The Commodity Futures Trading Commission today announced the U.S. District Court for the Northern District of Illinois entered a consent order imposing permanent injunctive relief, civil monetary penalties, disgorgement, and equitable relief against Chicago commodity pool operators LJM Partners Ltd and LJM Management Ltd (collectively, LJM); former LJM chairman, owner, and registered associated person Anthony J. Caine of Colorado; and former LJM chief portfolio manager and registered AP Anish Parvataneni of Illinois.
The consent order requires Caine and Parvataneni to pay civil monetary penalties of $500,000 and $200,000, respectively. Additionally, the consent order requires LJM and Caine to pay $4,624,271 in disgorgement, jointly and severally, which includes pre-judgment interest, and Parvataneni to pay $721,093 in disgorgement, which includes pre-judgment interest. It also imposes registration bans of three years for Caine and one year for Parvataneni and enjoins them from managing or advising the trading for or on behalf of any third parties for three years and one year, respectively, except for themselves, their wives, or children. The order permanently enjoins the defendants from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
Case Background
The consent order stems from a CFTC complaint filed against defendants LJM, Caine, and Parvataneni in May 2021. [See CFTC Press Release No. 8392-21].
The CFTC’s complaint alleged from at least June 2016 through February 2018, LJM managed several commodity pools, a mutual fund, and individual managed client accounts and made several false and misleading statements to prospective and existing pool participants and others in connection with its short options trading strategies. According to the complaint, the defendants made misleading statements related to LJM’s maximum daily loss, risk management, and the failure to disclose changes to LJM’s risk profile, including changes in late 2017 and early 2018 that dramatically increased the portfolio’s vulnerability to loss in certain scenarios.
According to the complaint, in January 2018, LJM had more than $1 billion in assets under management; however, on Feb. 5 and 6, 2018, LJM’s portfolios suffered over 80% trading losses when the Chicago Board Options Exchange’s Volatility Index spiked over 20 points. Shortly thereafter, LJM closed its business.
The CFTC previously ordered LJM’s former Chief Risk Officer Arjuna Ariathurai to pay $247,444 in civil monetary penalties, disgorgement, and pre-judgment interest for failing to disclose certain information when speaking to prospective and existing pool participants about LJM’s risk management. [See CFTC Press Release No. 8392-21].
The court also entered an order resolving the Securities and Exchange Commission’s related charges against the same defendants.
The CFTC acknowledges and appreciates the cooperation and assistance of the SEC, National Futures Association, and Financial Industry Regulatory Authority.
The Division of Enforcement staff responsible for this action are W. Derek Shakabpa, Patrick Daly, Nicole Buseman, David Oakland, Michael Cazakoff, Elizabeth May, Jordon Grimm, Lenel Hickson, Manal Sultan, Charles Marvine, and former employee David Acevedo.
CFTC’s Commodity Pool Fraud Advisory
The CFTC has issued several customer protection fraud advisories, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud involving individuals and firms, often unregistered, offering investments in commodity pools.
The CFTC also strongly urges the public to verify a company’s registration with the CFTC at NFA BASIC before committing funds. If unregistered, a customer should be wary of providing funds to that entity.
Suspicious activities or information, such as possible violations of commodity trading laws, can be reported to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online or contact the Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected, paid from the Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
