• 12 Jun 2007 at 9:04 AM
  • Amaranth

What’s Really Behind The Amaranth Lawsuit?

amaranthsandiegograndjurysdceralawsuit.jpgCould the lawsuit filed by the pension fund for San Diego County employees against Amaranth Advisors be less innocent than it appears?
That’s the suggestion of Stephen Rosenberg in a recent posting on the Boston ERISA & Insurance Litigation Blog. The lawsuit against Amaranth may be a pre-emptive strike by the managers of the San Diego pension fund aimed at fending off claims of pension fund plaintiff class action lawyers seeking to sue on behalf pension fund beneficiaries, Rosenberg says.
The chief executive of the pension fund, Brian White, denies that any such fear of litigation motivated the fund to file the lawsuit. “We have had no threats of litigation as a result of Amaranth,” White said. He stressed that the fund has performed quite well despite losses from Amaranth’s collapse, and expects to have double digit returns for the year.
[After the jump, follow along as the dots are connected.]


To be sure, Rosenberg goes to some lengths to make it clear that the sinister-sounding conspiracy theory he posits is a “thought experiment” rather a report on the actual motivations of the managers of the San Diego pension fund. But the logic seems compelling. One way of thinking about it is that if the pension fund managers weren’t thinking of the possibility of getting sued for investing in Amaranth, perhaps they should have been.
Rosenberg points to the rise of a pension fund litigation lawyers who model themselves on securities litigation lawyers, filing class action lawsuits on behalf of fund beneficiaries much in the same way that securities lawyers have filed suits on behalf of shareholders. The securities litigation lawyers have become controversial in recent years, sometimes accused of criminalizing business failure and enriching themselves on high fees. Rosenberg levels similar charges against pension fund class action lawyers, who he describes as “ready and waiting to sue pension advisors and anyone else in the line of fire for excessive fees, poor investment choices, and anything else that affects returns in the plans.”
If the class action pension fund lawyers come after them, Rosenberg says the pension fund’s best defense would be to claim that “they actually did full and complete due diligence, and therefore lived up to their obligations and cannot themselves be liable for the fact that the investment went south.”
White emphatically insisted that the lawsuit is not inspired by a fear of pension fund plaintiff lawyers. “I have no idea where that comes from,” he said.
But White could not resist raising the possibility of a counter-conspiracy theory. Amaranth’s public relations people have been contacting media outlets in an attempt to spin the story of their collapse and the lawsuit, according to White.
“I take it that Amaranth has serious concerns about the strength of our lawsuit and feels it needs to engage in a campaign of distortion to defend itself,” White says.
Amaranth could not be reached to comment for this story.
A Thought About Litigation Against Fiduciaries For Hedge Fund Losses [BostonErisaLaw.com]

5 comments (hidden to protect delicate sensibilities)
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Comments (5)

  1. Posted by Anonymous | June 12, 2007 at 11:11 AM

    great graphic
    props to the graphical intern

  2. Posted by LippyTex | June 12, 2007 at 11:23 AM

    Well, read the 11-04-06 “REI Research” article about SDCERA in the aftermath of Amaranth and the due diligence commentary by SDCERA staff seems a little unusual per Rosenberg’s comments.
    I liked the part about “developing relationships with (fund) managers” over time!

  3. Posted by Reader | June 12, 2007 at 12:27 PM

    Um, that is a great graphic, too bad you stole it from Toothpaste for Dinner.
    Kinda sucks – you could have made the joke without the blatant plagiarism.

  4. Posted by Anonymous | June 12, 2007 at 3:49 PM

    BOO!!! no bring the original graphic back!
    shut up reader you dont know what you are talking about

  5. Posted by John Carney | June 12, 2007 at 5:37 PM

    We liked the graphic too. Unfortunately, it was based on a tfd graphic. We learned this only after we messed around with it and used it for own nefarious purposes.
    Anyway, they (understandably) didn’t want us to mess with their original art work and asked us to take it down. So we did.