Dealbreaker » Amaranth

Hunter, Amaranth Dream Team Still Finding Ways To Lose

Bess Levin — Tue, 27 May 2008 16:45:04 +0000

We’ve been sitting on this story because we didn’t want to rain on the comeback parade Brian Hunter’s been enjoying at the Peak Ridge Commodity Volatility & Fallen Heroes Shot at Redemption Fund, and Nick Maounis had quite nearly completed the assembly of his pussy posse, so there was that, but we can’t in good faith wait any longer: on Wednesday, a federal judge denied a motion by Amaranth Associates and its erstwhile golden boy B. Hunter, to dismiss charges brought by the Commodity Futures Trading Commission which said something about AA and BH attempting to manipulate the natural gas markets, and then lying to the NYMEX to cover up the botched mission. At the heart of the matter, the CFTC claims, are a series of instant messages between Hunter, Matthew Donohoe, other Amaranth employees and a trader at another firm, that supposedly “reveal [an] intent to manipulate prices.” You can find them here.
Personally, all I see are a bunch of “hahas,” instances of experimental grammar and, most offensively, “LOLs.” Are these transgressions emblematic of one’s trading acumen/criminality? I’m not sure. If they are, however, these guys are going down.
Hunter’s attorney, Michael Kim of Kobre & Kim LLP, told Reuters Friday, “When the case is fully examined, we are confident that Brian Hunter will be vindicated.” Kim (fictitiously) added, “Or, he will hang himself in his cell. Could go either way.”
Judge Denies Amaranth, Hunter Motion to Dismiss [Reuters]

Amaranth Boys Fail At Moore Capital

John Carney — Thu, 13 Dec 2007 16:36:04 +0000

You kind of had to root for the Amaranth guys, right? I mean, sure, we weren’t totally psyched about everything thing they did—hushed voice: Solengo—but after the wipe out a lot of very good people found themselves without desks, jobs or reasons to take the train to Greenwich. Even the wild and wooly Calgary office—Brian Hunter, please, just call us, we’ll totally get along—had a lot of good lads who had to polish their resumes when the great “meltdown” (or, if your prefer, “blowup”) sunk the firm.
So it’s with a heavy heat we note that Moore Capital Management has closed its Canadian hedge fund unit. Moore’s Canada team was based out of out Toronto and employed a number of former Amaranth traders. It’s fate was apparently sealed after its mangers lost 15 percent in November on stock and convertible-bond positions.
The Canada team was led by Manos Vourkoutiotis, who cut his teeth at Amaranth. Apparently anumber of other traders were also former Amaranth boys. They managed $1 billion for Moore funds before last month’s decline, according to two people who Bloomberg describes as “people with knowledge of the firm.” Moore has about $13 billion, so a 15 percent decline in $1 billion of its assets under management is not exactly something it could afford to shrug off.
Moore Capital Closes Canadian Unit Following Losses [Bloomberg]

Amaranth’s Mistake, JP Morgan’s Scandal?

John Carney — Thu, 15 Nov 2007 14:49:58 +0000

We’re back on the Amaranth beat this morning, and as long-time readers know, once we get our jaws around something, it takes awhile for us to let it go. After writing a bit about Amaranth’s lawsuit against JP Morgan this morning, we decided to take another look at an item published on the suit by BreakingViews, a subscription-only financial news site. It’s written as if it’s uncovering a new strategic mistake by Amaranth but we can squint our eyes a little bit and see it as a bold attack on JP Morgan.
The thrust of the BreakingView’s piece was that Amaranth had blundered by using JP Morgan as its principal broker.
“In the wake of the 1998 near-collapse of hedge fund Long-Term Capital Management, many funds that used only one prime broker found those banks pulled their credit lines, forcing the funds out of business,” Breaking Views explains. “It’s now standard practice to use several prime brokers in the hope of avoiding such a fate, and to ensure no one institution can see a fund’s entire trading strategy. Amaranth itself had a dozen prime broker relationships. But it put the bulk of its trades for its main energy strategy through only one.”
Relying too heavily on JP Morgan may well have been a mistake on Amaranth’s part. But we expect that’s not an argument that JP Morgan’s prime brokerage business would like to hear made too loudly. After all, they hardly market themselves to clients with the warning: don’t give us too much business or we’ll hold you hostage and capitalize on knowledge of your strategies. But that’s exactly the danger Breaking Views is saying Amaranth ought to have recognized.
Double whammy [BreakingViews; subscription required]

