International President Of Haredi Kiruv Organization Aish HaTorah, Other Orthodox Jews, Caught In Illegal Scam Exploiting Elderly Ill Patients

The Securities and Exchange Commission today announced enforcement actions against a pair of brokers, an investment advisory firm, and several others involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care.

 Richard Horowitz, the President of Aish HaTorah International

 

SEC Announces Charges Against Brokers, Adviser, and Others Involved in Variable Annuities Scheme to Profit From Terminally Ill

 

FOR IMMEDIATE RELEASE
2014-50

Washington D.C., March 13, 2014 —

The Securities and Exchange Commission today announced enforcement actions against a pair of brokers, an investment advisory firm, and several others involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care.

 

Variable annuities are designed to serve as long-term investment vehicles, typically to provide income at retirement.  Common features are a death benefit paid to the annuity’s beneficiary (typically a spouse or child) if the annuitant dies, and a bonus credit that the annuity issuer adds to the contract value based on a specified percentage of purchase payments.  The SEC Enforcement Division alleges that Michael A. Horowitz, a broker who lives in Los Angeles, developed an illicit strategy to exploit these benefits.  He recruited others to help him obtain personal health and identifying information of terminally ill patients in southern California and Chicago.  Anticipating they would soon die, Horowitz sold variable annuities contracts with death benefit and bonus credit features to wealthy investors, and he 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. 

 

The SEC Enforcement Division alleges that Horowitz enlisted another broker Moshe Marc Cohen of Brooklyn, N.Y., and they each deceived their own brokerage firms to obtain the approvals they needed to sell the annuities.  They falsified various broker-dealer forms used by firms to conduct investment suitability reviews.  As a result of the fraudulent practices used in the scheme, some insurance companies unwittingly issued variable annuities that they would not otherwise have sold.  Horowitz and Cohen, meanwhile, generated more than $1 million in sales commissions.

 

Agreeing to settle the SEC’s charges are four non-brokers and a New York-based investment advisory firm recruited into the scheme.  Also agreeing to settlements are two other brokers who are charged with causing books-and-records violations related to annuities sold through the scheme.  A combined total of more than $4.5 million will be paid in the settlements.  The SEC’s litigation continues against Horowitz and Cohen.

 

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

 

According to the SEC’s orders instituting administrative proceedings, 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. 

 

According to the SEC’s orders, after selling millions of dollars in variable annuities to individual investors, Horowitz still desired to generate greater capital into the scheme.  Searching for a large source of financing, he began pitching his scheme to institutional investors.  A pooled investment vehicle and its adviser BDL Manager LLC were created in late 2007 in order to facilitate institutional investment in variable annuities through the use of nominees.  Commodities trader Howard Feder, who lives in Woodmere, N.Y., became each firm’s sole principal.  Feder and BDL Manager fraudulently secured broker-dealer approvals of more than $56 million in annuities sold through Horowitz’s scheme.  Feder furnished the brokers with blank forms signed by the nominees enabling 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.

 

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.

 

Ten, Berger, Flowers, Feder, and BDL Manager consented to SEC orders finding that they willfully violated Section 10(b) of the Exchange Act and Rule 10b-5.  They neither admitted nor denied the findings and agreed to cease and desist from future violations.  The individuals agreed to securities industry or penny stock bars as well as the following monetary sanctions: 

• Ten agreed to pay disgorgement of $181,147.64, prejudgment interest of $20,858.80, and a penalty of $90,000.
• Berger agreed to pay disgorgement of $119,000, prejudgment interest of $11,579.61, and a penalty of $100,000.
• Feder agreed to pay a penalty of $130,000.
• BDL Manager agreed to pay disgorgement of $1,550,565.55, prejudgment interest of $196,608.97, and a penalty of $1,550,565.55.

 

The SEC’s order against Richard Horowitz and Marc Firestone finds that they negligently allowed point-of-sale forms for 12 annuities in the scheme to be submitted to their firm with inaccurately overstated answers to the form’s question asking how soon the customer intended to access his or her investment.  These inaccurate answers led to each annuity’s issuance, and Horowitz and Firestone were each paid commissions. 

