The Financial Industry Regulatory Authority (FINRA), a securities regulator, announced that it has censured and fined Cambridge Investment Research (“Cambridge”) $400,000 and Securities America $100,000 for failing to supervise their representatives’ recommendations of an alternative mutual fund that resulted in hundreds of thousands in losses for customers. The FINRA Letters of Acceptance, Waiver & Consent (AWCs) announcing the sanctions are accessible here. Cambridge AWC SAI AWC. Cambridge also was ordered to pay a restitution of $3.13 million plus interest; and Securities America was ordered to pay a restitution of $235,979 plus interest.
According to the AWCs, Cambridge and Securities America permitted the sale of the LJM Preservation & Growth Fund (LJM) without conducting reasonable due diligence and without a sufficient understanding of LJM’s risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options.
In early February 2018, the value of LJM’s shares dropped more than 80% over the course of just two days during a spike in the volatility index (VIX), losing more than $600 million for investors. The LJM Fund was launched in January 2013 and sold in three different share classes (ticker symbols LJMAX, LJMCX, LJMIX). According to its last annual report, LJM had net assets of $768 million as of October 31, 2017.