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UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

COMMODITY FUTURES TRADING 

COMMISSION, 

Plaintiff, 

v. 

LJM FUNDS MANAGEMENT LTD, LJM 

PARTNERS LTD, ANTHONY J. CAINE, 

and ANISH PARVATANENI, 

Defendants. 

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Civil Action No: 1:21-cv-2863 

JURY DEMAND 

COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF AND FOR 

CIVIL MONETARY PENALTIES UNDER THE COMMODITY EXCHANGE ACT AND 

COMMISSION REGULATIONS 

Plaintiff Commodity Futures Trading Commission (“Commission” or “CFTC”), by and 

through its attorneys, alleges as follows: 

SUMMARY 

1. From at least June 2016 through February 2018 (the “Relevant Period”), 

Defendants LJM Funds Management Ltd. and LJM Partners Ltd. (collectively “LJM”), both 

registered Commodity Pool Operators (“CPOs”) (LJM Partners Ltd. was also a registered 

Commodity Trading Advisor (“CTA”)), Anthony J. Caine (“Caine”) and Anish Parvataneni 

(“Parvataneni”), both registered Associated Persons of LJM, violated the Commodity Exchange 

Act (“CEA”) and CFTC Regulations (“Regulations”) by defrauding or deceiving prospective and 

existing pool participants through false and misleading statements or omissions concerning 

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worst-case scenarios for LJM’s short options trading strategy and LJM’s risk management tools, 

or engaging in acts that operated as a fraud or deceit upon pool participants. Defendants LJM 

and Caine also failed to supervise their sales staff regarding the aforementioned false and 

misleading statements, as well as others described herein, that were made to existing and 

prospective pool participants, or their agents, in violation of the Regulations. 

2. Defendant Caine is the owner, founder, co-portfolio manager, Chairman and a 

registered Associated Person (“AP”) of LJM who knowingly induced LJM’s violations or did not 

act in good faith. 

3. Defendant Parvataneni was the Chief Portfolio Manager and an AP of LJM who 

knew of the false and misleading statements described herein by LJM to pool participants and 

wrote at least two monthly newsletters to LJM pool participants that made false and misleading 

statements concerning LJM’s risk profile. 

4. LJM’s central trading strategy relied primarily on selling options on S&P500 

futures and collecting the premiums (also called a short volatility strategy). Selling options 

carries the risk of large, even catastrophic, losses. However, LJM downplayed those risks by 

falsely claiming that maximum daily worst-case losses was 20%-40% depending on the strategy. 

LJM also sought to allay prospective pool participant concerns about the risks by falsely touting 

it had “robust” risk management that utilized historical scenario analysis. LJM’s ability to 

promote its risk management was a critical component of marketing LJM for at least some of the 

LJM sales staff. In reality, LJM purposely ignored the impact of volatility risk in monitoring the 

portfolio’s risk levels and dismissed the results of historical scenario analysis as improbable. 

LJM’s messaging to pool participants about its ability to monitor risk and mitigate, if not avoid 

major losses was misleading, incomplete and, in essence, false. An email sent by one investment 

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advisor for pool participants documents this incomplete, misleading and false messaging. In an 

email sent to LJM on February 9, 2018, in the days following the collapse of LJM’s portfolio, the 

investment advisor wrote, he was “walked through the risk parameters in place to ensure 

something like this never happens. Furthermore, was assured it wouldn’t and couldn’t happen.” 

Moreover, the email identified Defendant Parvataneni as participating in that conversation. 

5. Additionally, LJM, through misleading statements and material omissions, misled 

its pool participants about the risk profile of its portfolio. LJM routinely touted to its pool 

participants that it maintained a consistent risk profile. However, beginning in late 2017, the risk 

profile of the LJM portfolios began a trend of diverging from its traditional characteristics. By 

late 2017, the risk profile of the LJM portfolios, unbeknownst to the LJM pool participants, had 

significantly deviated from their historical profile. Moreover, the portfolio was positioned in a 

manner that essentially doubled the size of potential losses associated with a significant drop in 

the S&P and a spike in volatility, compared to the historic profile of LJM’s positions. None of 

these changes was disclosed to pool participants. LJM not only failed to disclose to its pool 

participants that the risk profile had deviated dramatically from its historical norms but the 

language of its outgoing correspondence created a misleading impression that nothing had 

changed. 

6. In January 2018, LJM had over $1 billion in assets under management (“AUM”). 

On February 5 and 6, 2018, LJM’s portfolios suffered large trading losses (over 80%) when the 

Chicago Board Options Exchange’s (“CBOE”) Volatility Index (“VIX”), a measure of options 

expected volatility, spiked over 20 points (115%). Shortly thereafter, LJM closed its business. 

7. As set forth in detail below, Defendants, each registered as a CPO and/or CTA 

and/or AP of a CPO or a CTA, violated Section 4o(1)(A)-(B) of the CEA, 7 U.S.C. § 6o(1)(A)-

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(B) (2018), by: (a) employing a device, scheme, or artifice to defraud pool participants or 

prospective pool participants; and/or (b) engaging in transactions, practices, or course of business 

which operated as a fraud or deceit upon prospective and existing pool participants. Defendants 

also violated Sections 4c(b) and 6(c)(1) of the CEA, 7 U.S.C. §§ 6c(b) and 9(1) (2018), and 

Regulations 33.10 and 180.1 17 C.F.R. §§ 33.10, 180.1 (2020), by: (a) cheating or defrauding or 

attempting to cheat or defraud any other person; (b) making or causing to be made to any other 

person any false report or statement thereof or cause to be entered for any person any false 

record thereof; and/or (c) deceiving or attempting to deceive any other person by any means 

whatsoever in connection with the entry into any commodity option transaction, or contract of 

sale of any commodity in interstate commerce, or contract for future delivery on or subject to the 

rules of any registered entity. 

8. In addition, in violation of Regulation 166.3, 17 C.F.R. § 166.3 (2020), LJM and 

Caine failed to diligently supervise their employees and agents who, among other things, made 

certain false and misleading statements described herein and failed to comply with LJM’s Risk 

Policy. 

9. Unless restrained and enjoined by this Court, Defendants are likely to continue to 

engage in the acts and practices alleged in this Complaint or in similar acts and practices, as 

described more fully below. 

10. Accordingly, pursuant to Section 6c of the CEA, 7 U.S.C. § 13a-1 (2018), the 

Commission brings this action to enjoin Defendants’ unlawful acts and practices and to compel 

compliance with the CEA and Regulations. In addition, the Commission seeks civil monetary 

penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, 

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restitution, disgorgement, pre- and post-judgment interest, and such other relief as the Court may 

deem necessary and appropriate. 

JURISDICTION AND VENUE 

11. This Court has jurisdiction over this action under 28 U.S.C. § 1331 (2018) 

(codifying federal question jurisdiction) and 28 U.S.C. § 1345 (2018) (providing that U.S. 

district courts have original jurisdiction over civil actions commenced by the United States or by 

any agency expressly authorized to sue by Act of Congress). In addition, Section 6c(a) of the 

CEA, 7 U.S.C. § 13a-1(a) (2018), provides that U.S. district courts have jurisdiction to hear 

actions brought by the Commission for injunctive and other relief or to enforce compliance with 

the CEA whenever it shall appear to the Commission that any person has engaged, is engaging, 

or is about to engage in any act or practice constituting a violation of any provision of the CEA 

or any rule, regulation, or order thereunder. 

