Amaranth's Suit Against JP Morgan: This Is Only The Start

Posted by John Carney, Nov 15, 2007, 8:42am

We noted in yesterday’s Opening Bell that Amaranth had filed a lawsuit against JP Morgan, claiming the bank undermined its efforts to stave off collapse. We’re late to the details of the lawsuit because we were overtaken by events yesterday but we’ve now had a chance to review the lawsuit.

Amaranth’s main claim is that JP Morgan interfered with Amaranth’s negotiations with Goldman Sachs and Citidel, forcing Amaranth to cut a more expensive deal with JP Morgan. According to Amaranth’s lawsuit, Goldman had agreed to take over its money-losing positions in the natural gas market for a $1.85 billion payment from Amaranth. But JP Morgan, which as acting as the hedge fund’s clearing broker, refused to execute the transaction and Goldman walked. The suit also claims that Citadel initially to assume the positions $1.85 billion but the JP Morgan executives talked Citadel out of it, according the lawsuit.

With nowhere else to turn, Amaranth ended up selling its positions to JP Morgan—which took them over in exchange for a $2.5 billion payment.

JP Morgan is denying any wrong doing, of course, and calls the lawsuit “baseless.” But there have long been questions about the many roles JP Morgan played in the collapse of Amaranth. At the very least, JP Morgan’s role as Amaranth’s broker gave it insider knowledge of Amaranth’s trading strategies—which may have allowed its traders better access to information than some of the outside bidders. In the months after Amaranth’s collapse, several top energy traders were left the bank under somewhat murky circumstances. And from what we know about lawsuits, this may well be just the start of things. Amaranth could use this lawsuit to start a discovery process that would include depositions of JP Morgan executives and review of internal documents in hopes of uncovering even broader wrong-doing.

Amaranth’s Dream-Team Law Firm: Beck, Webb & Boies [LawBlog]
Amaranth's lawsuit [Wall Street Journal]
Amaranth's letter to investors regarding the lawsuit [Wall Street Journal]
Amaranth Sues JPMorgan for Disrupting Transactions [Bloomberg]

0Recommend this! 9Comments
Posted in: Amaranth, JPMorganChase, Legal

Comments

Posted by Matt, Nov 15, 2007 9:15AM

That whole post needs a re-edit and reworking. FYI.

Posted by , Nov 15, 2007 9:24AM

...in the heat of the moment...

Posted by For the love of God, Nov 15, 2007 9:26AM

This was barely readable at best.

Posted by Fake Rupert Murdoch, Nov 15, 2007 9:47AM

Excellent, excellent.....I am glad to see that our Fox people and our Wall Street Journal people are on the job this morning editing and getting new story ideas from Dealbreaker!

Posted by , Nov 15, 2007 9:48AM

thanks carney.

Posted by Hey 9:15 - 9:26, Nov 15, 2007 9:49AM

Why don't you guys become copy editors for DB? I'm sure they'll let you get them a cup of coffee in between stories.

Posted by And I Believe in the Tooth Fairy, Nov 15, 2007 10:03AM

The whole lawsuit is without merit. After all, J P Morgan gave us "VaR" and we all know how well that has worked. So clearly, J P Morgan wouldn't do anything that wouldn't create value for its clients. After all, the "code" of all Wall Street firms is to make money for their clients even if it means losing money for themselves.

Posted by , Nov 15, 2007 10:31AM

@tooth fairy

I don't think the "value to clients" applies to collapsing funds - why let goldman snatch up assets at a discount when you can force amaranth to sell you everything at bigger discount. It's not as if JP Morgan was concerned about the loss of future business.

Posted by , Nov 15, 2007 11:44AM

If the facts in the lawsuit are accurate then I pray JPM pay in excess of US$8BN in punitive and compensatory damages.

Also Citadel should have their own lawsuit against JPM

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