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LJM charged with commodity pool fraud by CFTC



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.

CFTC

The CFTC now claims that these worst-case scenarios were in fact not based on historical scenarios at all and that LJM’s legitimate internal historical scenarios displayed losses far greater than 40% for each strategy.

The complaint goes on to allege that around the tail-end of 2017 through to February 2018, LJM dramatically deviated from its historical risk profile, by moving the delta from negative to consistently positive. It also saw both vega and gamma decreasing, while vulnerability to loss in particular scenarios within the portfolio more than doubled.

Acting Director of Enforcement Vincent McGonagle, stated:

It is imperative that all participants in our markets receive full disclosure of material information and protection from fraudulent practices. When companies or individuals make false or misleading statements about the risks of trading, or fail to diligently supervise their employees or agents’ activities relating to their business as CFTC registrants, the CFTC will seek to hold them accountable.


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LJM charged with commodity pool fraud by CFTC

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