Chicago-based commodity pool operators LJM Partners Ltd and LJM Funds Management Ltd, along with their Chairman Anthony J. Caine of Colorado and Chief Portfolio Manager Anish Parvataneni of Illinois, are facing charges of commodity pool fraud and fraud related to options on futures contracts, the Commodity Futures Trading Commission (CFTC) announced today.
The CFTC alleges that LJM and its executives made false and misleading statements regarding potential losses, risk management practices, and the firm’s overall risk profile. Specifically, the complaint details how LJM represented worst-case loss scenarios as 20%, 30%, and 35-40% for different investment strategies, based on historical scenario analysis. The CFTC contends these representations were false, as LJM’s internal historical analysis actually showed potential losses exceeding 40%.
The charges stem from significant trading losses suffered by LJM in February 2018, when a spike in the Chicago Board Options Exchange’s Volatility Index (VIX) caused portfolios to lose over 80% of their value, ultimately leading to the firm’s closure. At the time, LJM managed over $1 billion in assets.
In a separate, settled order, the CFTC also penalized LJM’s former Chief Risk Officer, Arjuna Ariathurai, with a $150,000 civil monetary penalty, requiring him to disgorge $83,333 plus $14,111 in pre-judgment interest. Ariathurai is also barred from certain trading activities and registration with the CFTC for three years.
The CFTC’s ongoing litigation seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for investors, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations. Acting Director of Enforcement Vincent McGonagle emphasized the importance of full disclosure and diligent supervision in the markets, stating the CFTC will hold accountable those who misrepresent risk or fail to oversee their employees’ activities.
The complaint alleges the fraudulent misrepresentations occurred from at least June 2016 through February 2018, impacting several commodity pools, a mutual fund, and individually managed client accounts.
Source: CFTC.gov
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