Federal Court orders Chicago commodity pool operators, owner, and former chief portfolio …

The U.S. District Court for the Northern District of Illinois recently entered a consent order issued by the Commodity Futures Trading Commission (CFTC) against Chicago commodity pool operators LJM Partners Ltd and LJM Management Ltd, as well as their former chairman, owner Anthony J. Caine, and former chief portfolio manager Anish Parvataneni. The consent order includes permanent injunctive relief, civil monetary penalties, disgorgement, and equitable relief.

According to the consent order, Caine and Parvataneni have been ordered to pay civil monetary penalties of $500,000 and $200,000, respectively. Additionally, LJM and Caine are required to pay $4,624,271 in disgorgement, jointly and severally, which includes pre-judgment interest, while Parvataneni has to pay $721,093 in disgorgement. The order also includes registration bans of three years for Caine and one year for Parvataneni, along with restrictions on managing or advising trading activities on behalf of third parties for three years and one year, respectively.

The consent order arises from a CFTC complaint filed against LJM, Caine, and Parvataneni in May 2021, alleging that between June 2016 and February 2018, LJM managed various commodity pools, a mutual fund, and individual managed client accounts while making false and misleading statements regarding their short options trading strategies. The defendants were accused of providing misleading information related to maximum daily loss, risk management, and failing to disclose changes that significantly increased the portfolio’s vulnerability to losses in specific scenarios.

In January 2018, LJM managed over $1 billion in assets, but on Feb. 5 and 6, 2018, the portfolios experienced trading losses of over 80% due to a significant spike in the Chicago Board Options Exchange’s Volatility Index. Subsequently, LJM ceased its operations. The CFTC previously ordered LJM’s former Chief Risk Officer, Arjuna Ariathurai, to pay civil monetary penalties, disgorgement, and pre-judgment interest for failing to disclose critical information regarding LJM’s risk management practices.

The CFTC also disclosed that the court addressed the Securities and Exchange Commission’s related charges against the same defendants. Cooperation and support from the SEC, National Futures Association, and Financial Industry Regulatory Authority were acknowledged and appreciated by the CFTC.

It is important to note that the CFTC has issued fraud advisories, including the Commodity Pool Fraud Advisory, cautioning against fraudulent schemes involving unregistered individuals and firms offering investments in commodity pools. They encourage the public to verify a company’s registration with the CFTC at NFA BASIC before investing any funds. Any suspicious activities or potential violations of commodity trading laws can be reported to the Division of Enforcement through a toll-free hotline or online portal, and whistleblowers are eligible to receive a portion of monetary sanctions as a reward for reporting violations.