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Reports US

US stock market daily report (March 13, 2014, Thursday)

March 14, 2014, Friday, 04:10 GMT | 00:10 EST | 08:40 IST | 11:10 SGT
Contributed by Millennium Traders


Michael A. Horowitz, a broker from Los Angeles, CA faces enforcement actions from the Securities and Exchange Commission for deceiving brokerage firms in order to obtain approvals needed to sell variable annuities to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care. Per allegations from the SEC Enforcement Division, Horowitz enlisted another broker Moshe Marc Cohen of Brooklyn, N.Y., to falsify various broker-dealer forms used by firms to conduct investment suitability reviews. The fraudulent practices used in the scheme by Horowitz and Cohen resulted in numerous insurance companies unwittingly issuing variable annuities that they would not have otherwise been sold, resulting in the pair generating over $1 million in sales commissions.

The enforcement actions were announced Thursday against the investment advisory firm along with several others involved. The SEC Enforcement Division alleges that Horowitz developed an illicit strategy to exploit benefits from the imminent deaths of terminally ill patients in nursing homes and hospice care. Horowitz recruited others to assist him with obtaining personal health and identifying information of terminally ill patients in southern California and Chicago.  Anticipating the patients would soon die, Horowitz sold variable annuities contracts with death benefit and bonus credit features to wealthy investors, and designated the patients as annuitants whose death would trigger a benefit payout. Horowitz marketed these annuities as opportunities for investors to reap short-term investment gains. When the annuitants died, the investors collected death benefit payouts.

Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit said, “This was a calculated fraud exploiting terminally ill patients. Michael Horowitz and others stole their most private information for personal monetary gain.”

The orders instituting administrative proceedings of the SEC indicate the scheme began in 2007 and continued into 2008. Horowitz agreed to compensate Harold Ten of Los Angeles and Menachem “Mark” Berger of Chicago for identifying terminally ill patients to be used as annuitants. Berger in turn, recruited Debra Flowers of Chicago into the scheme and compensated her directly.  Through the use of a purported charity and other forms of deception, Ten, Berger and Flowers obtained confidential health data about patients for Horowitz.

Four non-brokers, a New York-based investment advisory firm and recruited into the scheme plus, two other brokers who are charged with causing books-and-records violations related to annuities sold through the scheme, have agreed to settle the charges from the SEC. The total settlement to be paid is in excess of $4.5 million. The order against Horowitz and Cohen alleges that they willfully violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and they willfully aided and abetted and caused violations of the Exchange Act’s books-and-records provisions.  Horowitz also acted as an unregistered broker.

Per the order from the SEC, Horowitz desired to generate greater capital into the scheme, even after selling millions of dollars in variable annuities to individual investors. Horowitz began pitching his scheme to institutional investors in his search for a large source of financing. In order to facilitate institutional investment in variable annuities through the use of nominees, during late 2007, a pooled investment vehicle and its adviser BDL Manager LLC with sole principal commodities trader Howard Feder from Woodmere, N.Y. was created. Through Horowitz’s scheme, Feder and BDL Manager fraudulently secured broker-dealer approvals of more than $56 million in annuities sold. Brokers were provided with blank forms by Feder, in order to be signed by the nominees to enable the brokers to complete the forms with false statements indicating that the nominees did not intend to access their investments for many years. Feder understood that the purpose of Horowitz’s scheme was to designate terminally ill patients as annuitants in the expectation that their deaths would result in short-term lucrative payouts. BDL Group received more than $1.5 million in proceeds from its investment in the annuities.

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