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

John Carney — Thu, 15 Nov 2007 13:42:37 +0000

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]

Solengo May Collapse Due to Meddlesome Investigators Hell Bent On Doing Their Job, Says Hunter

Bess Levin — Tue, 07 Aug 2007 14:18:55 +0000

Former Amaranth energy trader and current fishing enthusiast Brian Hunter, whose natural gas picks turned out to be so wrong that they lost the hedge fund $6 billion in week, filed an 18-page plea with a federal court in Washington, D.C. on Friday, asking them to stop FERC from looking into his job history. Why? It’s causing all sorts of problems for him at his new place of employment, and not just catty inter-office talk, like “B-bone’s ass looks huge in those pants.” (That was just a for instance. “That picture with the fish was totally staged. Dude’s never caught a guppy in his life” would work, too). According to Hunter, as a direct result of FERC’s investigation into his alleged market manipulation, Solengo has lost fund directors, traders and potential investors.
“The FERC’s OSC has continued to damage Solengo Capital Advisors and the company is now on the brink of complete disintegration,” Hunter noted in a supplemental declaration, and you know he must mean it because this guy never lies. Among the supposed ways Solengo has been victimized by FERC are the fact that two directors of the Solengo Managed Funds resigned on July 25, two portfolio managers who’d previously given their word to join the firm reneged, and the fund has lost an enormous amount of (potential investor) money, though not as much as Brian misplaced at Amaranth (come on now). The filing states that prior to FERC’s (just plain rude) action, 25 investors had plans to fork over $800 million in ‘lengo. The fine wine now counts less than 12 entities with a total of $100 million among them willing to give the fund any money. And—get this—there’ve been no new inquiries since FERC started sticking its nose in other people’s business.
Hunter also jumps in his Delorean and comes back to report in the filing that he may have to walk away from the operation entirely, since Solengo will probably not win the approval of Alberta regulators while his name remains on the box. (Unsolicited: maybe that’s what you should’ve done in the first place? Taken the hundreds of millions that remained in your bank account even after you guessed everything wrong at Amaranth, sat on a beach in the Virgin Islands (or down the shore, whatever) and promised to never trade again, even through E*TRADE Financial? OR, alternatively, used these psychic powers to not blow up your former employer?).
If salty discharge hasn’t appeared around your eyes yet, wait. By Hunter’s estimation, he has invested $1.7 million of his own money and an “enormous amount of [his] time” setting up the fund that may soon just be a distant memory (remembered for getting miffed at us for showing its marketing brochures, which have since been replaced with pictures of puppies in the sun). Anyone need a minute? There’s no judgement in this room.

Perhaps to humanize the piece a bit, Hunter writes that there are 11 members of the Solengo family—“three portfolio managers, a head of systems engineering, a director of operations, a director of tax and accounting, a quantitative analyst, a director of marketing and an individual in charge of information technology”—and provides the educational and professional backgrounds of the ones thought to elicit the most sympathy. (2 Points for use of the word “family,” as regulators are suckers for that kind of stuff, -5 points for not having the guts to say that FERC’s going to make “orphans” out of them. That would’ve been a touché moment, my friend).
“If the team—which has spent the past several months working together on various investment research and other business projects—were to disperse, it would be virtually impossible to reassemble them,” Hunter wrote.
What’s more, we’re given a glimpse into the 2,500 square foot office space located in downtown Calgary. For 13,255 Canadian dollars a month, you get “a traditional trading floor, a conference room, four–four– couches, four TVs, a Bloomberg terminal and “a fully functional kitchen.” Not a kichenette, not a hot plate-cum-microwave, but a “fully functioning kitchen.” The ability to eat breakfast at one’s desk, or even bring a bagged lunch without having to worry about it being refrigerated is being put in jeopardy, for these 11 people. Because of FERC.
Yes, Brian, up until now, everything was going swimmingly for Huntengo. Until this. Yes, yes, THIS is the thing that will ruin Huntego’s reputation. Not that bit of bad luck at Amaranth, not the less-than-stellar reference from Nick Maounis, or that TAKE NO PRISONERS lawsuit launched against a blog, no, no, it’s THIS. Do you hear yourself talk? Carney might kill you tonight.
Earlier: Brian Hunter Will Not Have His Integrity Impugned
Hunter Affidavit
Shondall Affidavit

