FINRA Levies Fines in Connection with LJM Preservation and Growth Fund and Investors Have Recovery Options!
Published On: April 23, 2021
Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses in the LJM Preservation and Growth Fund. When broker-dealers sell you investments, they are responsible for fully informing you of the risks at the point of sale. When they fail to give you an honest, transparent disclosure on what they are selling – and the investments tank — you may have an arbitration case that you can pursue to get your money back.
Cambridge Investment Research, Merrill Lynch, and other brokerage firms sold a mutual fund called the LJM Preservation and Growth fund to their customers. The fund’s “value plummeted 80% over two days in early February 2018, after brokers in the previous two years sold $18 million of its shares to more than 550 customers, prompted by sales calls in May 2016 from an LJM wholesaler,” the securities regulator FINRA stated. “The fund was liquidated and dissolved in March 2018.”
What made the fund so volatile that led to its demise? It employed a risky strategy called “uncovered options,” but failed to tell investors that it was a highly complex vehicle prone to catastrophic losses.
According to FINRA, “although the fund was on Cambridge’s watch list because of its small size and tenure, the firm did not identify it as an alternative or complex fund, adequately train brokers on the risks of alternative mutual funds nor impose any sales limitations. One broker sold more than 80% of the shares, and some customers who bought them had conservative and moderately conservative risk tolerances.”
Iowa-based Cambridge “agreed to a $400,000 fine and to reimburse customers more than $3 million, with amounts ranging from $2.77 to $87,255.03 in one account and $90,714.60 in another,” according to AdvisorHub. “The firm also certified that it has revamped policies, procedures and controls to remediate the issues cited,” FINRA reported.
Merrill Lynch agreed to a $450,000 fine, without admitting or denying FINRA’s findings. Securities America (SA), another broker-dealer that sold the LJM fund, also signed a FINRA order to pay a $100,000 fine and to reimburse $235,979.77 to investors. SA identified the fund as an “alternative” vehicle but “did not follow with a heightened review of its strategy and risks, nor train brokers on its suitability for particular investors, FINRA stated. “A single Securities America broker sold $616,000 of the fund’s shares to 33 customers after the fund was added to the firm’s platform,” FINRA added. J.W. Cole Financial, an independent broker-dealer, also consented to a $50,000 fine and restitution of $163,527 to clients who purchased the LMJ fund.
Have you invested in the LJM funds and lost money as a result? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration. Broker-advisers can be cited in investor arbitration claims if they don’t perform their duty to protect investors. FINRA and SEC Rules also require brokerage firms to understand the investments they offer to their clients. LJMIX was extremely complex and involved a highly complicated and speculative options trading strategy that few financial advisors and brokers understood.
If you lost money in LJM Preservation and Growth Fund, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!
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