12. Venue properly lies with this Court pursuant to Section 6c(e) of the CEA, 

7 U.S.C. § 13a-1(e) (2018), because Defendants transacted business in this District, and certain 

of the acts and practices in violation of the CEA have occurred, are occurring, or are about to 

occur within this District, among other places. 

PARTIES 

13. Plaintiff Commodity Futures Trading Commission is an independent federal 

regulatory agency charged by Congress with administering and enforcing the CEA and 

accompanying Regulations. 

14. Defendant LJM Partners Ltd. is an Illinois corporation with its principal place 

of business in Chicago, Illinois, and has been registered with the Commission as a CTA since 

December 1998 and a CPO since December 2002. 

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15. Defendant LJM Funds Management Ltd. is an Illinois corporation with its 

principal place of business in Chicago, Illinois, and has been registered with the Commission as 

a CPO since November 2012. 

16. Defendant Anthony J. Caine is the founder, Chairman, and owner of LJM, comanaged the LJM portfolios with Chief Portfolio Manager Parvataneni, and has been registered 

as an AP of LJM Partners Ltd. since December 1998 and of LJM Funds Management Ltd. since 

November 2012. Caine is a resident of Aspen, Colorado and during the Relevant Period 

periodically did business from LJM’s Chicago office. According to LJM, Caine has more than 

30 years of options-trading experience and more than 20 years of experience managing options 

portfolios. 

17. Defendant Anish Parvataneni was the Chief Portfolio Manager for LJM and a 

registered AP of LJM Partners from April 2011 through March 2018 and of LJM Funds 

Management from November 2012 through March 2018. Parvataneni is a resident of Hinsdale, 

Illinois, and during the Relevant Period worked in LJM’s Chicago office. 

BACKGROUND TERMS 

18. A “commodity pool” means any investment trust, syndicate, or similar form of 

enterprise operated for the purpose of trading in commodity interests, including 

any— . . . commodity option. Section 1a(10) of the CEA, 7 U.S.C. § 1a(10) (2018). 

19. A “commodity pool operator” is defined by the CEA, in relevant part, as any 

person engaged in a business that is of the nature of a commodity pool, investment trust, 

syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts, or 

receives from others, funds, securities, or property, either directly or through capital 

contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of 

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trading in commodity interests, including any commodity option. Section 1a(11) of the CEA, 

7 U.S.C. § 1a(11) (2018). 

20. A “commodity trading advisor” is defined by the CEA, in relevant part, as any 

person who, for compensation or profit, engages in the business of advising others, either 

directly or through publications, writings, or electronic media, as to the value of or the 

advisability of trading in...commodity options. Section 1a(12) of the CEA, 7 U.S.C. § 1a(12) 

(2018). 

21. An “associated person” includes any natural person who is associated with: a 

commodity pool operator as a partner, officer, employee, consultant or agent (or any natural 

person occupying a similar status or performing similar functions), in any capacity which 

involves (i) the solicitation of funds, securities or property for a participation in a commodity 

pool or (ii) the supervision of any person or persons so engaged; or commodity trading advisor as 

a partner, officer, employee, consultant, or agent (or any natural person occupying a similar 

status or performing similar functions), in any capacity which involves (i) the solicitation of a 

client’s or prospective client’s discretionary account or (ii) the supervision of any person or 

persons so engaged. Regulation 1.3, 17 C.F.R. § 1.3 (2020). 

22. An “option” is a contract that gives the buyer the right, but not the obligation, to 

buy or sell a specified quantity of a commodity or other instrument at a specific price within a 

specified period of time, regardless of the market price of that instrument. Options on the S&P 

500 Index Futures Contract (“SP options”) are traded on the Chicago Mercantile Exchange 

(“CME”), a designated contract market and registered entity pursuant to the CEA. 

23. A “put option” is an option contract that gives the buyer the right but not the 

obligation to sell a specified quantity of a particular commodity, security, or other asset or to 

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enter into a short futures position at a given price (the "strike price") prior to or on a specified 

expiration date. 

24. A “call option” is an option contract that gives the buyer the right but not the 

obligation to purchase a commodity or other asset or to enter into a long futures position at a 

specified price on or prior to a specified expiration date. 

25. An “option writer” is the person who originates an option contract by promising 

to perform a certain obligation in return for the price or premium of the option. Also known as 

option grantor or option seller. An “option buyer” is the person who buys calls, puts, or any 

combination of calls and puts. 

26. The “option premium” is the payment an option buyer makes to the option writer 

(seller) for granting an option contract. 

27. “Out-of-the-money” is a term used to describe an option that has no intrinsic 

value. For example, a call option with a strike price of $400 on gold trading at $390 is out-ofthe-money 10 dollars. 

28. The CBOE’s VIX is a calculation designed to produce a measure of constant, 30-

day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of SP 

call and put options. 

29. Options traders typically refer to a set of risk measures derived from the Greek 

letters that denote them, which indicate how sensitive an option is to time-value decay, changes 

in implied volatility, and movements in the price of its underlying security. These four risk 

measures are known as an option's theta, vega, delta, and gamma. Vega measures the risk of 

changes in implied volatility or the forward-looking expected volatility of the underlying asset 

price. Gamma measures the rate of change of an option’s delta given a change in price of the 

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underlying asset. Delta is a measure of the change in an option's price or premium resulting 

from a change in the underlying asset, while theta measures its price decay as time passes. 

FACTUAL ALLEGATIONS 

LJM’s Trading Strategies 

30. LJM Partners Ltd. was founded by Defendant Caine in or around 1998 to act as a 

CTA. LJM Partners Ltd. became a registered CPO in 2002. During the Relevant Period, LJM 

Partners Ltd. was the CPO for at least eight commodity pools. 

31. LJM Funds Management Ltd. was founded by Defendant Caine in 2012 to 

manage a mutual fund called LJM Preservation and Growth Fund LP (the “P&G Fund”). The 

P&G Fund was also a commodity pool and LJM Funds Management Ltd. was its registered 

CPO. 

32. Employees worked for both LJM companies and there was no practical distinction 

in most situations. LJM Partners issued monthly and annual newsletters to pool participants and 

LJM Funds Management issued quarterly and annual newsletters to mutual fund investors. 

Defendant Parvataneni managed both the mutual fund and commodity pool portfolios.” 

33. LJM had three variations on its short volatility options strategy: a) Preservation 

& Growth (“P&G”); b) Moderately Aggressive; and c) Aggressive. The primary differences 

among these strategies were the higher targeted returns for the Aggressive strategy and the 

relative amount of hedging for the P&G and Moderately Aggressive strategies. While LJM 

described P&G as having the most amount of hedging among its three strategies, Parvataneni 

testified that hedging via long options was on average less than 10% of the P&G portfolio. 

34. Defendant Parvataneni was LJM’s Chief Portfolio Manager during the Relevant 

Period and was responsible for overseeing LJM’s portfolios and daily options trading of the 

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mutual fund and commodity pool accounts. Caine was co-portfolio manager who discussed all 

portfolios with Parvataneni and LJM’s portfolio managers on a regular basis. Caine had final say 

on portfolio risk. 

35. During the Relevant Period, LJM’s primary investment strategy was a “short 

volatility strategy” in which LJM was a seller, or premium writer, of out-of-the-money put and 

call SP options. According to LJM, its primary strategy was to seek to realize profits when the 

value of SP options declined as a function of time, rather than a function of market direction. In 

summary, LJM sold out-of-the money SP options with the goal of keeping them out of the 

money, usually by rolling them over to further out-of-the-money options, while collecting the 

premiums. 

