The Commodity Futures Trading Commission (CFTC) has released information regarding recent charges made against commodity pool operators LJM Partners Ltd and LJM Funds Management Ltd, making its Chief Portfolio Manager, Anish Parvataneni alongside its Chairman Anthony J. Caine accountable. The press release stated that the company was to be charged with fraud and commodity pool fraud in connection to options on futures contracts, with the US regulator claiming that the company and its leaders issued misleading or false statements regarding risk management, risk profiles and worst-case losses.
The complaint claims that back in January 2018, LJM boasted more than $1 billion in assets under management. Yet when the CPO’s portfolios were hit with significant trading losses of more than 80% during the beginning of February 2018 following a spike in the Chicago Board Options Exchange’s Volatility Index (VIX) by more than 20 points, LJM shortly thereafter shut down its business.
With this information in mind, the regulator alleges that LJM falsely conveyed that its worst-case scenario for strategies was an absolute maximum loss on a daily basis of around 20% for P&G, reaching 30% for Moderately Aggressive, and finally 35-40% for Aggressive. These figures were claimed to have been calculated from the company’s internal historical scenario analysis, based on events such as the Lehman Brothers collapse in 2008, the S&P downgrade of US debt in 2011, and the Flash Crash of 2010.