 

Richard Horowitz and Firestone consented to the order finding that they caused their firm to violate Section 17(a) of the Exchange Act and Rule 17a-3.  Without admitting or denying the findings, they agreed to cease and desist from committing or causing future violations of those provisions as well as the following monetary sanctions:

• Horowitz agreed to pay disgorgement of $292,767.89, prejudgment interest of $36,512.20, and a penalty of $40,800.
• Firestone agreed to pay disgorgement of $127,853.20, prejudgment interest of $17,140.89, and a penalty of $40,800. 

 

The SEC’s investigation was conducted by Marilyn Ampolsk, Peter Haggerty, Jeremiah Williams, and Anthony Kelly of the Enforcement Division’s Asset Management Unit along with Christopher Mathews and J. Lee Buck II.  The SEC’s litigation will be led by Dean M. Conway.

###

 

Eagle-eyed Luke Ford spotted the Aish HaTorah connection and noted that both "Richard Horowitz and Marc Firestone are well known in Pico-Robertson’s Orthodox community.

He also spotted this on the pair's website:

"…Richard [Horowitz] is the co-founder of Aish HaTorah in Los Angeles. Aish HaTorah is a worldwide educational organization helping unaffiliated Jews understand the essence of Judaism. He currently serves as the International President of Aish HaTorah, has acted as the North American President of Aish HaTorah and has also served on the Aish HaTorah International Management committee since its inception in 1997. Richard also serves as the Chairman of Ashreinu and Vice President of AJOP (Association for Jewish Outreach Professionals).…"

Please click to enlarge:

 

Comments

[ali]

Is this connected to the nursing home scandal a few years ago?

[Reese]

This Is one of he most vile scams that can be perpetrated. There is nothing lower than taking advantage of someone in that state. One wonders if Aish had known about this scam would they have thought the end justifies the means. Investigations should also be made into the hospice business, seems way too many people are getting way too rich with it.

[Abracadabra]

From their website:

"Marc also instructs a recurring class on Jewish ethics…"

[S M L]

Bam! Another black eye for us.

[Charles P. Cohen]

If I understand this right, the fraud was perpetrated against the insurance companies writing the variable annuities, _not_ against the old, sick patients.

What the SEC doesn't specify is whether Aish haTorah was one of the "institutional investors" who participated in the fraud. And whether Aish _knew_ it was a fraud.

. Charles

PS -- there's a lesson here:

. . . If you defraud an insurance company,
. . . it will be unhappy.
. . . And it will have the resources to
. . . chase you down.

[asnotsa]

This isn't rocket science. If you believe in halacha, then fraud is G'neivat D'aat. It's also lifne Iver. It's CLEARLY Assur. If you don't care about halacha, there's also the clarity of being upright and honest in business. In any event, orthodoxy seems to take these issues much less seriously than whether or not you tear toilet paper on Shabbat. What a joke orthodoxy has become - a sub-culture with its peculiar priorities and behaviors divorced from law, from halacha (in its totality) and from the spirit of the halacha. Divorced and out of touch.

[LK]

I know the accused people personally and even worked on the project. All of these claims are fabricated and, frankly, I'm shocked that reporters and the media can publish without knowing any of the details of the case. Everything we processed was on the up-and-up and everything was legal. These men are honest, hardworking people. And, by the way, 100% of the proceeds went to charity. Besides the fact, that rabbinic guidance was sought before embarking on the project at all.

[Shmarya Rosenberg]

Oh, please.

Read the SEC's press release again, slowly if you need to.

As for the rabbis who gave the heter, they're lucky they weren't prosecuted.

[Outcast Yid]

Los Angeles's Jewish Journal is investigating these crimes. The most repugnant is "Harold" Ten, or Rabbi Heshy Ten, who runs Bikur Cholim, an organization that helps sick Jews. He created a new non-profit, Raphael Health, to serve the terminally ill; it was all a front for collecting confidential information about the dying. He personally "invested" in one of these instruments.

Shmarya, Ten's the guy whose picture should be up there on the next installment on this story.

[marlon]

What do you know about the Woodmere guy? Also some rumors that other NY hedge fund guys are involved.