Lies Equal $1Billion Loss For Investors

One of the key things many investors want to determine when trading is the risk of loss. This may be of particular concern when adopting a new trading strategy or one which carries outsized risk.  There is always risk with any venture;  an outsized risk however can and often, but not always,  deter investors – but not if it is concealed. In the Commission’s most recent case in this area there was huge  risk in limited circumstances but it was not disclosed.  The result – no plan for the risk and a huge loss. SEC v. Caine, Case No. 21-cv02858 (N. D. Ill.).

Named as defendants in the action are Anthony Caine, Anish Parvataneni, LJM Funds Management, LTD and Lim Partners, LTD.  Defendant Anthony Cane is the owner, founder and Chairman of LJM Management Ltd. and LJM Partners. Ltd. (collectively the entities are referred to LJMFM).

Defendant Caine and others employed an option trading strategy for LJM Preservation & Growth Fund and several other private funds during  a two-year period.  Defendants told investors who were concerned about the risk that the “worst case” daily losses they should expect from the trading approach being used was a “consistent risk” profile. Investors were also told that the strategy had been tested.

In fact, Defendants’ investment strategy was known as a “short volatility strategy.”  It generated income by using margin to sell out-of-the-money options on S&P futures contracts.  The strategy supposedly carried risk that was remote but extreme.

Defendants reassured the investors about the risks of the strategy.  What the investors were not told was that nearly every trading day from late 2016 through early 2018 the historical scenarios stress tested showed loss exposure approaching or exceeding 100% of the funds’ value. Investors were also not told that the strategy employed permitted the assets under management to increase in value significantly and generate large payments to the traders but that there were other huge risks. In February 2018, when there was a large spike in the market volatility, the Funds suffered over $1 billion in trading losses. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, Advisers Act Sections 206(1), 206(2) and 206(4) and  Investment Advisers Act and Investment Company Act Sections 34(b) Investment Advisers Act Sections 15(c).

Defendants settled the action.  All Defendants were enjoined under the provisions of the Securities Act and the Exchange Act cited in the complaint. Defendants Caine, LJMF and Parvataneni were also enjoined from future violations of Investment Company Act Section 15(c) and Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.  In addition, LJMFM and Defendant Caine were directed to pay on a joint and several basis disgorgement in the amount of $1,567,713 with prejudgment interest of $637,112.  Defendant Parvataneni was directed to pay disgorgement of $512,724 with prejudgment interest of $208,368.  The final judgement also directed Defendant Cain to pay a $500,000 penalty and Parataneni to pay $200,000 as a penalty. Defendant Caine was  enjoined for 3 years and Parvataneni from 1 year from managing or advising on securities investments to any third party.  See  Lit. Rel. No. 26338 (July 1, 2025).