For the first time, LGM massive losses, due to vol-mageddon, have now been revealed in a court filing.
In the first public disclosure which details as to why LGM Partners Ltd, a fund manager, became one of the biggest casualties of February’s “vol-mageddon” – the volatility-linked collapse of investments that had profited in calmer markets, the Chicago fund manager, which suffered catastrophic losses, placed the blame on a unit of Wells Fargo & Co.
The details came forth in response to a lawsuit filed in March 2018 by by Wells Fargo Securities against fund manager LJM Partners Ltd.
On February 5, with the S&P 500 stock index logging its biggest single day losses, LJM posted its heaviest loss after the Cboe Volatility Index registered its biggest-ever single day fall.
The losses became permanent only the next day, said LJM’s lawyers said in a counter-claim filed in federal court in Manhattan, since Wells Fargo Securities forced 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’s counter claim states it lost $266 million across its funds, “at least $115 million more than if LJM had been allowed to apply its trading procedures”.
In a letter to clients, Anthony Caine, LJM’s founder, stated the firm was working with its clearing broker, and it has “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 asked the court to help it retrieve $16.4 million, saying the brokerage covered LJM’s margin and losses with the Chicago Mercantile Exchange.
Previously, Wells Fargo had declined to comment on Caine’s account.
Along with an affiliate LJM managed more than $1 billion in assets this; in two days, it lost 80% of of its value with LJM telling clients it would return what was left of their monies.
On Wednesday, LJM’s lawyers denied an earlier claim by Wells Fargo that it is now likely to be insolvent.
As a result of this catastrophe, investors are suing Caine and Anish Parvataneni, portfolio managers at LJM, over inadequate disclosure about the risks of LJM’s investment approach.