The Securities and Exchange Commission Thursday announced that it had fined one broker for his role in an annuity scam targeting the terminally ill and another for stealing from blind and elderly clients.
The architect of a variable annuities scheme designed to profit from the imminent deaths of terminally ill agreed Thursday to settle charges with the SEC and pay more than $850,000.
The same day, a broker in Roanoke, Virginia was charged with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.
According to the SEC's complaint filed in U.S. District Court for the Western District of Virginia, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes and a country club membership.
The SEC's investigation of Tucker resulted from a broker-dealer examination of the firm where Tucker worked that was conducted by the SEC's Philadelphia Regional Office.
In the VA scam, the SEC's Enforcement Division previously charged Michael A. Horowitz and several others he recruited into his scheme to identify terminally ill patients in nursing homes and hospice care in Southern California and Chicago.
Horowitz, a broker who lives in Los Angeles, sold variable annuities contracts with death benefit and bonus credit features to wealthy investors, and designated the terminally ill patients as annuitants whose death would trigger a benefit payout. Anticipating the patients would soon die, Horowitz marketed these annuities as opportunities for investors to reap short-term investment gains.
The SEC's Enforcement Division alleged 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 and generate hefty sales commissions. They falsified various broker-dealer forms used by firms to conduct investment suitability reviews, causing some insurance companies to unwittingly issue variable annuities they may not have sold otherwise, the SEC said.
Horowitz also agreed to admit wrongdoing. Among the admissions he made in the settlement was that he knew that if the "stranger annuitants" did not die within a matter of months, his customers would be locked into unsuitable, highly illiquid long-term investment vehicles that they would be able to exit only by paying substantial surrender charges.
