Since the 1990s, Rabbi Harold Ten has been helping gravely ill Jews and their families navigate the health care system. Ten is the president of Bikur Cholim, a nonprofit that can get patients kosher meals in their hospital rooms or provide them with free loans of medical equipment. He’s known for calling local rabbis each week to find out which of their congregants are sick and then organizing volunteers to visit those individuals.
But in 2007, Ten, who also goes by Heshy or Hershy, is alleged to have also been using his knowledge of the healthcare system to enrich himself in a highly unusual way. According to charges released by the Securities and Exchange Commission (SEC) on March 13, Ten played a key role in an alleged scheme that allowed a ring of brokers, investment advisers and their clients to profit from the deaths of terminally ill patients.
The process involved the purchase of variable annuities, an investment vehicle typically made on a long-term basis and used by investors to provide them with income after retirement, and to provide their heirs with a death benefit. In the alleged scheme that the SEC says was orchestrated by Los Angeles-based broker Michael A. Horowitz, however, Horowitz’s investor clients purchased annuities that named terminally ill patients as the annuitants — allowing the investors to collect the death benefit payout very quickly and reap large profits at the expense of the insurance company that issued the annuities. Horowitz himself allegedly earned more than $300,000 in commissions on the sales of the annuities.
A number of Jewish leaders in Los Angeles have been implicated in the alleged scheme, including Horowitz’s father, Richard Horowitz, who is co-founder of Aish HaTorah in Los Angeles, which, according to its Web site, is a “worldwide educational organization helping unaffiliated Jews understand the essence of Judaism.” In addition to serving as international president of Aish HaTorah, Richard Horowitz is vice president of the Association for Jewish Outreach Professionals.
Richard Horowitz and the other principal of his life insurance brokerage, Marc Firestone, received $420,000 in commissions on 12 annuities that named terminally ill patients as annuitants sold in a one-month period in 2007. The two men settled with the SEC for a combined sum that exceeded $545,000.
In a letter addressed to clients and friends shared with the Journal by Horowitz’s lawyer and intended for circulation on his firm’s Web site, Horowitz referred to the underlying actions as “a record keeping violation.”
Michael Horowitz is still fighting the SEC’s action, as is the other broker implicated in the scheme, Moshe Marc Cohen of Brooklyn, N.Y. A major supporter of Adas Torah, an Orthodox Jewish congregation in the Pico-Robertson neighborhood, Michael Horowitz denied the SEC’s allegations in a statement posted on his firm’s Web site, saying that he “was merely a salesperson selling a product designed and marketed by a major life insurance company.”
Two certainties in this annuity: Death and profits
According to Greg Yaris, who has served as the attorney for the Horowitz family and for Richard Horowitz’s firm for 20 years, Michael Horowitz first learned about the annuities at a seminar put on by the unnamed insurance company held in Santa Barbara in 2007. There were, Yaris said, three essential characteristics that made it possible for Michael Horowitz to turn the insurance company’s variable annuities into a vehicle to produce sure-fire profits.
First, though the beneficiary of a life insurance policy must have what’s known as an “insurable interest” in the life of the person whose death will trigger the payout — a wife can take out an insurance policy on her husband, but a stranger can’t — the annuity contract designed by this insurance company included no such requirement.
Second, if the value of the annuity was less than $2 million, the insurance company did not require a medical test on the annuitant.
And third, the company offered a 5 percent bonus to anyone buying an annuity with a face value above $1 million — meaning that an investor who bought an annuity for $1 million would instantly be credited an additional $50,000 as a bonus from the insurance company.
That’s just what Ten did in November 2007. Until that point, Ten’s primary involvement in the alleged scheme had been limited to identifying terminally ill patients who could act as annuitants.
“We knew he had relationships in the health care field,” Yaris explained, “so Michael asked Rabbi Ten ‘to identify individuals who would not object to Michael using their name and social security number on an annuity in exchange for compensation.’ ”
In exchange for their names and social security numbers, these terminally ill people were paid a few hundred dollars apiece — between $250 and $500, according to the SEC’s order against Ten. This personal information was essential to make the alleged scheme work, and Horowitz paid Ten at least $130,000, according to the SEC.
