SEC: Bond-buying scheme targeted terminally ill patients

U.S. Securities and Exchange Commission (SEC) accuses Hedge Fund Manager of deceiving terminally ill individuals. Starting in 2011, the bond-buying scheme managed to gather over $9,5 million. How did he deceive these patients?

16 August, AtoZForex - Yesterday, the SEC accused Hedge Fund Manager, Jay Lathen of conducting a fraudulent bond-buying scheme that targeted terminally ill individuals. According to the SEC’s complaint, Jay Lathen used names of ill patients on joint brokerage accounts together with his name, in order to purchase bonds for Eden Arc Capital Management LLC. After people would pass away, he would sell the bonds back to the issuer. Thus, he made profit and has gathered close to $9,5 million since the beginning of the fund's operations.

Jay Lathen founded his fund, Eden Arc, back in May 2011. From the start of its operations and until September 2015, the fund claimed to have total returns of 74.7 percent. According to the SEC, Eden Arc managed around $52 million at its most successful period.

How was the bond-buying scheme carried out?

In order to carry out the bond-buying scheme, Jay Lathen searched for patients who had only a couple of months left by contacting hospitals and nursing homes. The patients were offered $10,000 if they become a joint account owner. To pursue them to sign on to the accounts he advertised an "end of life financial assistance program" via the firm, EndCare, that he established in 2009.

From May 2011 Jay Lathen created 60 joint accounts. However, none of them indicated his fund as the owner or Jay Lathen as an agent. Through the joint accounts opened, Eden Arc purchased medium and long-term bonds and certificates of deposits. The financial instruments incorporated "death puts" permitting the beneficiary of a deceased person to sell the bonds back to the issuers at full par value. Following the demise of a person, Jay Lathen was sending letters to issuers stating that he was the joint owner of the accounts.

What is the reaction of the suspect?

Referring back to the accused hedge fund manager, Jay Lathen will be able to disprove statements of SEC through the administrative proceeding. Also, Harlan Protass, the hedge fund manager's lawyer, commented:

"We have no doubt that Mr. Lathen's investment strategy is entirely legitimate and violates no law, and we intend to vigorously defend him against the SEC's meritless charges. Mr. Lathen looks forward to clearing his name."

Prior to establishing the fund, Jay Lathen served as the managing director at Lehman Brothers and managing director and Co-Head of Energy M&A at Citigroup Inc. Despite being guilty or not, the bond-buying scheme was profitable for Jay Lathen. Due to the fact that the fund initially purchased the bonds in the secondary market for less than par.

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