-purchasers died, the complaint said Seinfeld allegedly redeemed the bonds and split a large majority of the profits -- hundreds of thousands of dollars in the aggregate -- with other wealthy investors.

Over the time in which the “death put” bonds transactions took place, Postma’s was compensated a total of  $163,590. 29.  Seinfeld and TCM obtained together with his outside investors, $362,573.80 in net profits from the death put bond transactions, the complaint noted.

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