36. LJM bought a limited amount of long call or put SP options for hedging purposes 

in its P&G and Moderately Aggressive strategies but its overall portfolio was net uncovered 

short put and call options. 

37. A commodity option buyer’s risk is limited to the premium the buyer paid for the 

option. However, writing or selling put commodity options involves the risk for very large 

losses as the price of the underlying futures contract may fall to zero. Writing or selling 

uncovered (unhedged) call commodity options also carries the potential for unlimited losses as 

the price of the underlying futures contract may rise limitlessly. LJM was a writer or seller of 

net uncovered call and put SP options. In its Disclosure Document (a document describing the 

risks to pool participants), LJM stated selling options involves a risk of unlimited loss. The P&G 

mutual fund prospectus stated that losses are potentially large in a written put transaction and 

potentially unlimited in a written call transaction. 

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38. The P&G Fund applied the P&G strategy. The majority of LJM commodity pools 

applied the Moderately Aggressive strategy, although at least two pools managed by LJM 

Partners also applied the P&G strategy. The Aggressive strategy was employed for the 

separately-managed individual accounts. 

39. LJM primarily marketed their investment funds through Registered Investment 

Advisors (“RIAs”) who acted as agents for prospective pool participants. 

40. During the Relevant Period, LJM marketed its investment opportunities via 

webinars, sales materials, Due Diligence Questionnaires (“DDQs”), emails, in-person meetings 

and telephone calls with RIAs. 

41. An example of LJM’s sales materials was a 2017 sales brochure called “Investing 

in Volatility.” This document included such statements as: 

 Robust risk management and R&D systems; 

 Senior level portfolio and risk management team has more than 50 years 

combined experience managing volatility strategies through an array of market 

conditions, including 2008; 

 LJM seeks to profit primarily from the “volatility premium”—the difference 

between implied volatility (investors’ forecast of market volatility reflected in 

options pricing) and realized (actual) market volatility; 

 The LJM P&G strategy: a) trades options on S&P 500 futures, which are highly 

liquid and marked to market daily; b) is short volatility, i.e. LJM is a net seller of 

options, and c) trades out-of-the-money options with the goal of keeping them out 

of the money through small daily portfolio adjustments; 

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 LJM P&G strategy does not: a) take directional bets or engage in market timing; 

LJM is not trend following; and b) hold any underlying stocks; the strategy 

provides exposure to market volatility not market prices; 

 LJM Fund’s P&G strategy has performed well in markets that are flat, choppy, 

eroding, and slowly rising or falling; 

 The LJM Fund P&G strategy will be challenged during sustained upwardtrending equity markets, quick reversals, and extreme volatility spikes or market 

moves; 

 LJM P&G strategy has low correlation to equities, fixed income, and other 

alternative strategies; and 

 LJM’s risk monitoring includes profit and loss [analysis], scenario analysis, risk 

mitigation trades, and revenue-generating trades. 

42. LJM also provided any RIA who requested it a DDQ. The DDQs contained 

LJM’s responses to due diligence questions explaining the nature of LJM’s investment strategies 

, the track record, key personnel background, operational risk, portfolio risk management, and 

other information. 

43. During the Relevant Period, Defendant Caine discussed and explained LJM’s 

trading strategies in regular webinars to pool participants. Caine also had direct communications 

via telephone and/or emails with pool participants, or their RIA agents, to explain LJM’s trading 

strategies and investor-related information. In 2017, Defendant Parvataneni began hosting the 

LJM webinars with another LJM employee. 

44. During the Relevant Period, Defendant Parvataneni had telephone calls and inperson meetings with RIAs, as agents of pool participants, to explain LJM’s trading strategies. 

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In 2017, Parvataneni also signed monthly newsletters disseminated via email to pool participants 

updating them on investment results and discussing LJM’s trading strategies and risk 

management. 

45. LJM Partners provided each pool participant with a Disclosure Document. LJM 

Funds Management provided each mutual fund investor with a prospectus. Both documents 

contained certain boilerplate risk disclosures. 

MISLEADING STATEMENTS ABOUT THE WORST-CASE SCENARIO 

46. In an email dated March 24, 2015, LJM’s Chief Risk Officer (“CRO”) wrote “we 

have a perfectly fine functioning Risk [sic] assessment practice, but have not yet integrated risk 

control into our trading practice. My guess is that would be diagnosed as an inadequately 

integrated risk culture, but good risk practice.” 

47. Defendants knew that prospective and existing pool participants were keenly 

focused on the risk of loss associated with their investment and LJM’s management of that risk. 

In April 2016, Caine instructed LJM staff to “put a wrapper on a positive risk message and keep 

it consistent.” In the months that followed, LJM crafted a Risk Frequently Asked Questions 

(“FAQ”) document that was used by them to answer questions from prospective or existing pool 

participants, or their agents. It was an internal document that was not distributed to the public 

but was used by LJM staff to respond to any questions listed in the document. 

48. Defendants Caine and Parvataneni were provided drafts of the Risk FAQs for 

their review before it was distributed to sales staff. Both Defendants knew that these FAQs were 

to be used by LJM’s sales staff to assist them in answering the risk-related questions posed by 

prospective and existing pool participants. 

49. The RISK FAQ contained the following question and false answer: 

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What is your worst-case scenario? How bad can it get? 

In the case of a market event so extreme that we are unable to trade (markets 

become illiquid or the breakers hit), LJM estimates the worst-case daily loss as 

follows: Aggressive, 40%; Moderately Aggressive, 30%; and Preservation 

and Growth, 20%.

NOTE: Worst-case loss is not the same as capital at risk. Investor's total capital is 

at risk; worst case loss is a daily loss estimate. (emphasis added). 

50. Utilizing the Risk FAQ, LJM sales staff made oral statements to RIAs, as agents 

of pool participants, that the worst-case daily loss was an estimated 20% to 40%, depending on 

the strategy. 

51. LJM also sent some RIAs, as agents for prospective pool participants, a June 2016 

DDQ containing answers to due diligence questions. Section 6 of this 2016 DDQ related to risk 

management questions. Question 6.22 contained the following question and false answer: 

“What is the estimated maximum risk on the total portfolio?” 

LJM employs a combination of scenarios to estimate risk to the portfolio 

assuming no risk mitigating actions may be taken. This is reflective of "gap" or 

"overnight" risk to the portfolio. The main basis of assumption is historical 

market behavior such as the immediate market movement when Lehman 

Bros. failed in 2008, the electronic market Flash Crash in 2010 and the S&P 

downgrade of US debt in 2011. LJM calculates the effects of these market 

moves to formulate a worst-case expectation for loss. 

LJM also assumes that it can maintain and manage portfolio risk during the 

course of regular trading. In this scenario, LJM assumes that it will hold certain 

portfolio risks at near constant levels for the market move assuming realization of 

certain losses. 

Finally, LJM breaks down the factors of loss, considering losses due to changes in 

underlying value and option volatility. LJM will attempt to strongly mitigate 

underlying value loss (delta and gamma exposure) while maintaining exposure to 

the implied volatility. Generally implied volatility is strongly mean reverting, but 

it is possible for very large movement. 

General worst-case losses can run in the order of 20% for P&G and 30-35% 

for more aggressive flavors of the strategy. Losses related to volatility 

account for most of these losses. 