Brian Hunter Will Not Have His Integrity Impugned

Bess Levin — Mon, 30 Jul 2007 19:26:56 +0000

Anyone who’s ever interfaced with a jerk knows that the best of breed have an uncanny ability to turn situations around so that, all of a sudden, they’re accusing *you* of being the prick. Brian Hunter is no exception. In the middle of an interview earlier this year with Washington regulators, everyone’s favorite salmon lover went off for lunch and “never came back.” Just, you know, never came back. Made small talk about the turkey sandwiches from the deli across the street, acted as though he would be returning, like everyone else, and then never came back.
When FERC chairman Joseph Kelliher dared to go public with this information, a spokesman for Hunter said that he “voluntarily flew to the U.S.A. to meet with FERC officials and give an interview. Brian ended the interview when he and his attorney became aware that the FERC had misrepresented the agenda for the discussion.” Got that? Not only will the Hunter not be apologizing for unilaterally ending the meeting, but *he,* Brian Hunter is accusing *other people* of pulling the wool over *his* eyes.
The trader who went to lunch and never came back [globe and mail]

Brian Hunter Is Unavailable Because He Is Playing A Computer Game That Takes Up His Whole Screen Called Losing Billions of Dollars

Bess Levin — Thu, 26 Jul 2007 17:45:38 +0000

The job of a trader is a confluence of responsibilities, essentially limited to executing trades and IMing. Anyone who’s ever interfaced with one of God’s special creatures through AIM knows such an experience is a guided tour through copious spelling errors, homonym problems that suggest serious learning disabilities, response times that range from jackhammer to 3-hours-later-I’m-still-sitting-here and cockiness as far as the eye can see (*very* occasionally justified, most often not).
So while they’re not particularly revealing, it’s nice to read through some instant-message conversations between Brian Hunter, Matthew Donohoe, other Amaranth employees and a trader at another firm, who were all included in CFTC’s complaint against Hunter y Amaranth, and see that the biggest hedge fund fuckup of all time’s “experimental” grammar is no better than his actual trading. Next, we’ll publish his IMs with thefish. Those are some quality exchanges not to be missed.

Feb. 24, 2006 (expiry day for the March 2006 New York Mercantile Exchange natural gas futures contract), between Hunter and a natural gas trader at another firm, from 1:31 p.m. (Eastern time) and 1:35 p.m.
Hunter: We have 4000 to sell MoC [market on close]
Hunter: shhhh
gloverb: come on
Hunter: y
gloverb: unless you are huge bearish
gloverb: position
gloverb: why the f would yo do that
Hunter: all from options yesterday
Hunter: so we ll see what the floor has
Hunter: bit of an experiment mainly
gloverb: what the f
gloverb: that is huge
Hunter: I think John [Arnold] and Sempra [Energy] are sellers too
A few minutes after the start of the closing range, “gloverb” asked Hunter, “arent you done”? Hunter replied, “no…have a lot more to sell…waiting until 2:20.”

•
On Feb. 24, in the middle of the closing range, Hunter IMed Donohoe to say “today came together quite nicely.” Later, immediately after the closing range at 2:30 p.m.:
Donohoe: h [March contract] will settle lower
Donohoe: and h/j wider
Donohoe: nice
Hunter: I am flexing here
Donohoe: looking preety bang on
Donohoe: we already mimicked
Dohohoe: lol
Donohoe: rrrrrrrrrrrrrrrrrrr
Hunter: hahahahaha
Donohoe: 2nd best…sept/oct last year still the best
Donohoe: oh yeag
•
April 26, 2006, between Hunter and Amaranth energy risk manager David Chasman, from 12:48 p.m. to 12:56 p.m.:
Hunter: FYI [John] Arnold is getting scary short into the [Energy Information Agency gas storage] number tomorrow
…
Chasman: what u think arnold has?
Hunter: we are rolling size into may
Hunter: and I am worrie that Anold has taken the other side of everything
Hunter: so either he runs it up to the close today and gets short tomorrow
Hunter: or has a HUGE view on the number tomorrow
…
Chasman: other side of everything meaning buying from everyone else selling – or buying from [you]
Hunter: no buying may and selling June…with me
Chasman: does he know what [you are] up [to] [with respect to] rolling off length?… sorry rolling off short
Hunter: probably
…
Hunter: I think it is more that he thinks its going to get [f…d] tomorrow
…
Hunter: me may try to help it by running the market up on the close
…
Chasman: kinda hard to do when selling – no?
Hunter: Arnold is the master of moving the close?
The Brian Hunter Instant Messages [FINalternatives]

