SEC Charges Mutual Fund Executives with Misleading Investors After $1B Trading Loss

Posted on June 3rd, 2021 at 2:03 PM
SEC Charges Mutual Fund Executives with Misleading Investors After $1B Trading Loss

From the Desk of Jim Eccleston at Eccleston Law LLC:

The Securities and Exchange Commission (SEC) filed suit against LJM Funds Managements Ltd. and LJM Partners Ltd. as well as their portfolio managers, Anthony Caine and Anish Parvataneni, for allegedly misleading investors regarding LJM’s risk management practices. Separate charges were filed against LJM’s Chief Risk Officer, Arjuna Ariathurai. 

According to the complaint, LJM utilized a short volatility trading strategy that heightened the risk for substantial losses. To reduce investor concerns, Caine and Parvataneni allegedly misstated LJM’s risk management practices, including false declarations about its use of historical event stress testing and its intent to maintain a consistent risk profile to investors and the mutual fund’s board of directors. Additionally, the complaint alleges that Caine and Parvataneni amplified the level of risk in the portfolios during a period of historically low volatility in 2017 after falsely informing investors that the portfolios’ risk profiles remained unchanged. 

In February 2018, the portfolios suffered trading losses of at least $1 billion or 80% in just two trading days after an unexpected spike in volatility. "This case demonstrates the critical importance of fund advisers being truthful and transparent with investors about how they manage risk. As alleged in the complaint, the defendants’ alleged actions exposed investors to far greater risk of loss than they expected”, according to Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit. According to the complaint, the defendants will be charged with violating the antifraud provisions of the federal securities laws while the SEC is further pursuing permanent injunctions. 

Tags: eccleston, eccleston law, sec, mutual funds, misleading investors

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