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For severe market movement but allowing for regular trading, LJM will maintain 

consistent delta, gamma and vega exposures. Generally, this projects to losses on 

the order of 5-10% for severe market movement for the given strategies where 

most of the losses are related to volatility. (emphasis added). 

For example, on March 31, 2017, LJM sales representative P.M. emailed the June 2016 DDQ to 

an RIA that contained the misleading representation about worst-case losses. LJM disseminated 

the June 2016 DDQ to RIAs on at least 35 different dates. 

52. LJM’s October 2017 Investment Management Questionnaire (a/k/a DDQ) also 

repeated the false claim that “[i]n the case of a market event so extreme that we are unable to 

trade (markets become illiquid or the breakers hit), LJM Partners estimates the worst-case daily 

loss as follows: Aggressive, 40%; Moderately Aggressive, 30%; and Preservation and Growth, 

20%.” 

53. The FAQ and DDQ statements that LJM estimates the worst-case daily loss as 20-

40% or 20-35%, depending on the strategy, were false and misleading. First, LJM did not 

calculate the effects of the market moves it cited (such as the S&P downgrade of US debt in 

2011) to formulate a worst-case expectation for loss, as represented in its Risk FAQ and June 

2016 DDQ. Instead, LJM’s CRO, who drafted the relevant language here, obtained the 20 to 35-

40% DDQ worst-case losses figures by taking LJM’s own prior worst daily drawdown for each 

strategy, rounding it up, and then simply doubling the numbers. Even though LJM had autogenerated scenario analyses based on historical market movements (i.e., 1987 Wall Street crash, 

the 2010 Flash Crash, the 2011 S&P downgrade of US debt) that indicated LJM would sustain 

daily losses in excess of 40%, the CRO ignored these reports when calculating the worst-case 

scenario figures in the Risk FAQ and June 2016 DDQ. Second, these auto-generated historical 

scenarios showed potential worst-case losses far in excess of 40% for all of LJM’s strategies, 

thus the June 2016 DDQ misrepresented what LJM’s historical scenarios actually showed. 

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54. Internal communications demonstrate that LJM was reluctant to admit in direct 

communications with pool participants, or their agents, that potential losses could be very high 

from LJM’s short options trading strategies. In an email dated December 19, 2017, E.B. (an 

LJM associate portfolio manager who reported to Caine and Parvataneni), wrote in response to a 

client question asking what the maximum loss was: “Should we openly disclose 100% as the 

maximum loss?” In response, LJM’s former marketing manager expressly wrote that such 

information should not be in an email but left to a telephone call. 

55. In an internal April 2016 email, responding to a question from LJM salesperson 

P.M. about what were the maximum drawdowns in P&G and Moderately Aggressive strategies, 

Defendant Caine admitted: “In extreme cases, theoretically we model to 100% loss.” 

(emphasis added). However, this information was never disclosed to pool participants in writing. 

56. Defendants knowingly or recklessly misrepresented the results of LJM’s historical 

scenario analyses by stating the worst-case daily loss was 20-40% (or 20-35%) depending on the 

strategy. The LJM employees and agents who drafted and approved the false and misleading 

statements in the Risk FAQ and DDQs about the worst-case scenario and who made oral and 

written representations about the worst-case scenario to prospective and existing pool 

participants, or their agents, did so in the course of their employment or office. 

MISREPRESENTATIONS OR OMISSIONS 

ABOUT LJM’S RISK MANAGEMENT 

57. During the Relevant Period, LJM sales and marketing staff also made misleading 

and inaccurate statements about LJM’s risk management that oversold its ability to manage the 

risk exposure of the LJM portfolios and implied an ability to mitigate, if not avoid losses. LJM 

falsely told prospective and existing pool participants that LJM conducted and used historical 

scenario stress tests as part of its risk management process. 

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58. For example, in a sales brochure and sales presentations, LJM stated that it had 

“robust risk management and R&D systems” and that LJM’s investment philosophy included 

“volatility strategies with an emphasis on proper risk management” with scenario analysis and 

stress testing. 

59. In the June 2016 DDQ, LJM stated that it uses real time “what-if” scenario 

analysis to optimize execution of hedge positions and that LJM “employs a combination of 

scenarios to estimate risk to the portfolio assuming no risk mitigation actions may be taken.” 

60. In a December 2016 DDQ sent to a large bank for consideration in the bank’s 

alternative investments platform, LJM represented that: 

The fund runs reports using current market data throughout the trading day to 

monitor portfolio risk given various historical (e.g. 2011 S&P Downgrade, etc.) 

scenarios along with several parametric (market changes by x%, etc.) scenarios. 

These assessments measure the impact of market changes on the portfolio 

assuming instantaneous change and no adjustments to the portfolio. Review of 

this scenario analysis is incorporated into the fund’s daily risk management and 

trading process. (emphasis added) 

61. In its September 1, 2017, annual report to the P&G Fund board of trustees, LJM 

represented its risk management consisted of several analyses including “reports that show 

portfolio performance given extreme market movements based, in part, on real historical data 

and also on other extreme combinations.” 

62. In April 2016, in a webinar broadcast to RIAs and pool participants, Defendant 

Caine proclaimed “LJM models the probability of previous events, and adjusts portfolio to 

accommodate these events.” 

63. In reality, LJM did not actually use scenario analysis (given various historical 

scenarios, e.g. 2011 S&P Downgrade, etc.) as part of its portfolio risk management. LJM autoCase: 1:21-cv-02863 Document #: 1 Filed: 05/27/21 Page 17 of 36 PageID #:17
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generated such historical scenarios but LJM’s portfolio managers, including Parvataneni and 

Caine, did not use them in risk management. 

64. According to Parvataneni, for risk management LJM used standard Greek risk 

metrics, Break-Even reports which forecasted profits and losses, and CQG reports, which were 

options position reports from the execution brokers. Parvataneni never used the historical 

scenarios described in LJM ‘s DDQs and reports to the P&G Fund board of trustees. 

65. In addition, LJM represented to prospective and existing pool participants that it 

utilized standard Greek risk metrics when measuring options risk. For instance, during LJM’s 

2017 First Quarter webinar, Caine touted LJM’s “discipline” and “strict adherence to risk 

metrics” specifically referencing LJM’s use and analysis of the Greek risk metrics vega, delta 

and gamma in risk management. However, in actuality, LJM ignored or paid little attention to 

vega, which is a measure of options volatility risk. That is because LJM portfolio managers and 

staff, including Caine and Parvataneni, said that vega/volatility was historically mean reverting 

and that losses would be recoverable in time. Indeed, during sworn testimony, Parvataneni 

testified: “Q. Did the fund do anything to limit its vega risk? A. No.”. 

66. LJM’s portfolio management team did nothing to limit vega/volatility risk and 

Parvataneni testified that: “The idea was vega losses typically being reverting. That was the 

whole tenet and part of the strategy...And that mean reversion is a core tenet of the strategy.” 

Parvataneni also testified: “Q. So, there was no steps taken to minimize volatility moves, moves 

in volatility? A. Time will solve the problem.” The fact that LJM did nothing to limit 

vega/volatility risk was never disclosed in writing to prospective or existing pool participants. 

Caine also testified that “We do know that vega is mean reverting ...” 

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67. Defendants knew that LJM did not use historical scenarios in risk management 

and that the portfolio managers did not account for or paid little attention to vega/volatility risk 

because of LJM’s belief that volatility is always mean reverting. Without proper risk 

management, the risk of selling options is heightened. 

