(Reuters) – A Chicago fund supervisor that suffered catastrophic losses in a market plunge this yr has blamed the actions of its dealer, a Wells Fargo & Co unit, in line with courtroom paperwork filed on Wednesday.
The allegations have been spelled out in response to a March lawsuit by Wells Fargo Securities towards fund supervisor LJM Partners Ltd.
The response to the Wells Fargo Securities lawsuit is LJM’s first detailed public rationalization of why it was one of many largest casualties of February’s “vol-mageddon,” the volatility-linked collapse of investments that had profited in calmer markets.
LJM funds posted losses after the Cboe Volatility Index, probably the most extensively adopted barometer of worth swings anticipated within the S&P 500 inventory index, logged its biggest-ever single-day bounce on Feb. 5.
But LJM’s losses solely turned everlasting the subsequent day, the fund’s legal professionals stated in a counter-claim filed in federal courtroom in Manhattan. By the top of the 2 days LJM Partners and an affiliate had misplaced 80 % or extra of their worth.
Wells Fargo Securities pressured LJM to unwind its portfolio in “a series of catastrophic trades that locked in the portfolio’s primarily unrealized losses and made them real,” LJM stated within the filing.
LJM misplaced $266 million throughout its funds, “at least $115 million more than if LJM had been allowed to apply its trading procedures,” the counter-claim stated.
A spokeswoman for Wells Fargo stated in a press release: “We will defend ourselves and strongly disagree with LJM’s claims.”
LJM founder Anthony Caine stated in a letter to shoppers in February that working with its clearing dealer, LJM “agreed that liquidation across all client accounts, regardless of clearing broker, was the most prudent action given market volatility and portfolio risks.”
Wells Fargo Securities has requested the courtroom to assist it retrieve $16.four million, saying the brokerage coated LJM’s margin and losses with the Chicago Mercantile Exchange. Wells Fargo beforehand declined to touch upon Caine’s account.
LJM, which together with the affiliate managed greater than $1 billion earlier this yr, has not answered questions because the firm and the affiliate reported their funds’ losses. LJM later informed shoppers it might return what was left of their cash.
In Wednesday’s filing, LJM’s legal professionals denied an earlier declare by Wells Fargo that the fund firm is now more likely to be bancrupt.
Investors are suing Caine and Anish Parvataneni, a portfolio supervisor at LJM who beforehand labored for fund investor Ken Griffin’s Citadel, over what they stated was insufficient disclosure concerning the dangers of LJM’s funding strategy.
Reporting by Trevor Hunnicutt; Editing by Eric Meijer and Susan Thomas