SEC Charges LJM Funds Management & LJM Partners with Fraud

SEC says LJM Management Misled Investors leading to Massive Trading Losses in 2018

The White Law Group continues to investigate potential claims involving broker dealers who may have improperly recommended LJM Capital Preservation & Growth Fund to investors.

According to the Securities and Exchange Commission last week, the regulator has filed a civil action alleging that investment advisers LJM Funds Management, Ltd. and LJM Partners, Ltd. and their portfolio managers, “fraudulently misled investors” and the board of directors of a fund they advised about LJM’s risk management practices and the level of risk in LJM’s portfolios. The SEC separately settled related charges with LJM’s Chief Risk Officer.

LJM reportedly adopted a short volatility trading strategy that carried risks that were remote but extreme, according to the complaint. LJM and its managers purportedly made a series of misstatements to investors and the mutual fund’s board about LJM’s risk management practices, including false statements about its use of historical event stress testing and its commitment to maintaining a consistent risk profile instead of prioritizing returns. 

According to the SEC’s complaint, beginning in late 2017, during a period of historically low volatility, LJM, and its portfolio managers increased the level of risk in the portfolios to chase return targets, while falsely assuring investors that the portfolios’ risk profiles remained stable. 

In February 2018, over two trading days, the markets suffered a huge spike in volatility, resulting in massive trading losses exceeding $1 billion, or more than 80% of the value of the funds LJM managed.

The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties.

In related proceedings, the SEC also instituted settled administrative and cease-and-desist proceedings against LJM’s risk manager, who agreed, without admitting or denying the SEC’s findings, to an associational bar with a right to apply for reentry after three years, disgorgement and prejudgment interest of $97,444, and a civil penalty of $150,000.

In parallel actions, the Commodity Futures Trading Commission announced charges against LJM Funds Management, Ltd., LJM Partners, its portfolio managers and its risk manager.

Brokerage firms have a responsibility to adequately disclose all risks before selling any investment and must consider suitability factors such as age, financial needs, and risk tolerance to name a few. Firms that do not perform adequate due diligences on an investment or demonstrate a breach of fiduciary duty can be held accountable for losses incurred through FINRA arbitration.

For more information on the firm’s investigation please see the following:

Investor Alert: LJM Preservation and Growth Fund
LJM Partners – LJM Funds – Recovery of Investment Losses

Filing a Complaint against your Brokerage Firm

If you are concerned about an investment in LJM Capital Preservation & Growth Fund, the securities attorneys at The White Law Group may be able to help you. Please call the offices at 888-637-5510 for a free consultation with a securities attorney.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois.

For more information on the firm, please visit http://whitesecuritieslaw.com.