Ten later became an investor on the life of one of the terminally ill patients. On Nov. 19, 2007, according to the SEC order, Ten traveled to visit a female hospice patient who was dying of stomach cancer. She had previously informed the hospice care provider that she wanted “to take her children to Disneyland before she passed away,” and Ten’s new charity, Raphael Health, reimbursed the hospice for the cost of that trip — $405, according to the SEC — on the condition that the hospice provide him with the patient’s ID and health data.
According to Yaris, Michael Horowitz had stopped selling the annuities through his employer, Morgan Stanley in October 2007, yet he accompanied Ten on the trip to the patient’s home that November. During the meeting at the house of the patient, referred to as Jane Doe in the SEC order, “neither Ten nor Horowitz mentioned variable annuities or proposed designating Jane Doe as an annuitant,” the SEC document states.
On the drive back from her home, Horowitz offered and Ten agreed to purchase an annuity on the patient’s life, according to the SEC order. Ten invested $1 million in the annuity, which was issued on Nov. 26. Because of the size of his investment, Ten’s account was immediately credited with a bonus of $50,000.
On Dec. 20, 2007, the patient died, and Ten netted $50,347.64 on his $1 million investment. Ten agreed to pay more than $290,000 to the SEC as a condition of his settlement.
How Ten came to have access to such a large amount of capital to invest with Horowitz is unclear; Ten declined the Journal’s request for an interview. Asked to comment in writing on his involvement in this alleged scheme in general, and about his investment in this annuity in particular, Ten declined to comment on either in the brief statement he provided.
“It should be emphasized that the SEC Consent Decree does not name Bikur Cholim nor allege that Bikur Cholim engaged in any improprieties whatsoever,” Ten wrote in an e-mail to the Journal, ”and it would be a tragedy for an unrelated matter to impact the thousands whom we serve or my steadfast commitment to Bikur Cholim.”
Unseemly? Yes, but that’s irrelevant
This isn’t the first case of an investor naming terminally ill people as annuitants on variable annuities; in a separate case involving Joseph Caramadre of Providence, R.I., the defendant was sentenced to six years in a federal prison last December for doing something very similar. He paid terminally ill people $2,000 in cash in exchange for their agreeing to sign on as annuitants for variable annuities that would then be purchased by investors.
But in that case, family members of the annuitants alleged that their loved ones took the money but hadn't fully understood what they were doing. Some terminally ill participants were allegedly purposefully deceived about what they were signing; some were said to have had their signatures forged.
In this current case, Michael Horowitz said in the statement posted on his firm’s Web site that he never “improperly obtained any information, private or otherwise, from any annuitants, nor did I authorize any other person to improperly obtain information on my behalf. All information provided by annuitants was voluntarily provided.”
Even though the annuity contract did not require the signature of the annuitant, attorney Yaris said that Horowitz obtained signatures of all the annuitants on a one-page waiver form, “just to be sure that they consented to the use of their name and social. The fact that the insurance company didn't require their signature doesn't mean we have the right to use their information.”
According to the SEC, Horowitz and the others did not have the right to use that information; indeed, the agency accuses them of stealing it. The agency alleges that Horowitz and Cohen deceived both the patients whose identities they used and the firms for which they worked.
“This was a calculated fraud exploiting terminally ill patients,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit in a statement. “Michael Horowitz and others stole their most private information for personal monetary gain.”
Nearly everyone agrees that businesses that profit when people die just somehow feels wrong. But even as Caramadre acknowledged as much when his story was reported on Chicago Public Media’s radio show "This American Life" in 2012, he claimed he was nevertheless acting “morally, ethically and legally.”
Yaris made the same argument in an interview with the Journal on March 17.
“Whether or not the transaction is unseemly is irrelevant from a legal perspective,” Yaris said. “There was nothing illegal about the annuity contract, nor was there any violation of the contract. Ultimately, this is a contract between an insurance company and an investor. And the insurance company never sought to recover any of the monies it paid to the investors.”
Unlike Caramadre, Horowitz is not facing criminal charges. Yaris said that he’s seen a draft of the SEC complaint against Horowitz, although his client hasn’t yet been served. When, and if, that does happen, a judge will have 300 days in which to hear the case. The decision can also be appealed, first to the SEC and later to the 2nd Circuit Court of Appeals in Washington, D.C.
Yaris said his client would have settled with the SEC if the SEC weren’t demanding that he lose his securities license for life, in effect banning him from his chosen profession. Yaris also said he doesn’t know how far Horowitz would take the case.
“Michael would like to clear his name,” Yaris said.