Cambridge Investment Research working on Finra settlement over alt fund sales

Finra's department of enforcement has investigated Cambridge's due diligence of the sale of the defunct LJM Preservation and Growth Fund.

MAR 11, 2021

By Bruce Kelly

Cambridge Investment Research Inc., one of the largest independent broker-dealers in the industry, revealed last month in a filing with the Securities and Exchange Commission that it was being investigated by regulators for its sales of a small alternatives fund that blew up in 2018 and is now defunct.

According to the firm's Focus Report from Feb. 25, Cambridge has been facing an investigation by the Financial Industry Regulatory Authority Inc.'s enforcement department into its "due diligence and supervision" related to the sale of the LJM Preservation and Growth Fund.

Cambridge Investment Research "denied any wrongdoing" in its legal defense and is in negotiations for a resolution, according to the Focus Report.

LJM Partners Ltd. was a Chicago-based money manager that took bets on stock market swings and shut its doors in February 2018 in the wake of a spike in market volatility, according to a report from Reuters.

An affiliate of LJM Partners ran LJM Preservation and Growth Fund, a mutual fund aimed at a retail audience which lost half its value earlier that month as volatility in trading spiked, according to the Reuters report. The fund then lost much of its remaining value soon after as it unwound holdings at unfavorable prices to raise cash at the insistence of its broker.

The LJM affiliate-managed mutual fund held assets worth $812 million at the beginning of February 2018 but that shriveled to just $14 million a few weeks later, according to Reuters.

Cambridge Investment Research in the past has usually avoided legal complaints and regulators' attention from sales of alternative investment products. It is not clear from the SEC filing if Cambridge will in the end reimburse clients who bought the LJM fund.

"We do not comment on pending regulatory matters," a spokesperson for Cambridge Investment Research said.

According to InvestmentNews Data, Cambridge Investment Research generated $1 billion in total revenues at the end of 2019 and had 3,400 registered reps and financial advisers on its platform.

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