Former Cambridge Investment Research, Inc. Client Wins FINRA Arbitration for LJM Preservation and Growth Fund Losses with John Pronovost

LJM Capital Preservation Fund

In September 2018, a former client of Cambridge Investment Research, Inc. won an award in a FINRA arbitration for compensatory damages for $41,270.44 plus 2% interest for losses sustained from investments in LJM Preservation and Growth Fund. The investors were clients of financial advisor John Pronovost (CRD# 1990612). If your Pronovost sold you the LJM Funds without disclosing the risks of the fund, Erez Law may be able to help you recover your losses.

LJM Partners is an investment management firm that operates the mutual fund LJM Capital Preservation and Growth Fund (NASDAQ: LJMIX). The investment, “seeks capital appreciation and capital preservation with low correlation to the broader U.S. equity market. Under normal circumstances, the fund invests primarily in purchased (aka ‘long’) and sold (aka ‘short’) call and put options on Standard & Poor’s 500 Futures Index (‘S&P’). The fund seeks to achieve its investment objectives by capturing gains on options sold on S&P futures contracts that can be purchased (‘closed’) at a later date for a lower price than the price realized when originally sold,” according to U.S. News & World Report.

It is alleged that LJM Capital Preservation and Growth Fund was not focused on capital preservation and instead exposed investors to unacceptably high risk of catastrophic loss by not taking appropriate steps to preserve capital in down markets. Investing in volatility-linked products is extremely complex and risky and likely not a suitable and recommended strategy for the average investor.

On February 5, 2018, the S&P dropped 4.6% and LJM Capital Preservation and Growth Fund dropped from $10.34 on February 1 and then $9.82 on February 2 to $1.94 on February 7, a devastating more than 80% loss. As of October 2017, LJM Capital Preservation and Growth Fund had net assets of $768 million. Assuming that the assets were the same in February 2018, investors may have seen $600 million in losses during the first few days of February.

The causes of action included breach of fiduciary duty, unsuitability, and misrepresentation.

Pronovost has been registered with Cambridge Investment Research, Inc. in Watertown, Connecticut since 2008. Pronovost has been the subject of five additional customer complaints in 2018, according to his CRD report:

  • October 2018. “Client alleges unauthorized sale of LJM funds was unsuitable, as well as non disclosure of fees associated with the fund.” The customer is seeking $39,709 in damages and the case is currently pending.
  • June 2018. “Clients allege the sale of LJM funds was unsuitable.” The customer is seeking $70,000 in damages and the case is currently pending.
  • May 2018. “Clients allege misrepresentation and suitability of mutual fund.” The customer is seeking $50,000 in damages and the case is currently pending.
  • April 2018. “Client alleges a mutual fund purchased in 2016 is unsuitable for his risk tolerance. Alleged activity occurred between January 2017 and February 2018.” The customer is seeking $150,000 in damages and the case is currently pending.
  • March 2018. “Client alleges the fund was misrepresented and unsuitable for her needs.” The customer is seeking $26,044.79 in damages and the case is currently pending.

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Cambridge Investment Research, Inc. may be liable for investment or other losses suffered by Pronovost’s customers.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.

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Author: Jeffrey Erez

The founder of Erez Law, Jeffrey Erez, focuses exclusively on securities arbitration and litigation. Mr. Erez passionately believes in representing aggrieved investors and obtaining justice for his clients through litigation.