68. These representations about robust risk management with historical scenarios 

analysis were false and misleading. 

69. Likewise, LJM’s decision to ignore vega/volatility risk when trading options 

shows that LJM did not have the robust, prudent, or sophisticated risk management that it touted 

to pool participants. These facts ran counter to LJM’s touted claims of “robust” risk 

management as a key component of its trading. As documented in an email sent to LJM on 

February 9, 2018, in the days following the collapse of LJM’s portfolio, an investment advisor 

for pool participants wrote, he was “walked through the risk parameters in place to ensure 

something like this never happens. Furthermore, was assured it wouldn’t and couldn’t happen.” 

The email identified Defendant Parvataneni as among the LJM staff participating in that 

conversation. 

70. LJM’s officials, agents, employees, or other persons acting for or on behalf of 

LJM who made the aforementioned false or misleading statements alleged herein did so within 

the scope of their employment or office. 

MISREPRESENTATIONS OR OMISSIONS ABOUT CHANGES TO LJM’S RISK 

PROFILE 

71. Additionally, LJM, through misleading statements and material omissions, misled 

its investors about the risk profile of its portfolio. 

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72. LJM touted to its investors that it maintained a consistent risk profile. 

Throughout 2017 LJM’s monthly and quarterly newsletters, signed by Parvataneni, to pool 

participants made claims such as “[t]he Investment Management team makes small daily 

portfolio additions and adjustments...with the goal of maintaining a consistent risk reward 

profile;” and “[i]incremental adjustments were made to positions...with the goal of maintaining 

consistent risk profiles.” Moreover, LJM claimed that in low volatility environments, like those 

being experienced in 2017, the LJM Investment Management team reacted quickly to market 

moves “in order to maintain consistent risk levels in the portfolio.” These claims were repeated 

in 2017 quarterly newsletters issued by LJM Funds Management and signed by Parvataneni. 

73. However, beginning in late 2017, the risk profile of the LJM portfolios began a 

trend of diverging from its traditional characteristics. By December 2017, the risk profile of the 

LJM portfolios, unbeknownst to the LJM pool participants, had significantly deviated from their 

traditional norms. The portfolio’s Greek risk metrics no longer tracked its historic profiles and 

the portfolio was demonstrably different in various standard metrics, such as the delta, vega and 

gamma, as well as in its response to stress test scenarios. 

74. In an email dated November 17, 2017, Caine asks Parvataneni if he is taking a 

“directional bias.” In an email dated December 27, 2017, Caine wrote to LJM associate portfolio 

manager, E.B., that “I actually am a bit scared of the main portfolios. They maintain a 

directional bias.” 

75. While the LJM’s portfolio historically maintained a negative delta, by December 

of 2017, the delta of LJM’s portfolio had shifted from a typically negative number to consistently 

positive. End of day positions show, for instance, between May 1, 2017 and November 30, 

2017—132 trading days—that LJM had two days where its end of day positions in the account 

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used to trade the P&G strategy was delta positive. However, in the 42 trading days spanning 

December 1, 2017, through February 5, 2018, the account’s end of day delta was positive for 33 

of those 42 days. The mean delta of the P&G strategy account was -36.5 for the first nine 

months of 2017, and -33.5 between October and November 2017. The mean delta of the 

portfolio jumped to 19.2 in December 2017 and 18.4 in January 2018. 

76. Conversely, the P&G account’s vega numbers, began decreasing throughout 

December 2017 before dramatically spiking downward in January 2018. Mean vega became 

increasingly negative in December 2017 and January 2018, reaching -91 in December and -132 

in January. Vega in the P&G account had not been less than -100 for the first nine months in 

2017. However, between October and December 2017 the P&G account recorded eight days 

where vega was less than -100 between October and December 2017, and from January 11, 

through February 5, 2018, vega was less than -100 each day through February 5, 2018. 

77. Similarly, the P&G account’s gamma numbers, began trending to the negative 

starting in mid-2017 with a sharp decline in January 2018. Mean gamma became increasingly 

negative in December 2017 and January 2018, reaching -75 in December 2017 and -90 in 

January 2018. Furthermore, gamma was less than -90 on four days in the first nine months of 

2017, nine days in the last three months of 2017, and eleven days in January 2018. 

78. Moreover, the portfolio was positioned in a manner that essentially doubled the 

size of potential losses associated with a significant drop in the S&P and an upward spike in 

volatility, compared to the historic profile of LJM’s positions. This was the result of LJM 

increasing the number of options per equity dollar in the portfolio in late 2017 and early 2018 

while also increasing the percentage of short puts and decreasing the percentage of short calls 

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and long puts. This change to the portfolio left the portfolio at risk for greater losses if volatility 

spiked upward and the price of the S&P dropped. 

79. None of these changes were disclosed to pool participants. Rather, they were led 

to believe that LJM was maintaining and moving forward with the consistent risk profile that it 

had historically maintained. In a newsletter dated December 6, 2017, signed by Parvataneni, 

LJM claimed “[a]s markets moved, the Investment Management team adjusted portfolios to 

maintain the consistent risk profiles our clients expect.” [emphasis added]. Moreover, one 

month later, a newsletter dated January 6, 2018, signed by Parvataneni, continued this false 

narrative claiming that in 2017 “LJM's Investment Management team delivered consistent 

returns while maintaining long-term risk parameters” and that it would “manage portfolios with 

continued focus on harnessing the spread between implied and realized volatility while 

maintaining consistent risk levels.” LJM and Parvataneni not only failed to disclose to its pool 

participants that the risk profile had deviated dramatically from its historical norms, but the 

language of its outgoing LJM newsletters misleadingly represented that LJM would manage 

portfolios while maintaining consistent risk levels. 

DEFENDANT CAINE’S CONTROLLING PERSON LIABILITY 

80. Defendant Caine is the Chairman, founder and owner of LJM. Caine was also the 

co-portfolio manager and sat on LJM’s risk committee. Caine had the authority to hire and fire 

employees. Caine had the authority to review the work of all LJM employees, including LJM 

Chief Portfolio Manager Parvataneni and the CRO, and determined their salaries and bonuses. 

Caine was listed as a principal of LJM in National Futures Association (“NFA”) records and was 

also a registered AP of LJM. Caine had final say on portfolio risk and decades of experience 

trading options and managing options portfolios. 

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81. Caine was provided a copy of the Risk FAQ in June 2016 that contained the 

representations that LJM estimated the worst-case daily loss as 20-40%, depending on the 

strategy. Caine was regularly provided copies of LJM marketing materials that sales staff 

provided to RIAs and prospective investors. These marketing materials contained 

representations about LJM’s robust risk management and scenario analysis. Caine also had 

access to the DDQs which contained the false representation about worst-case daily losses being 

20-35%, depending on the strategy, as determined by LJM’s historical scenarios. 

82. As co-portfolio manager, Caine also knew or was constructively aware that the 

LJM portfolio team ignored or paid little attention to vega risk because of assumptions that 

vega/volatility losses were always mean reverting. Caine testified to CFTC staff that “[w]e do 

know that vega is mean reverting and over time vega has a reduced implication on the portfolio. 

So we could be more patient with vega losses than we could with losses associated with delta.” 

83. As a member of LJM’s Risk Committee and a co-portfolio manager, Caine knew 

or was constructively aware that LJM did not utilize historical scenarios and that, therefore, LJM 

did not have the robust risk management it touted in its marketing materials. 

