A New York City hedge fund manager fraudulently received more than $100 million from brokerage accounts of nursing home and hospice care patients after they died, according to a complaint filed by the Securities and Exchange Commission released Monday.
Donald Lathen and his company, Eden Arc Capital Management, were named in the scheme, which was uncovered when the SEC did an examination of the firm.
Lathen allegedly paid terminally ill individuals $10,000 to use their names on what were supposed to be joint brokerage accounts so he could purchase investments on behalf of his hedge fund and redeem them early by invoking a survivor’s option, the SEC says.
He used his contacts at nursing homes and hospice care facilities to identify people with less than six months to live and successfully recruited at least 60 of them. When a patient died, Lathen allegedly redeemed investments in the accounts by falsely representing to issuers that he and the terminally ill individuals were joint owners of the accounts.
In reality, Lathen’s hedge fund was the true owner of the survivor’s option investments. Issuers paid out more than $100 million in early redemptions as a result of the alleged misrepresentations, says the SEC.
“Lathen allegedly put hedge fund client assets at risk by keeping them in accounts in his and the terminally ill individuals’ names rather than following the custody rule,” says Andrew M. Calamari, director of the SEC’s New York Regional Office.”
The matter will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.