SEC Charges Mutual Fund Executives with Misleading Investors Regarding Investment Risks in Funds that Suffered $1 Billion Trading Loss
Washington, DC (STL.News) The Securities and Exchange Commission (SEC) today filed a civil action alleging that investment advisers LJM Funds Management Ltd. and LJM Partners Ltd. and their portfolio managers, Anthony Caine and Anish Parvataneni, 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, Arjuna Ariathurai.
According to the SEC’s complaint, LJM adopted a short volatility trading strategy that carried risks that were remote but extreme. The complaint alleges that, in order to ease investor concerns about the potential for losses, LJM, Caine, and Parvataneni 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. The complaint further alleges that beginning in late 2017, during a period of historically low volatility, LJM, Caine, and Parvataneni increased the level of risk in the portfolios in order to chase return targets while falsely assuring investors that the portfolios’ risk profiles remained stable.