84. Caine received copies of LJM’s monthly and quarterly newsletters and updates. 

As co-portfolio manager, Caine monitored LJM’s entire portfolio and had regular discussions 

with Parvataneni and the portfolio team about the portfolio. Furthermore, according to the LJM 

Risk Policy, “At LJM, ownership has the final say on risk.” Thus, Caine knew or was 

constructively aware that LJM’s risk profile had significantly deviated in late 2017 and early 

2018, as alleged above, and was more vulnerable to a spike in volatility. Despite his knowledge 

and authority, Caine did nothing to prevent or correct LJM’s false and misleading statements to 

pool participants about maintaining consistent risk profile in late 2017 and early 2018. 

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85. Thus, Caine as a controlling person of LJM, knowingly induced, or did not act in 

good faith with respect to, the false and misleading statements described herein that LJM made 

to prospective and existing pool participants. 

SUPERVISION FAILURES 

86. During the Relevant Period, LJM Partners Ltd. and LJM Funds Management Ltd. 

were registered with the Commission as CPOs. Caine is a registered AP of both LJM entities 

and their Chairman and had supervisory responsibilities over LJM staff. 

87. As registrants with supervisory duties, Defendants LJM and Caine each had a 

duty to diligently supervise its officers, employees and agents. 

88. LJM sales staff made multiple false and misleading statements in emails to 

prospective pool participants, or their agents, that were contradictory to the actual operation of 

LJM and its strategies. 

89. As described above, LJM sales staff represented to some prospective and existing 

pool participants, or their agents, that (a) the worst-case daily loss was 20% to 35-40% 

depending on the strategy and (b) LJM utilized historical scenario analysis as part of its portfolio 

risk management. As explained above, these statements were false and misleading. 

90. Moreover, LJM’s claims of “robust” risk management were undercut by LJM’s 

failure to comply with its own risk policy. The LJM Risk Policy that was in effect between 

March 2013 and September 2016 required the firm to hold bi-monthly Risk Committee meetings 

and maintain agendas and minutes for said meetings. In the 30 months spanning March 2013 

through September 2016 LJM held four such meetings, one in 2013, two in 2014, one in 2015 

and none in 2016. While LJM maintained a meeting agenda for its 2015 meeting there are no 

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minutes of that meeting. LJM failed to comply with its own Risk Policy for the period of March 

2013 through September 2016. 

91. LJM sales staff made inaccurate and incomplete statements via email to existing 

and prospective pool participants, or their agents, that the LJM strategy was “rules-based” and 

utilized “rules-based portfolio management.” A rules-based trading system is typically defined 

as a system of trading which precisely defines a trade set-up, determines exactly how much 

money will be placed on the trade (position size), as well as what the risk and profit will be. 

However, LJM actually operated “discretionary” based trading parameters. 

92. In January 2018, LJM sales staff told prospective and existing P&G Fund 

investors/pool participants, or their agents, that LJM maintained a “delta negative” portfolio. 

Delta is the option’s equivalent of a position in the underlying financial instrument so positive 

delta means that you are bullish the market and a negative delta means that you are bearish the 

market. At least one LJM salesperson sent over forty emails to existing and prospective pool 

participants or their agents touting the fund’s “delta negative” nature when the fund’s profile was 

delta positive and had been consistently delta positive for almost two months (December 2017 to 

mid-January 2018). These representations were an inaccurate portrayal of the LJM strategy 

because the P&G portfolio became consistently delta positive from December 2017 through 

January 2018. Moreover, in the weeks following these emails, LJM’s portfolio remained 

consistently positive delta until LJM’s collapse in February 2018. 

93. Defendants LJM and Caine failed to take adequate steps to deter or correct the 

aforementioned misrepresentations and inaccurate statements by LJM employees and agents. 

Neither LJM and Caine took adequate steps to prevent or correct misrepresentations to RIAs 

and/or pool participants that the worst-case daily loss was 20-40% depending on the strategy. 

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Neither Caine nor LJM took effective steps to make sure the portfolio managers actually used 

historical scenarios as part of risk management as was represented to RIAs and pool participants. 

Neither LJM nor Caine took adequate steps to prevent or correct misstatements in LJM’s 

newsletters to pool participants about maintaining a consistent risk profile when it had deviated 

significantly in late 2017 and early 2018. Nor did LJM and Caine take adequate steps to prevent 

or correct the inaccurate steps by sales representatives about LJM’s strategy being “rules-based” 

and “delta negative.” 

94. By, among other things, allowing LJM sales staff to make the inaccurate and 

misleading statements described herein and failing to comply with its own Risk Policy, 

Defendants LJM and Caine failed to diligently supervise their officers, employees and agents. 

VIOLATIONS OF THE CEA AND REGULATIONS 

Count One 

Violation of Section 4o(1)(A)-(B) of the CEA, 7 U.S.C. § 6o(1)(A)-(B) (2018) 

(Against All Defendants) 

95. 7 U.S.C. § 6o(1)(A)-(B) (2018), make it unlawful for a CPO or CTA, or AP of 

CPO or CTA, to use the mails or any means or instrumentality of interstate commerce to: (A) to 

employ any device, scheme, or artifice to defraud any client or pool participant or prospective 

client pool participant; or (B) engage in any transaction, practice, or course of business which 

operates as a fraud or deceit upon any client or pool participant or prospective client or pool 

participant. 

96. During the Relevant Period, as set forth by paragraphs 1 through 85 above, 

Defendants LJM Funds Management, a CPO, LJM Partners, a CPO and CTA, and Parvataneni, 

an AP of both LJM entities, directly or indirectly, (a) employed a device, scheme, or artifice to 

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defraud clients or pool participants or prospective clients and pool participants; and/or (b) 

engaged in transactions, practices or courses of business which operated as a fraud or deceit upon 

prospective or existing clients or pool participants, in violation of 7 U.S.C. § 6o(1)(A)-(B). In 

particular, Defendant LJM intentionally or recklessly made false or misleading statements or 

omissions of material fact to prospective and existing pool participants, or their RIA agents, or 

engaged in transactions, practices and course of business that operated a fraud deceit upon pool 

participants, including: (a) “[g]eneral worst-case losses can run in the order of 20% for P&G and 

30-35% for more aggressive flavors of the strategy” (as stated in the June 2016 DDQ) as 

calculated from historical scenario analysis, when it was not actually based on historical 

scenarios and LJM’s auto-generated historical scenarios actually showed worst-case losses 

would be much higher; and (b) that LJM had robust, prudent risk management that utilized 

historical scenario analysis, when in fact, LJM did not use historical scenario analysis in risk 

management. In addition, Defendant LJM failed to disclose in writing that it ignored the impact 

of vega or volatility risk in risk management and that it failed to comply with its own internal 

Risk Policy. Moreover, these misleading statements or omissions combined to a create a false 

and misleading depiction of LJM and its strategy to prospective and existing pool participants 

and clients, or their RIA agents, overstating LJM’s risk management while understating the risk 

of loss. 

97. Additionally, Defendants LJM and Parvataneni failed to disclose that the risk 

profile of LJM’s portfolio had changed, after repeatedly touting to pool participants that it 

maintained a consistent risk profile, in violation of 7 U.S.C. § 6o(1)(A)-(B). LJM and 

Parvataneni misrepresented that LJM continued to maintain a risk profile that was consistent 

with its historical norm when in fact in late 2017 it began to deviate from that profile. By 

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December 2017 through February 2018, LJM had significantly deviated from its historical risk 

profile, in that delta had moved from negative to consistently positive, vega decreased, gamma 

decreased and the portfolio’s vulnerability to loss in certain scenarios more than doubled, as 

described earlier. LJM’s and Parvataneni’s false or misleading statements and omissions gave 

pool participants a false impression of the construction of the LJM portfolio and the risk of loss 

associated with it. 

