Hedge fund manager appears before an administrative law judge this week to fight the 'early redemption' charges outlined below: https://www.sec.gov/news/pressrelease/2016-162.html "An SEC examination of investment advisory firm Eden Arc Capital Management uncovered the scheme alleged by the SEC Enforcement Division in an order instituted today. Donald Lathen of New York City allegedly used contacts at nursing homes and hospices to identify patients with less than six months to live, and he successfully recruited at least 60 of them by paying $10,000 apiece to use their names on accounts. 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. 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 by Lathen and Eden Arc Capital."
More details about the scheme and the SEC's charges in this article. https://www.bloomberg.com/view/articles/2016-08-16/hedge-fund-manager-profited-from-death-arbitrage
it seems that Lathen is in trouble because he used customer's money in the scheme. why didn't he use his own money?
You're right. It seems that's where he went wrong. He leveraged the scheme with other people's money (via the hedge fund) and then listed only himself on the joint brokerage accounts, despite knowing that the 'death put' payments would ultimately go to other investors. It looks like the reason he listed himself instead of the fund is because the 'death put' rules don't allow an entity to participate. That rule is likely in place to prevent institutional gaming of the early redemption clauses. "Lathen opened 60 such accounts since May 2011, but none listed his fund as the owner or Lathen as an agent. The fund could not legally be a joint owner with survivorship rights because it is a corporate entity, the SEC said." http://www.reuters.com/article/us-sec-fraud-hedge-fund-idUSKCN10Q23F
"It's protecting the issuers of the death-put bonds, financial institutions that Lathen caught mispricing the risk of death. <https://www.bloomberg.com/view/articles/2016-08-16/hedge-fund-manager-profited-from-death-arbitrage>" the SEC in protecting the insurance company is a distant relative of the too big to fail doctrine for financial institutions.
What did he do wrong exactly? Certainly not harmed the terminally ill since they got $10,000 that they wouldn't have otherwise gotten. Harming the death put issuer? Not really, if the issuer didn't want to issue the contract they didn't have to. That's like saying the seller of a put was screwed over by the guy that bought the put because the guy that bought the put was smarter and predicted the company tanking. The issuer of the death put could have easily checked into the owner's health and realized they were terminally ill. SEC needs to get off this guy and go prosecute the real scumbags. With this bullshit they are just protecting the financial institutions from a mistake that they (financial instituation) made!
this is my first time on this site. learning. coolraz it exactly right in his assessment as well as zdreg"s comment. Maverick74 has no clue what the case is about. I do, "been there done that" My case preceded the Lathen case. His case trial started on Jan 30. Not going well for SEC