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]
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]
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]
STATUS: SOLENGO LAWYERS SAY THEY WILL SEEK TEMPORARY RESTRAINING ORDER.
We’ll update this post with the latest Solengo Capital news as it breaks. If a court slaps a restraint order against us over the weekend, you’ll read it here first!
• Reuters covers the Solengo imbroglio once more: “Solengo hedge fund threatens court action vs blog.”
• Solengo Capital seeks court order against DealBreaker!
• Download the controversial Solengo Capital brochure while you still can!
• Our first post on the Solengo brochure.
• Everything we’ve ever written on Solengo Capital.
• Got questions or comments for DealBreaker? Email us at tips(at)dealbreaker(dot)com.
Elsewhere: Reuters, Kedrosky, Romenesko, DealBook, Gawker, Weiss, Primak, Distad, Elfenbein.
Lawyers for the hedge fund Solengo Capital say they will seek a court order barring DealBreaker from including its marketing brochure in our reporting. DealBreaker learned that Solengo will seek the order a few minutes ago when a a lawyer from Kobre Kim, which represents Solengo, called our Soho headquarters.
Solengo claims, through its lawyers, that DealBreaker’s coverage of the marketing materials infringes on the hedge fund’s copyright. DealBreaker believes that its use of the materials for news reporting purposes is protected as “fair use” under the copyright laws.
Solengo’s lawyers told DealBreaker they will seek a temporary restraining order against John Carney, Bess Levin, Elizabeth Spiers and “persons unknown” to prevent the continued publication of the brochure on the website.
Solengo Capital is a hedge fund started by traders from the collapsed Amaranth Advisors. It has reportedly been seeking capital from investors. Last night on CNBC’s “On The Money,” Charlie Gasparino said that he had heard much of the initial capital was coming from Saudis. The Solengo traders specialize in commodities, and are headlined by Brian Hunter, the energy trader whose bets on natural gas futures reportedly brought down Amaranth.
DealBreaker included the marketing materials as part of its reporting on the launch of the new fund. The quick return to the hedge fund world by traders associated with Amaranth has provoked interest and controversy. A combination of secretive habits and SEC rules intended to protect the public from predatory practices has meant that the public rarely gets to see the materials hedge funds use to promote themselves to their wealthy investors. The appearance of the brochure on DealBreaker’s website may be the first time many in the public have had a first-hand glimpse at the fund raising activities of a hedge fund.
A call to Solengo’s attorneys seeking further clarification went unreturned at the time of this posting.
This is officially getting exciting!
Update: Here is a link to the famed Solegno marketing brochure.
Update: We received a call from Kobre & Kim, Solegno’s attorneys, demanding one last time that we remove the brochure. We once again declined. They informed us that they intend to seek the temporary restraining order this afternoon.
Update: Read the latest Solengo Capital news on our special Weekend Update page!
[Confidentiality: This blogpost is confidential. It discloses proprietary information regarding DealBreaker, its reporting strategies and its future plans. It may not be read by Solengo Capital or any of its representatives or disclosed by any party to Solengo Capital, its representatives, the kids in skeleton costumes from the Kobra Kai dojo or their next of kin.]
One of the questions that we keep getting asked about the mess that Solengo has made of its campaign to have its marketing brochure removed from DealBreaker and other blogs—including FinAlternatives.com, a topflight hedge fund newsletter* that is sticking to its guns and keeping the brochure online—is this: why do they care?
We’re not really in the business of trying to figure out why people do the crazy things they do, especially when these things involve threatened lawsuits against us. Let them come up with their own excuses. But we can’t help ourselves here.
Under the rules that exempt hedge funds from cumbersome SEC registration regulations, hedge fund managers are barred from marketing their funds to the general public. This bar is often interpreted strictly enough that many hedge fund managers refuse to discuss fund performance or future plans with the media, and certainly includes posting brochures on the internet. Most hedge fund websites are password protected to reserve this information for accredited investors.
It may be that Solengo believes that anything less than threats of lawsuits will be viewed by regulators as cooperating with our disclosure of the marketing brochure.**
Note to the SEC: we aren’t cooperating with Solengo. The brochure was published here because it was news that the former Amaranth traders were launching a new fund, and because we wanted to invite comment on the materials from our readers.
*Full disclosure: Deirdre Brennan, the editor and publisher of FinAlternatives, is a friend of DealBreaker’s.
**Credit: Thanks to several of our commenters who have made this point. We thought it was time it got promoted to a full post.
We’re not going to pretend we’re shocked that Solengo Capital didn’t exactly love our response to their request to remove their marketing brochure from their website. We figured sooner or later they’d get a lawyer to write us a letter threatening to revoke our license to practice the internet or something.
And we got it.
“The posting of this Offering Memorandum violates applicable copyright laws,” the letter from the Solengo attorney at Kobre & Kim begins. “In any event, it contains information that is proprietary in nature about the company’s future plans.”
Sorry. No dice. We write about “information that is proprietary in nature” about the “future plans” of companies all the time, Solengo-nauts. It’s what we do. It’s called financial journalism.