98. The false and misleading statements and omissions made by the officials, 

employees, agents, or other persons acting for or on behalf of LJM, including LJM’s APs, were 

made within the scope of each such person’s employment or office. Therefore, LJM is liable for 

each such person’s false or misleading statements or omissions and violations of 7 U.S.C. 

§ 6o(1)(A)-(B), pursuant to 7 U.S.C. § 2(a)(1)(B) and 17 C.F.R. § 1.2 (2020). 

99. Defendant Caine was the founder, Chairman, owner and co-portfolio manager of 

LJM, and possessed and exercised, directly or indirectly, the power to direct or cause the 

direction of the management and policies of LJM. LJM’s Risk Policy stated that the owner, 

Caine, had final say on portfolio risk. As such, Caine controlled LJM and had authority over 

LJM’s portfolio and risk management during the Relevant Period and did not act in good faith 

with respect to, and knowingly induced, directly or indirectly, the acts and omissions constituting 

LJM’s violations of the CEA and Regulations. Accordingly, Caine is liable for LJM’s violations 

of 7 U.S.C. § 6o(1)(A)-(B), pursuant to Section 13(b) of the CEA, 7 U.S.C. § 13c(b) (2018). 

100. Each misrepresentation or omission of material fact by Defendants, including, but 

not limited to, those specifically alleged herein, is alleged as a separate and distinct violation of 

7 U.S.C. § 6o(1)(A)-(B). 

Count Two 

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Violations of Section 4c(b) of the CEA, 7 U.S.C. § 6c(b) and Regulation 33.10, 17 C.F.R. § 

33.10 (2020) 

(Against All Defendants) 

101. As set forth above in paragraphs 1 through 85, Defendants LJM and Parvataneni 

knowingly or recklessly made false and misleading statements to other persons in connection 

with commodity options transactions. 

102. 7 U.S.C. § 6c(b) states that no person shall offer to enter into, enter into or 

confirm the execution of, any transaction involving any commodity regulated under this chapter 

which is of the character of, or is commonly known to the trade as, an “option”, “privilege”, 

“indemnity”, “bid”, “offer”, “put”, “call”, “advance guaranty”, or “decline guaranty”, contrary to 

any rule, regulation, or order of the Commission prohibiting any such transaction or allowing any 

such transaction under such terms and conditions as the Commission shall prescribe. 

103. 17 C.F.R. § 33.10 states it shall be unlawful for any person directly or indirectly: 

(a) To cheat or defraud or attempt to cheat or defraud any other person; 

(b) To make or cause to be made to any other person any false report or statement 

thereof or cause to be entered for any person any false record thereof; 

(c) To deceive or attempt to deceive any other person by any means whatsoever 

in or in connection with an offer to enter into, the entry into, the confirmation 

of the execution of, or the maintenance of, any commodity option transaction. 

104. As set forth above, Defendant LJM knowingly or recklessly made false and 

misleading statements to other persons in connection with LJM’s commodity options 

transactions, including: (a) “[g]eneral worst-case losses can run in the order of 20% for P&G 

and 30-35% for more aggressive flavors of the strategy” (as stated in the June 2016 DDQ) as 

calculated from historical scenario analysis, and (b) that LJM had robust, prudent risk 

management that utilized historical scenario analysis, when in fact, LJM did not use historical 

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scenarios in risk management. In addition, Defendants LJM and Parvataneni knowingly or 

recklessly made false and misleading statements to other persons, in connection with commodity 

option transactions, that LJM maintained a “consistent risk profile” in late 2017 and early 2018 

when, in fact, LJM’s options portfolio risk profile had significantly deviated from its historical 

risk profile. As a result, Defendants LJM and Parvataneni violated 17 C.F.R. § 33.10. 

105. Defendant Caine was the founder, Chairman, owner and co-portfolio manager of 

LJM, and possessed and exercised, directly or indirectly, the power to direct or cause the 

direction of the management and policies of LJM. LJM’s Risk Policy stated that the owner, 

Caine, had final say on portfolio risk. As such, Caine controlled LJM and had authority over 

LJM’s portfolio and risk management during the Relevant Period and did not act in good faith 

with respect to, and knowingly induced, directly or indirectly, the acts and omissions constituting 

LJM’s violations of the CEA and Regulations. Accordingly, Caine is liable for LJM’s violations 

of 17 C.F.R. § 33.10 pursuant to 7 U.S.C. § 13c(b). 

106. Each misrepresentation or omission of material fact by Defendants, including, but 

not limited to, those specifically alleged herein, is alleged as a separate and distinct violation of 

17 C.F.R. § 33.10. 

Count Three 

Violation of Section 6(c)(1) of the CEA, 7 U.S.C. § 9(1) (2018) and Regulation 180.1(a), 17 

C.F.R. § 180.1(a) (2020) 

(Against All Defendants) 

107. 7 U.S.C. § 9(1) (2018) makes it unlawful for any person, directly or indirectly, to: 

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use or employ, or attempt to use or employ, in connection with any swap, or a 

contract of sale of any commodity in interstate commerce, or for future delivery 

on or subject to the rules of any registered entity, any manipulative or deceptive 

device or contrivance, in contravention of such rules and regulations as the 

Commission shall promulgate ... 

Promulgated under 7 U.S.C. § 9(1) (2018), 17 C.F.R. § 180.1(a) provides: 

It shall be unlawful for any person, directly or indirectly, in connection with any swap, or 

contract of sale of any commodity in interstate commerce, or contract for future delivery on or 

subject to the rules of any registered entity, to intentionally or recklessly: 

(1) Use or employ, or attempt to use or employ, any manipulative device, scheme, 

or artifice to defraud; 

(2) Make, or attempt to make, any untrue or misleading statement of a material 

fact or to omit to state a material fact necessary in order to make the 

statements made not untrue or misleading; 

(3) Engage, or attempt to engage, in any act, practice, or course of business, 

which operates or would operate as a fraud or deceit on any person. 

108. A person violates 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1 if he or she: (1) engages 

in prohibited conduct (i.e., employs a fraudulent scheme, makes material misrepresentations or 

omissions, or engages in fraudulent business practices); (2) in connection with the sale of a 

contract for sale of any commodity in interstate commerce; (3) with scienter. Defendants LJM 

and Parvataneni’s false and misleading statements described above in paragraphs 1 through 85 

above about (a) “[g]eneral worst-case losses can run in the order of 20% for P&G and 30-35% 

for more aggressive flavors of the strategy” (as stated in the June 2016 DDQ) as calculated from 

historical scenario analysis, (b) employing historical scenarios in risk management, and (c) 

maintaining a consistent risk profile in late 2017 and early 2018, in connection with contracts of 

sale of any commodity in interstate commerce, or contract for future delivery on or subject to the 

rules of any registered entity (S&P Futures contracts, and the options thereon, trade on the CME, 

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a designated contract market and registered entity pursuant to the Act), violated 7 U.S.C. § 9(1) 

and 17 C.F.R. 180.1. 

