Catalyst Hedged Futures Strategy Fund (HFXIX) Under Investigation Over Recent Drop in Value and Misclassification

Silver Law Group is investigating Catalyst Capital Advisors LLC (CRD# 139895/ SEC# 801-66886) (“Catalyst”) and one of its mutual funds, Catalyst Hedged Futures Strategy Fund Class I (“HFXIX”) after the fund lost approximately 30 percent of its value in the span of three months.

HFXIX is a fund that seeks to provide positive returns in all market conditions with low volatility and low correlation to the equity markets by investing in option strategies on equity index futures contracts, according to the fund’s fact sheet.  The fund primarily invests in long and short call and put options on U.S. Stock Index Futures contracts, and lists the primary reason for investing as capital appreciation and preservation.

The fund has performed well relative to other managed futures funds, which fell 2.8 percent.  But according to an InvestmentNews report, the fund is actually an options writing fund, which opens up arguments of misclassification against Catalyst.

Since September 2013, the price of the fund has remained stable, ranging between $9.50 per share to a peak of $12.25 in August 2016, with miniscule drops and gains in between.

Then in late November 2016, the fund dropped from $12 per share to $10 per share, with another drop in late January 2016 from approximately $10 per share to the current $8.50 per share range.

Potentially in response to the market speculation that forced buying by Catalyst contributed to the market’s buoyancy at the time, a Catalyst representative stated that its market “exposure was greatly exaggerated” and its “impact on the market was greatly exaggerated,” according to a Bloomberg report.  According to that same report, HFXIX value tumbled seven straight days – in the same period, the S&P 500 had its longest streak of gains since 2013.

CEO of Catalyst, Jerry Szilagyi, says the fund was not forced to buy at all, a term used to describe the situation when a broker-dealer closes out short positions in a difficult-to-borrow, heavily-shorted stock because its lenders are demanding it back.  A “buy-in” is a major risk with short selling because of its unpredictability and can lead to unexpected losses for the short seller.

While Szilagyi seemingly explained away any reason for suspicion, questions still remain and our attorneys continue to investigate.

The biggest question is why such a dramatic drop that grossly deviates from any drops in the fund’s history? This is a fund that purportedly is for investors seeking capital preservation and appreciation, relatively conservative objectives.

If you have invested in the Catalyst Hedged Futures Strategy Fund Class I (“HFXIX”) and have lost money in this recent, significant downswing, contact our firm to learn how you can try to recover your losses.

Silver Law Group represents the interests of investors who have been the victims of investment fraud.  If you have questions about your legal rights, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.