Securities Arbitration Lawyer Blog
The Financial Industry Regulatory Authority (“FINRA”) has sanctioned J.W. Cole Financial, Inc. (“J.W. Cole”) for failing to reasonably supervise brokers’ recommendations of the LJM Preservation & Growth Fund. On March 18, 2021, FINRA and J.W. Cole entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) whereby J.W. Cole accepted the following sanctions:
- a censure;
- a $50,000 fine;
- restitution of $163,527 plus interest to customers; and
- a signed certification that J.W. Cole has established and implemented policies, procedures, and internal controls reasonably designed to address and remediate the issues identified in the AWC.
Iorio Altamirano LLP is investigating claims on behalf of J.W. Cole Financial, Inc. customers who invested in the LJM Preservation and Growth Fund.
Customers that receive a partial recovery of losses through FINRA’s restitution order may still be entitled to additional recovery.
If you are a customer of J.W. Cole Financial, Inc. or a customer at another firm (including Cambridge Investment Research, Inc. and Securities America, Inc.), and your broker recommended that you invest in the LJM Preservation and Growth Fund, we are interested in speaking with you. Such investors are advised to contact New York securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com,or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
J.W. Cole Financial, Inc.
J.W. Cole Financial, Inc. is a full-service broker-dealer. The firm has been a FINRA member since 2003 and is headquartered in Tampa, Florida. JW. Cole operates as an independent contractor model, has approximately 490 brokers, and 277 branch offices throughout the United States. According to FINRA the firm’s brokers sold approximately $1 million worth of LJM funds to customers.
LJM Preservation and Growth Fund
The LJM Preservation and Growth Fund was an alternative mutual fund launched in January 2013. The fund sold to customers in the following investment classes: Class A: (LJMAX), Class C: (LJMCX), Class I: (LJMIX).
The FINRA AWC describes the LJM Preservation and Growth Fund as follows:
LJM marketed itself as “selling volatility” by seeking to profit from the “volatility premium”—the difference between implied volatility (investors’ forecast of market volatility reflected in options pricing) and realized (actual) market volatility. To achieve this goal, LJM invested primarily in purchased (long) and sold (short) call and put options on the S&P 500 futures index. LJM did not hold any underlying stock as a part of its strategy. In its prospectus, LJM disclosed that “[i]n the aggregate, the Fund is typically ‘net short’ in the portfolio of contracts that it holds, which means the Fund holds more uncovered option contracts than covered.” The prospectus also disclosed the limited upside, and unlimited downside, risk associated with uncovered options.
According to the AWC, in July 2017, Morningstar issued a Fund Report for LJM that described the fund as “[a]n aggressive option seller with above-average returns and low correlation with equity markets, but high risk.”
In late January 2018, the LJM Preservation and Growth Fund had $805M in assets under management. By early March 2018, it dropped to $9.8M.
LJM Partners and an affiliate saw losses of 80 percent or more. This compelled LJM to liquate the fund.
FINRA Letter of Acceptance, Waiver, and Consent No. 2019061764801
FINRA and J.W. Cole entered into an AWC on March 18, 2021, following FINRA’s allegations that J.W. Cole failed to reasonably supervise representatives’ recommendations of an alternative mutual fund—the LJM Preservation & Growth Fund. FINRA concluded that J.W. Cole permitted the sale of the LJM Preservation and Growth Fund on its platform without conducting reasonable due diligence and without a sufficient understanding of its risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options. FINRA also alleged that J.W. Cole lacked a reasonable supervisory system to review brokers’ recommendations to invest in the LJM Preservation and Growth Fund.
J.W. Cole’s representatives sold approximately $1 million worth of the LJM Preservation & Growth Fund to customers. The value of the LJM Preservation & Growth Fund dropped 80% during an extreme volatility event in February 2018, and the fund ultimately liquidated and closed, resulting in tens of thousands of dollars in losses for J.W. Cole’s customers. By virtue of the foregoing, J.W. Cole violated FINRA Rules 3110 and 2010.
How to Recover Losses or Obtain a Free Consultation
If you are a J.W. Cole Financial, Inc. customer or a customer at another firm, and your broker recommended that you invest in the LJM Preservation and Growth Fund, we are interested in speaking with you.
Customers that receive a partial recovery of losses through FINRA’s restitution order may still be entitled to additional recovery.
Contact New York securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We have experience representing institutional and retail investors in pursuing claims to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.