To be perfectly straightforward, we were actually slightly nicer to Solengo than we’ve been letting on. When they first called us we called them back and asked which portions of the brochure they didn’t want us to print, and gave them the chance to play ball. At this point, most folks might have been for them to offer us kind of scoop on Solengo or Brian Hunter. We’re very reasonable, and pretty easy to talk to. They should ask their friends in the hedge fund world, if they have any left. This whole “talking off the record to journalists” is what sensible people do when they want to influence the way a story is printed. In politics they call it “spinning.”
But they didn’t go for it. They wanted to play tough, and made unreasonable demands that we remove everything—the brochure and the posting that went with it. And they gave us very bad reasons for why we should comply—mainly, the loony-tunes confidentiality theory.
Which is when we decided that the correct response to them was what Andrew Ross Sorkin describes as “an off-color two-word phrase that essentially means ‘no way.’”
We called the lawyers for Solengo back, by the way. Got voicemail. So far, no-one has returned our call.
After the jump, you can check out the full letter from their lawyer. Spoiler: they bring out the big guns and warn that they “may be forced to go to court” to sue us.
Read more »
Yesterday representatives of Solengo Capital requested we remove their marketing brochure from our website. We told them to suck it.
You remember Solengo, right? It’s the hedge fund that’s being started by a team of traders from Amaranth, including the best known energy trader in the world, Brian Hunter.
Their reason for why we should do this sort of thing this request was quite extraordinary. Apparently the man from Solengo was under the impression that because his employer had stamped “confidential” (and other words to that effect) on its brochure, we were under a duty to keep their brochure confidential. It was as if the mere possession or perhaps knowledge of the brochure had conferred upon us a duty of confidentiality to them.
Imagine if you came upon a loan agreement stating a rate of interest a six points above LIBOR and were told later in the day that you were now under an obligation to pay the interest because you knew about it. You’d scoff, and not just because the interest rate was ridiculous. You know perfectly well that no one can impose a duty upon you without your agreement. You owe no one a debt unless you have agreed to pay them, taken something that belongs to them or they happen to be the government.
In the same way, we don’t believe we operate subject to the unilateral confidentiality assertions that get stamped on emails, offering documents or marketing brochures. We’ll keep the identity of our sources confidential—always—but that’s because we have an open promise to people who share valuable information with us. But writing “confidential” on a document does not obligate DealBreaker or anyone else to keep your secrets secret.
Apparently, we’re not the only ones Solengo has been asking to remove their brochure. Reuters reports that Solengo’s censors have also hit NakedShorts.com. Apparently NakedShorts decided to take down the materials because Solengo threatened to sue and, well, you know what lawyers cost these days. Who wants that? There’s no fault in keeping your powder dry, and we can’t blame NakedShorts for backdown from this particular fight.
But what is more amazing is that Solengo keeps offering up the same lame rationale for why the online business press should bow to their will and remove the brochure—namely, because Solengo says so.
Here’s what it’s chief operating officer told Reuters:
Shondell Sabad, chief operating officer of Solengo, confirmed in an email that the firm has asked the blogs to remove the material.
“The request was made to remove the brochure as it is confidential material and the blogger was not authorized by Solendo to reproduce or disseminate the information,” said Sabad in an email to Reuters
Confidential! Not authorized!
That’s what we do around here, Sabad baby. We print things that, frankly, no one has authorized us to print or disseminate. No one but the founding fathers, the tradition of the free press and the First Amendment. (And, of course, Al Gore, inventor of these here internets, our investors, our sponsors and our very own personal founder, Elizabeth Spiers.)
The story continues, of course, because Solengo isn’t taking no–or “suck it”–for an answer. More on that later!
Ex-Amaranth traders ask blogs to remove materials [Reuters]
Solengo Capital—the commodities hedge fund long rumored to be under works by former Amaranth energy trader Brian Hunter—is alive, according to this promotional brochure DealBreaker obtained this afternoon. You can download it here. A quick read of the brochure—we literally received it just moments ago—reveals that it is heavy with former Amaranth employees. Of the five biographical sketches, four held their last positions at Amaranth, according to the biographies.
Hunter gained widespread notoriety after his bets on natural gas futures helped cause a meltdown at Amaranth. His quick return to the energy trading business—surrounded by former Amaranth collegues—has surprised some. Others found this comeback inevitable.
“Brian had a very good reputation. He was highly sought after,” one industry insider said. “It’s not surprising he could find people willing to give him money again. What happened at Amaranth was a rare, one-off loss that hardly erases the hundres of millions he made for people over the years.”
Solengo Capital—named after an Italian wine for reasons the fund’s managers have refused to divulge—says it will aim to capture “intellectual capital” by hiring the best portfolio managers.
“To do this, Solengo will offer perhaps the most attractive work environment in the hedge fund world,” the brochure state. “Solengo passes on up to 1/2 of the management fees to the portfolio manager. Initially this means the fund manager receives up to 1% of capital and 20% of profits.”
Of course, many readers will probably find that a risible notion. “Of course it’s a one-off event,” one wrote to DealBreaker anonymously. “Would you let me lose billions of your money twice?” The word on the street, however, is that Hunter has already raised $700 million, which means that some people may have answered “yes” to that question.
The brochure states that Solengo will have the two-and-twenty fee structure common among hedge funds, with Solengo collecting a 2% management fee on all assets under management and 20% of the profits.
Download Solengo Capital brochure[pdf]
Update: More reactions from Naked Shorts and Alphaville.