LJM Shows Why We Need More Accountability, and More Lawyers
Recent events around LJM Capital Preservation and Growth Fund show the problems that still exist in the modern market. They also show why we need to improve access to lawyers that will hold brokerage firms accountable.
To give a very short explanation of what happened with LJM, we have to go back to the beginning of the year. While LJM claims to represent modest investments in the market that are meant to avoid market fluctuations, they were in reality engaging in very risky investments all while not making sure they had enough capital to handle market fluctuations.
Many brokers knew this, but they did not share that information with their clients. Instead, they invested their clients’ money in LJM, which then cost their clients a great deal when LJM’s stock dropped 80 percent in February. That 80 percent may have resulted in the loss of about $600 million for investors, many of whom didn’t even know they had money in a business that was behaving so irresponsibly.
The attorneys who represent investors against brokers who invested in the LJM fund are seeking compensation for their clients precisely because of these practices. Because these investors weren’t notified of the risks of investing in LJM, they have a right to get their money back. Their brokers did them a disservice by not explaining the kind of risky investments they were pursuing.
This will hopefully result in a large settlement that returns those losses to those who shouldn’t have experienced them in the first place. However, no matter the result, LJM speaks to a larger issue in the market. Namely, we need a better way to hold businesses and brokerage firms more accountable. LJM should never have been allowed to claim it was focusing on reasonable investments when they were in fact exposing themselves and their investors to major losses through their risky investments.
At the same time, brokers and brokerage firms should not be in a habit of making such questionable investments for their clients. Most people who use a brokerage firm expect conservative investments that provide stability and moderate growth. Brokerage firms should take these expectations more seriously and not play around with clients’ money so much, particularly without notifying their clients of the risks they are exposing them to.
The answer to how we curb these problems mostly comes down to lawyers. While it would be nice to see more laws and more focus from the state in these problems, that’s most likely unrealistic. Far more realistic is an effort to inform investors of their legal options by making lawyers who can help in such situations more visible. The more lawyers out there who can help their clients get compensation for such practices, the better. The more these investors know such lawyers are out there and ready to help them, the better. And finally, the more these lawyers win cases against brokerage firms, the more brokers will think twice before making those risky investments.