(Reuters) - A Chicago fund manager that suffered catastrophic losses in a market plunge earlier this year has blamed the actions of its broker, a Wells Fargo & Co unit, according to court documents filed on Wednesday.
The allegations were spelled out in response to a March lawsuit by Wells Fargo Securities against fund manager LJM Partners Ltd.
The response to the Wells Fargo Securities lawsuit is LJM’s first detailed public explanation of why it was one of the biggest casualties of February’s “vol-mageddon,” the volatility-linked collapse of investments that had profited in calmer markets.
LJM funds posted heavy losses after the Cboe Volatility Index, the most widely followed barometer of price swings expected in the S&P 500 stock index, logged its biggest-ever single-day jump on Feb. 5.
But LJM’s losses only became permanent the next day, the fund’s lawyers said in a counter-claim filed in federal court in Manhattan.
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 said in the filing.
LJM lost $266 million across its funds, “at least $115 million more than if LJM had been allowed to apply its trading procedures,” the counter-claim said.
LJM founder Anthony Caine had said in a letter to clients in February, that working with its clearing broker, LJM “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