The SEC has settled charges with two individuals who the regulator accused of violating securities laws by setting up a purported charity to exploit terminally ill investors and then profiting from their deaths.
According to the SEC’s complaint, New York-based Jay Seinfeld hired Texas-based Sara Beth Postma to create the Hospice Patient Aid Program charity to allegedly gain access to hospices and terminally ill patients in Texas. Between 2010 and 2012, Seinfeld and Postma supposedly enticed more than a dozen terminally ill patients to provide their personal information and sign transaction documents as purchasers of corporate bonds. The bonds would payout upon their deaths while simultaneously relinquishing most of the bonds’ anticipated proceeds.
Using documents supplied by Seinfeld, Postma led the patients to believe that the Hospice Patient Aid Program would use bond proceeds to assist hospice patients in need of financial assistance. However, the SEC said that when patient-purchasers died, Seinfeld redeemed the bonds and split a large majority of the profits with other wealthy investors.
According to the complaint, Seinfeld and Postma made materially misleading statements and omissions to the patients and their family members about the securities they were offering. They falsely told patients that if they signed as purchasers while disclaiming all but a few thousand dollars of the securities’ anticipated proceeds, they would further the charity’s work because the proceeds disclaimed would be used to help terminally ill patients who needed financial help paying medical bills.
“As a result, over a dozen patients executed ‘death put’ bond purchases while relinquishing, in advance, most of the profits to come upon their death,” said the complaint. “Meanwhile, Seinfeld and Postma, in a reckless and highly unreasonable departure of care, did not adequately disclose to patients, that instead of going to any charitable objectives, most of the profits would be, and were, divided among Seinfeld and wealthy investors.”
The complaint said that when Postma visited hospice patients they were generally confined to a hospital bed, were sometimes under heavy pain medication, and were only sporadically lucid. It also said that although Postma performed a mental capacity examination if a hospice patient appeared sleepy, disengaged, or mentally incapacitated, the patients did not take the time to read the documents closely and instead relied on Postma’s characterization of what they said.
The SEC’s complaint, which was filed in federal court in Texas, charged Seinfeld and Postma, along with the Hospice Patient Aid Program, and Seinfeld’s Traditions Capital Management with violating the anti-fraud provisions of the Securities Act. They agreed to the settlement without admitting or denying the charges. Seinfeld has agreed to a three-year officer-and-director bar, and to pay more than $400,000 in disgorgement and prejudgment interest and a penalty of more than $250,000. Postma agreed to a two-year officer-and-director bar, and to pay more than $90,000 in disgorgement and prejudgment interest and a $50,000 penalty. The settlements are subject to court approval.
In response to the case, the SEC’s Office of Investor Education and Advocacy (OIEA) issued an investor alert warning investors not to fall for scams claiming to help charitable causes.
“Supporting a good cause while investing your money may sound like a win-win situation,” said the alert. “But be aware that fraudsters may try to exploit your desire to help others by using charitable causes as a way to draw victims into investment scams.”