August 15, 2016

The SEC announced fraud charges against New York-based Donald Lathen and his investment advisory firm Eden Arc Capital Management.  The SEC alleges that Lathen used contacts at nursing homes and hospices to identify patients with less than six months to live.  He then recruited at least 60 of them, by paying $10,000 apiece, to use their names on purportedly joint brokerage accounts he could use to purchase investments on behalf of his hedge fund.  When a patient died, Lathen redeemed the investments in the accounts by falsely representing to the issuers that he and the terminally ill individuals were the joint owners of the account and invoking a survivor’s option.  In fact, 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 and omissions.  The SEC further alleges that this conduct violated the custody rule by failing to properly place the hedge fund’s cash and securities in an account under the fund’s name or in an account containing only clients’ funds and securities under the investment adviser’s name as agent for the client.  SEC

Tagged in: Misrepresentations, Securities Fraud,