The LJM Preservation and Growth Fund, which trades under the symbols LJMIX, LJMAX, LJMCX, lost approximately $700 million, or approximately 80% of its value in the first week of February, 2018 leaving investors to wonder how a fund that calls itself “preservation and growth” could lose so much money so quickly. In this article, we will explore how this happened, what LJMIX may have done wrong and what legal recourse investors may have against the fund.
False and Misleading Statements by LJM Preservation and Growth Fund
Before we discuss how the LJM Preservation and Growth Fund (LJMIX) lost 80% of its value in a week, it is important to understand how the fund marketed itself. The prospectus for the LJM Preservation and Growth Fund represented the following to investors, “the LJM Preservation and Growth Fund seeks capital appreciation and capital preservation with low correlation to the broader U.S. equity market…[t]he Fund aims to preserve capital, particularly in down markets (including major market drawdowns), through using put option spreads as a form of mitigation risk.” We believe that these statements may have been materially false and/or intentionally misleading.
According to Gretchen Rupp from Morningstar, “this fund should never have been marketed to fund shareholders as a tool for capital preservation.” The fund, which is inaptly named, actually pursued a strategy that was literally the opposite of capital preservation and growth. Specifically, and contrary to the representations made in the prospectus, LJMIX utilized an options strategy called a “short strangle,” which has unlimited downside (no preservation) and limited upside (no growth).
The fund’s strategy was essentially to bet that market volatility would not increase significantly and that the market index level would not change. When both market volatility and market index declines occurred simultaneously, as they did during the first week of February 2018, the results were catastrophic for investors who lost a combined $700 million dollars or 80% of the fund’s NAV.
Investor’s Legal Recourse Against LJM Preservation and Growth
The federal securities laws, specifically Sections 11 and 12 of the Securities Act (15 USC §§ 77k and 771), prohibit the use of materially false or misleading statements in connection with the sale of securities. In addition to the federal securities laws, most states also have laws known as “blue sky laws,” which similarly prohibit using materially false and/or misleading statements in connection with the sale of securities. These statutes enable investors to file lawsuits seeking, among other relief, return of principal, interest, attorneys fees and possibly punitive damages.
The LJM Capital Preservation and Growth Fund sold three different share classes, which traded under the following ticker symbols LJMIX, LJMAX, LCMCX. If you, or someone you know, purchased any of these share classes, you may be eligible to recoup your losses under the federal securities laws as well as laws in your individual state.
Free Consultation and Contingency Fee Retainer
Our attorneys exclusively represent investors in cases involving investment fraud. We are very interested in speaking to investors who lost money in the LJM Capital Preservation and Growth Fund (LJMIX, LJMAX, LCMCX). Our firm works on a contingency basis, which means that we are not paid a legal fee unless we are able to successfully recover funds on behalf of our clients. We encourage any investor in LJM Capital Preservation and Growth Fund to contact Marc Fitapelli by calling 212-658-1501 or emailing firstname.lastname@example.org. The law limits the time you may have to seek legal redress so it is critical that you do not delay.