Brian Hunter Vows To Fight!Disgraced Energy Trader Denies Manipulation Charges

John Carney — Wed, 25 Jul 2007 20:22:45 +0000

“Brian Hunter simply did not undertake any manipulative trading and we are going to prove it,” said Michael S. Kim. Kim is a partner at the ~~Kobra Kai dojo~~ Kobre & Kim lawfirm that advises Hunter’s new hedge fund, Solengo.
Earlier today the CFTC filed a lawsuit charging that Hunter, who was trading gas for Amaranth at the time, had illegally manipulated the natural gas futures market by exploiting the New York Mercantile Exchange’s rules for determining the settlement price on futures contracts. Prices for futures contracts are set according to the volume-weighted averages of trades executed during between 2:00 p.m. and 2:30 p.m. on the last day of trading for each contract, a period known as the “closing range.”
According to the CFTC’s lawsuit, Hunter attempted to push the price of the futures contracts down by dumping large amounts of the contracts into the closing range. The complaint states that Amaranth traders would buy up large amounts of gas contracts prior to the closing range, then dump them in order to depress prices. Amaranth wanted lower prices because it held a huge short position in the contracts, the CFTC report alleges.
Hunter’s lawyers say that the contention that Amaranth desired lower prices prices is contradicted by a recent report from the Senate Permanent Subcommittee on Investigations, which they say concluded that Amaranth sought rises in natural gas futures prices.
“None of these various government bodies can come up with a consistent theory of Mr. Hunter’s alleged misconduct because in fact there was no misconduct” said Mr. Kim, “These accusations from the CFTC and the FERC against Brian Hunter are aimed at finding a scapegoat to bear the public outrage over ever-increasing energy prices. We will not stand idly by as the regulators use Brian for political cover, their action is meritless and we will prove it.”
After our review of confidential trading documents, which you may download here,* DealBreaker has concluded that Brian Hunter should tell us whether he wanted to inflate or deflate the prices in the gas futures markets while he was making these trades. Pointing out that the government is confused, inconsistent and probably abusing its power is a bit like pointing out that the Pope is Catholic. That’s what governments do.
But just because the government is out to get you, doesn’t mean you didn’t do anything wrong. So come on, Brian, give up the goods. Was Amaranth after a higher or a lower price?
*We’re totally kidding about those confidential documents. Sorry.

Brian Hunter Sued—By The CFTC!

John Carney — Wed, 25 Jul 2007 18:32:02 +0000

It looks like Brian Hunter is getting his way. Yesterday his lawyers asked a federal court to block an energy regulator, the Federal Energy Regulatory Commission, from filing a lawsuit against him on the grounds that it was infringing on the jurisdiction of another regulator, the Commodity Futures Trading Commission. This morning the CFTC responded by filing a civil enforcement action against him and Amaranth Advisors.
Our favorite hedge fund newsletter, FinAlternatives, nicely points out the irony.

Hunter and his lawyers may now regret the vigorous defense of the CFTC’s right to bring such charges they put on in court yesterday and in court filings on Monday. During those proceedings, Hunter’s attorneys argued that the Federal Energy Regulatory Commission did not have the authority to bring civil charges against him, as it had said it intended to do. The CFTC and FERC collaborated on the Amaranth investigation.
“FERC is not [emphasis in original] statutorily authorized to regulate futures markets for energy commodities, which include natural gas futures contracts,” Hunter’s lawyers wrote in their complaint against FERC. “FERC’s assertion of jurisdiction to bring an enforcement action is an impermissible encroachment on the exclusive statutory jurisdiction of the CFTC, and is beyond the scope of FERC’s statutory authority to regulate wholesale energy markets.”

A similar lawsuit from FERC is expected to be announced later today.
Amaranth, Hunter Hit With Market Manipulation Charges [FinAlternatives (free registration required)]
Complaint Against Amaranth Advisors and Brian Hunter [pdf]

The Brian Hunter LawsuitNo, Not That One. It’s A Brand New Lawsuit!

