Tag Archives: risky option trading

Losses On LJM Preservation and Growth Fund May Be Recoverable

February 2018

We are currently reviewing potential claims for investors who suffered losses in  LJM Preservation and Growth Fund (LJMIX & LJMCX) securities.

Once close to a billion dollars, the LJM Preservation and Growth Fund lost over 80% of its value in the first week of February 2018 and is closed to further investment, according to filings with the US Securities and Exchange Commission.

According to analysts following the fund, the strategy  of the LJM Preservation and Growth Fund was to sell naked put options on S&P futures.

Put Option

A “put” option is a contract granting the right to the buyer to sell a security at a specified price (strike price) , allowing the buyer to hedge a position. The seller of a put option, in this case LJM,  is betting the price of the security will remain higher than the strike price of the option. If the seller doesn’t own the security on which the option is written, that is called naked option writing and the downside risk is magnified greatly.

If a downward market adjustment occurs, as it did in the first week of February 2018, losses can be catastrophic. These charts show the dramatic drop in value on two of the LJM funds:

Brokers Have Duty to Make Suitable Recommendations

Brokers have a duty to make suitable recommendations taking into account an investor’s health, age, level of financial sophistication , tolerance for risk and investment objectives. For most retirees, a recommendation to invest in an investment that could experience such a dramatic drop in value would not be suitable. Investors may have been unaware of the risks associated with an investment in the LJM Preservation and Growth Fund, given the apparent misuse of the word “Preservation” .

Losses May be Recoverable

If you have losses in the LJM Preservation and Growth Fund and believe you were misled as to the risks, contact us to learn how damages may be recoverable through FINRA arbitration.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870

OneAmerica Securities Investigated for Failing to Supervise Option Trading

February 13, 2015

OneAmerica Securities, Inc.  entered into a Letter of Acceptance, Waiver and Consent  (AWC) with the Financial Industry Regulatory Authority (FINRA) to resolve allegations that they failed to make reasonable inquiries or otherwise follow-up on multiple red flags that indicated one of their brokers,  Matthew J. Davis, was making unsuitable options recommendations and causing improper transfers of funds to a third party.

Davis was barred from the securities industry as a sanction from a FINRA disciplinary proceeding in an AWC issued in April 2014.

According to this recent AWC with OneAmerica Securities, Davis opened an account for a 65 year old couple with earnings between $50,000-$75,000 and a net worth (not including their residence) of between $250,000-$500,000. The couple indicated they had only two years of prior investment experience.

Davis sold puts and calls in the couple’s account causing the account to lose over half its value in a year.

OneAmerica Securities was censured for failing to supervise Davis and fined $75,000.

FINRA Case # 2013036026902

OneAmerica Securities was formed  in 1969 and is registered in 51 U.S. States and territories. Their main office is located in Indianapolis, Indiana.

OPTION TRADING NOT SUITABLE FOR ALL CUSTOMERS

Option trading can be risky and therefore unsuitable for retirees on fixed income. If you have suffered losses on option trading in your brokerage account, call to speak with an experienced securities attorney.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870

Investors Beware! Do Not Sign Blank Forms Presented to You by Your Broker

The Financial Industry Regulatory Authority (FINRA) , filed a complaint in February 2012, against two UBS Financial Services brokers, Charles Kern, III and Thomas Haskins,  alleging that they made unsuitable recommendations and material misrepresentations or omissions regarding options
investments in the S&P 500 Euro Index.

The option strategy suggested involved selling uncovered calls with a strike price 10% above the market price of the S&P 500 Index and selling uncovered puts at a strike price 10% below the market price of the S&P 500 index. If the calls and puts expired unexercised, the customer retained the premiums collected on the option sales. If the calls or puts were exercised, the customer would have to purchase the securities to cover the exercise of the options.

Broker Kern told broker Haskins, who apparently did not have personal professional experience with this strategy, represented that it would be successful 90% of the time and did not explain that losses were potentially unlimited, but rather told the customer that losses would be limited to $2-3,000 per transaction.

Two clients, referred to as WH and CH in the complaint were instructed to sign a Client Qualification Form for option trading, but were told not to fill in the part of the form dealing with liquid net worth, annual income, risk tolerance and experience. WH had completed the 8th grade and CH had completed high school. They were 61 and 62 years old.

One was disabled and the other a sewing machine operator. Annual combined income was about $35,000. Clearly they should not have been advised to follow such a risky trading strategy.

Customers should never sign any forms that are not completed and it is a warning sign that something may be amiss. In this case the brokers filled the forms out using false information so that the firm’s compliance department would approve the trading. Had the correct information been submitted(net worth, experience, risk tolerance, etc.) the trading would have been prohibited by the compliance department.

These clients lost $25,000, a significant portion of their $75,000 nest egg.

Other clients who were similarly enticed to follow this option trading strategy had losses of nearly $800,000.

If you have lost money as a result of option trading or other trading strategies which you did not understand at the time of the recommendation, call to speak with an experienced securities attorney and learn how you may be able to recover damages.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870