Hedge Fund Manager Profited Off Terminally Ill, SEC Says

(CN) — The Securities and Exchange Commission brought charges Monday against a hedge fund manager it says made deals with terminally ill patients that netted him huge payouts when they died.

Donald "Jay" Lathen Jr., 48, is described as the owner and CEO of hedge fund Eden Arc Capital Management.

The Manhattanite is accused of picking through nursing homes and hospices for patients whose prognoses gave them less than six months left to live.

Regulators say Lathen recruited at least 60 terminally ill patients and paid them $10,000 each to use their names on joint investment accounts with "survivor options."

Also known as "death puts," such options allow for the resale of an investment to the issuer upon the death of the holder.

The SEC says Lathen's hedge fund was able to exercise the survivor options with sufficient speed and accuracy to maintain extremely high investment returns on various medium- and long-term bonds and certificates of deposit.

Eden Arc reaped more than $9.5 million, a total return of 74.73 percent, from May 2011 and September 2015, according to the SEC.

Lathen's attorney, Harlan Protass with Clayman & Rosenberg, said his client did nothing wrong.

"We have no doubt that Mr. Lathen's investment strategy is entirely legitimate and violates no law," Protass said in a statement. "Mr. Lathen looks forward to clearing his name."

The SEC filed Monday for a cease-and-desist order against Lathen and Eden Arc, plus civil penalties.

"Lathen's hedge fund was the true owner of the survivor's option investments," the SEC says. "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."

The hedge fund's attorney Protass meanwhile pointed out that the SEC just last week dropped a similar case against Benjamin S. Staples and his son, Benjamin O. Staples.

A 2013 case against the Stapleses accuses the duo of profiting to the tune of $6.5 million by lying about the ownership interest in bonds they purchased in joint brokerage accounts.

The Stapleses settled the charges against them with no admission of wrongdoing. As part of a joint stipulation last month, the pair agreed to disgorge $58,000 in profits, plus $5,800 in interest.

While the SEC charged the Stapleses in a South Carolina federal court, Protass called it "noteworthy that the SEC is trying to game its case by filing administrative charges against Mr. Lathen in its own in-house court, the constitutionality of which is questionable."

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