John Carney — Wed, 25 Jul 2007 17:22:05 +0000

Brian Hunter has filed suit against the Federal Energy Regulatory Commission yesterday, asking a court to block the regulator from bringing an enforcement action against him. Hunter, of course, needs no introduction to regular readers of DealBreaker. But for those of you new to the site, Hunter (pictured left) is the energy trader whose positions in natural gas futures led to the collapse of Amaranth last year. We have no idea who the guy holding him up is.
Hunter claims that FERC lacks jurisdiction over trading in natural gas futures, which he says falls under the purview of the Commodity Futures Trading Commission. FERC and the CFTC have been investigating natural gas futures trading at Amaranth.
But Hunter’s boldest claim is probably that his reputation would be damaged by a FERC action.
“If FERC files the unlawful action it contemplates against me, Solengo and I will suffer irreparable injury. The ability of the Solengo Managed Funds to attract potential investors in the future is based primarily on my personal reputation as well as Solengo’s ability to qualify for certain registrations, permits, and other legal arrangements,” Hunter writes in a statement to the court.
Apparently, Hunter believes that his role in destroying Amaranth hasn’t really hurt his personal reputation all that much. But a lawsuit from FERC. How could anyone survive something that big?
Ex-Amaranth Trader Fights Regulator [Wall Street Journal]

Stalking Brian Hunter The Incredible Adventures of Naked Shorts

Bess Levin — Tue, 19 Jun 2007 19:34:01 +0000

While it’s true that Brian Hunter lost a record-setting $6 billion in two weeks, that was other people’s money. He still got to keep the hundreds of millions he earned running the energy trading desk at Amaranth in happier times. And there are rumors that he’s raised hundreds of millions from Arab investors to fire up his new hedge fund, Solengo. So we were more than a bit shocked to learn from Greg Newton that Hunter has opened up shop in a worn-down strip-mall on the outskirts of town.
Newton, who mans the helm of the Naked Shorts blog, writes that he took a trip up to Calgary over the weekend to scope out the new space. The Solengo Headquarters are conveniently located a stone’s throw from “George’s Barber Shop” (which is closed indefinitely) and a colon hydrotherapist, according to Newton.
We don’t want to ruin a good gag, but we’re not sure that any of this took place outside of Newton’s head. To begin with, we’re pretty sure you can’t really open the windows on a G-V. Although DealBook seems convinced it did.
The neighborhood’s gone to hell [Naked Shorts]

Pension Fund Chief Denies Impeding Grand Jury

John Carney — Tue, 12 Jun 2007 18:59:34 +0000

The head of the San Diego Country pension fund accused of impeding a civil grand jury investigation denied that fund officials set out to interfere with the investigation. He admitted, however, that witnesses were told not to discuss privileged matters related to a lawsuit the pension fund has filed against the failed hedge fund Amaranth Advisors. The grand jury’s report found that the San Diego County Employee Retirement Association has attempted to “influence [witness] responses in almost every area of our investigation.” The grand jury connected this to the lawsuit against Amaranth for losses suffered when the hedge fund collapsed.
“In no way did we attempt to impede their process,” said Brian White, the chief executive of the pension fund.
The civil grand jury in San Diego is made up of 19-members, mostly retirees. It is not connected to the criminal grand jury process. Last week the grand jury filed a report on the pension fund. The report included a finding that the pension fund had impeded the grand jury’s investigation by “pre-screening” witnesses to instruct them about what they should and should not tell the grand jury. DealBreaker reported these findings yesterday.
“We are surprised at their finding,” White said. “We provided them with all the witnesses and documents they requested, without requiring the grand jury to go through the subpoena process.”
White noted that experts were provided to the grand jury at the expense of the pension fund. He said that witness interviews often ran over far past the allotted time, lasting two to three hours.
“We did tell them that the Amaranth litigation was not something we could discuss with them. And we told witnesses not to discuss matters they had heard in closed meetings related to the litigation,” White said.
California open-meeting laws allows the pension fund to hold closed meetings when the subject matter discussed will be on-going litigation, according to White.
“One of our concerns was that something privileged would end up in the grand jury report that may have been used by Amaranth in their defense,” White said.
Earlier: San Diego Pension Fund Impeded Grand Jury Investigation, Report Finds [6.11.07]

What’s Really Behind The Amaranth Lawsuit?