109. Defendant Caine was the founder, Chairman, owner and co-portfolio manager of 

LJM, and possessed and exercised, directly or indirectly, the power to direct or cause the 

direction of the management and policies of LJM. As such, Caine controlled LJM and had 

authority over LJM’s portfolio and risk management during the Relevant Period and did not act 

in good faith with respect to, and knowingly induced, directly or indirectly, the acts and 

omissions constituting LJM’s violations of the CEA and Regulations. Accordingly, Caine is 

liable for LJM’s violations of 7 U.S.C. § 9(1) and 17 C.F.R. 180.1. 

110. Each misrepresentation or omission of material fact by Defendants, including, but 

not limited to, those specifically alleged herein, is alleged as a separate and distinct violation of 7 

U.S.C. § 9(1) and 17 C.F.R. § 180.1. 

Count Four 

Failure To Supervise In Violation 17 C.F.R. § 166.3 (2020) 

(Against Defendants LM and Caine) 

111. Pursuant to 17 C.F.R. § 166.3, “each Commission registrant, except an associated 

person who has no supervisory duties, must diligently supervise the handling by its partners, 

officers, employees and agents . . . of all commodity interest accounts carried, operated, advised 

or introduced by the registrant and all other activities of its partners, officers, employees and 

agents . . . relating to its business as a Commission registrant.” 

112. During the Relevant Period, as set forth above in paragraphs 1 through 94, LJM 

Partners, LJM Funds Management and Caine, knew or had reason to know that their principals, 

employees and agents were making the false and misleading and inaccurate statements alleged 

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herein concerning LJM’s trading strategies and risk management. LJM, as a registered CPO, and 

Caine, as a registered AP with supervisory duties, failed to take adequate steps to prevent or 

correct the misrepresentations and inaccurate statements made by LJM employees and agents to 

RIAs and prospective/existing pool participants as described herein. Thus, LJM and Caine failed 

to diligently perform their supervisory duties. These failures violated 17 C.F.R. § 166.3. 

RELIEF REQUESTED 

 Wherefore, the Commission respectfully requests that this Court, as authorized by 

Section 6c of the CEA, 7 U.S.C. § 13a-1 (2018), and pursuant to its own equitable powers: 

A. Find that Defendants LJM Partners, Ltd. LJM Funds Management Ltd., 

Parvataneni and Caine violated Sections 4c(b), 4o(1)(A)-(B), and 6(c)(1) of the 

CEA, 7 U.S.C. §§ 6c(b), 6o(1)(A)-(B), and 9(1) (2018) and Regulations 33.10 and 

180.1, 17 C.F.R. §§ 33.10 and 180.1 (2020). 

B. Find that Defendants LJM Partners Ltd., LJM Funds Management Ltd., and Caine 

violated Regulation 166.3, 17 C.F.R. § 166.3 (2020). 

C. Enter an order of permanent injunction enjoining Defendants LJM Partners Ltd., 

LJM Funds Management Ltd., Caine, and Parvataneni and their affiliates, agents, 

servants, employees, successors, assigns, attorneys, and all persons in active 

concert with them, who receive actual notice of such order by personal service or 

otherwise, from engaging in the conduct described above, in violation of 7 U.S.C. 

§§ 6c(b), 6o(1)(A)-(B), and 9(1) and 17 C.F.R. §§ 33.10 and 180.1. 

D. Enter an order of permanent injunction enjoining Defendants LJM Partners Ltd., 

LJM Funds Management Ltd. and Caine, and their affiliates, agents, servants, 

employees, successors, assigns, attorneys, and all persons in active concert with 

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them, who receive actual notice of such order by personal service or otherwise, 

from engaging in the conduct described above, in violation of 17 C.F.R. § 166.3. 

E. Enter an order of permanent injunction restraining and enjoining each of the 

Defendants, and their affiliates, agents, servants, employees, successors, assigns, 

attorneys, and all persons in active concert with them, from directly or indirectly: 

i. Trading on or subject to the rules of any registered entity (as that term is 

defined by Section 1a(40) of the CEA, 7 U.S.C. § 1a(40) (2018)); 

ii. Entering into any transactions involving “commodity interests” (as that 

term is defined in Regulation 1.3, 17 C.F.R. § 1.3 (2020)), for accounts 

held in the name of any Defendant or for accounts in which any Defendant 

has a direct or indirect interest; 

iii. Having any commodity interests traded on any Defendants’ behalf; 

iv. Controlling or directing the trading for or on behalf of any other person or 

entity, whether by power of attorney or otherwise, in any account 

involving commodity interests; 

v. Soliciting, receiving, or accepting any funds from any person for the 

purpose of purchasing or selling of any commodity interests; 

vi. Applying for registration or claiming exemption from registration with the 

CFTC in any capacity, and engaging in any activity requiring such 

registration or exemption from registration with the CFTC except as 

provided for in Regulation 4.14(a)(9), 17 C.F.R. § 4.14(a)(9) (2020); and 

vii. Acting as a principal (as that term is defined in Regulation 3.1(a), 

17 C.F.R. § 3.1(a) (2020)), agent, or any other officer or employee of any 

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person registered, exempted from registration, or required to be registered 

with the CFTC except as provided for in 17 C.F.R. § 4.14(a)(9). 

F. Enter an order directing the Defendants, as well as any third-party transferee 

and/or successors thereof, to disgorge, pursuant to such procedure as the Court 

may order, all benefits received including, but not limited to, salaries, 

commissions, loans, fees, revenues, and trading profits derived, directly or 

indirectly, from acts or practices which constitute violations of the CEA and 

Regulations as described herein, including pre-judgment and post-judgment 

interest; 

G. Enter an order requiring the Defendants, as well as any successors thereof, to 

make full restitution to every person who has sustained losses proximately caused 

by the violations described herein, including pre-judgment and post-judgment 

interest; 

H. Enter an order directing each Defendant to pay a civil monetary penalty assessed 

by the Court, in an amount not to exceed the penalty prescribed by Section 

6c(d)(1) of the CEA, 7 U.S.C. § 13a-1(d)(1), as adjusted for inflation pursuant to 

the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, 

Pub. L. 114-74, tit. VII, § 701, 129 Stat. 584, 599–600, see Regulation 143.8, 

17 C.F.R. § 143.8 (2020), for each violation of the CEA and Regulations, as 

described herein; 

I. Enter an order requiring the Defendants to pay costs and fees as permitted by 28 

U.S.C. §§ 1920 and 2413(a)(2) (2018); and 

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J. Enter an order providing such other and further relief as this Court may deem 

necessary and appropriate under the circumstances. 

Respectfully submitted, 

PLAINTIFF COMMODITY FUTURES 

TRADING COMMISSION 

Manal M. Sultan 

Deputy Director 

Division of Enforcement 

 /s/ Nina Ruvinsky 

 Nina Ruvinsky (Local Counsel) 

 Illinois ARDC # 6313873 

 Commodity Futures Trading Commission 

 325 W. Monroe Street, Suite 1100 

 Chicago, IL 60661 

 nruvinsky@cftc.gov 

 (312) 596-0675 

W. Derek Shakabpa, pro hac vice pending 

 Senior Trial Attorney 

 wshakabpa@cftc.gov 

 Patrick F. Daly, pro hac vice pending 

 Senior Trial Attorney 

 pdaly@cftc.gov 

 David Acevedo, pro hac vice pending 

 Chief Trial Attorney 

 dacevedo@cftc.gov 

 Commodity Futures Trading Commission 

 140 Broadway, 19th floor 

 New York, NY 10005 

 (646) 746-9700 

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