John Carney — Tue, 12 Jun 2007 14:04:53 +0000

Could 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]

San Diego Pension Fund Impeded Grand Jury Investigation, Report Finds

John Carney — Mon, 11 Jun 2007 19:07:41 +0000

A San Diego County pension fund tampered with witnesses in a grand jury investigation into the fund’s operations, the county civil grand jury said in a report released last week. The grand jury found that the pension fund had “impeded” the investigation by “pre-screening” witnesses, perhaps out of concerns arising from its litigation against the hedge fund Amaranth Advisors LLC. The pension fund is suing Amaranth over losses it suffered when Amaranth collapsed after the market in natural gas futures turned against its positions last year.
The grand jury’s report states that the San Diego County Employees Retirement Association, SDERCA, sought to influence witnesses “in almost every area” of the investigation. The civil grand jury in San Diego is made up of 19 volunteers. It is not related to the criminal grand-jury system.
“During the course of our interviews, it became apparent that SDCERCA was pre-screening our witnesses and suggesting what information could or could not be said,” the grand jury report states. The report goes on to detail one instance where an expert witness declined to respond to questions despite the fact that the information was disclosed in public record.
“The efforts of the Grand Jury were, at times, impeded by SDCERA,” the report states as an official finding.
The grand jury’s findings of interference with the investigation contrast with the pension fund’s public statements about the investigation. The press section of the pension fund’s website calls it a “positive report” but makes no mention of the finding that it impeded the investigation. No other media sources seem to have picked up on this finding.
Last Thursday, the pension fund’s chief executive, Brian White, denied that the grand jury’s findings had anything to do with the lawsuit. “The report did not have any findings in relation to Amaranth or our investments in Amaranth,” White said, according to Bloomberg. White did not return calls from DealBreaker seeking comment.
[More on pension fund grand jury chicanery after the jump]

The grand jury connects the pension fund’s impeding of its investigation with a law suit the fund has filed against Amaranth. Following a meeting between Amaranth and the pension fund’s investment committee meeting in the summer of 2005, the fund invested $175 in the Connecticut-based hedge fund.
After suffering losses from a complex series of bets on natural gas a year later, the hedge fund was forced to begin unwinding its positions in many investments to meet margin calls. Losses deepened and eventually much of its portfolio was sold off to Citadel and JP Morgan Chase, who had also acted as prime broker for the fund. Those firms eventually recorded profits from buying and trading Amaranth’s positions but it was too late for Amaranth, which was forced to begin dissolving and returning residual assets to investors. Less than a month after Amaranth’s troubles became public, the San Diego pension fund began a lawsuit against Amaranth over the losses.
Last week Amaranth responded to the lawsuit, claiming that the pension fund knew its investments were risky.
The grand jury says that the pension fund made a wrong-turn when it let concerns over its lawsuit with Amaranth interfere with the investigation. “While SDCERA may have had some concern about potential litigation with Amaranth, LLC., this did not justify attempts to influence responses in almost every area of our investigation,” the grand jury report says.
The grand jury declined to recommend any civil penalties or a criminal investigation of the pension fund for the interference. Instead, the grand jury says that the staff of the pension fund should be advised “of the necessity to cooperate with legally constituted investigations.”
The Grand Jury’s foreman, David Higgins, did not immediately return calls seeking comment.
Grand Jury Report [SDCERA]

Amaranth to San Diego Pension Fund: You Gotta Take the Good With The Bad

John Carney — Thu, 07 Jun 2007 21:25:37 +0000

Amaranth Advisors responded today to the lawsuit filed by San Diego County’s pension fund, which suffered large losses when the hedge fund collapsed. The response reminds us of the old story about the woman who nurses an injured snake back to health only to get bitten by the snake. As she dies from the venom, she asks the snake why he would bit her. The snake responds, “Look, bitch, you knew I was a snake when you picked me up.”
Lawyers sometimes use the story to illustrate the concept of assumed risk. Amaranth attorneys didn’t go that far but the message of their court filing seeking to dismiss the lawsuit was essentially the same: the professionals at the pension fund “knew exactly what they were getting into” when they invested 2% of their capital in Amaranth.
The hedge fund’s lawyers ask the court to dismiss the lawsuit on the grounds that “investors who knowingly make risky investments to take the bad with the good.”
Amaranth’s Motion for Dismissal [pdf from Abovethelaw.com]
Amaranth’s Dynamic Duo: Dan Webb & David Boies [Law Blog]