Tuesday, 27 September 2016
Last updated 20 min ago
Aug 7 2007 | 11:49am ET
Erstwhile Amaranth Advisors energy trader Brian Hunter, whose natural gas trades sank the Greenwich, Conn., hedge fund, filed an 18-page tale of worry and woe with a federal court in Washington, D.C. on Friday, painting a picture of desperation and impending doom for his latest venture, hedge fund Solengo Capital Advisors. He is blaming Solengo’s problems on the Federal Energy Regulatory Commission, which has accused him of market manipulation in relation to trades he made at his former firm.
According to Hunter, as a direct result of FERC’s order to show cause filed two weeks ago, Solengo has lost fund directors, investment staff and potential investors, and he has seen two other business deals go down the tubes.
“The FERC’s OSC has continued to damage Solengo Capital Advisors and the company is now on the brink of complete disintegration,” he wrote in the supplemental declaration, filed on Friday.
Hunter, of course, also faces a Commodity Futures Trading Commission enforcement action for attempted market manipulation, but he argues that the CFTC action is small potatoes—survivable, while the order from FERC, whose jurisdiction he rejects anyway, is potentially fatal.
“The response to the FERC enforcement action from various parties that are critical to Solengo Capital Advisors’ business has been very different from their response to the CFTC action,” he wrote. “These parties have provided clear indications that they view the FERC’s OSC as a significantly greater threat to their involvement with Solengo Capital Advisors than the CFTC enforcement action,” because the FERC action seeks some $30 million in penalties against Hunter, but also because, as it alleges actual market manipulation rather than a mere attempt, it opens the door to future civil actions against Hunter.
But much damage has already been done. The two directors of the Solengo Managed Funds lined up by Hunter resigned on July 25, only hours after Hunter warned them of the impending FERC action. No directors mean no third-party administrator and no Cayman Islands registration, which of course means, no business. In addition, a pair of portfolio managers who had committed to join Solengo had second thoughts after FERC filed its order.
What’s more, investment interest in Solengo has effectively dried up. Hunter writes that about 25 investors had plans to invest US$800 million in Solengo funds before FERC’s action; half of those investors and more than US$700 million in intended investment has disappeared. Hunter notes that the investors, allegedly scared off by FERC, are not of the lily-livered variety, having stuck by him in spite of his losing US$6 billion of other people’s money at Amaranth.
“These investors possessed full knowledge of the damage to my personal reputation suffered as a result of the publicity associated with the dissolution of Amaranth Advisors,” he wrote. Worse, he complains, he’s received no new inquiries since the FERC filing.
There is an almost-plaintive tone to much of Hunter’s declaration. “These efforts are more than just aspirations or ideas,” he writes. “There is a real company there with employees, equipment, intellectual property, research and other valuable assets.” And he makes clear that he has been forced to consider the painful move of abandoning his baby, as Solengo is unlikely to win the approval of Alberta regulators “if I remain in the ownership structure.”
What’s more, big bad FERC isn’t only keeping him from running a hedge fund, but has deep-sixed a land deal in Alberta and Hunter’s involvement “in a prospective business transaction in the ‘self-storage’ business in the Calgary area.”
In addition to a catalog of various victimizations, the filings provide a peek at the inner workings of the highly secretive Solengo—which in March and April took great pains to keep its marketing material off of the Internet, going so far as to sue the Wall Street gossip blog DealBreaker.
According to Hunter, he owns 60% of the Calgary, Alberta-based hedge fund firm, which also maintains a few desks in Amaranth’s old haunt, Greenwich, and that he has invested some US$1.7 million and “an enormous amount of my time” setting up the nascent hedge fund, which now requires an additional US$500,000 to US$1 million, “which I will be making from my personal funds.”
The firm employs 11—“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 the filings provide the educational and professional backgrounds of several.
“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.
A second declaration in support of Hunter's motion for a preliminary injunction and declaratory relief from Shondell Sabad, chief operating officer, even gives a look inside Solengo’s digs a few kilometers west of downtown Calgary. The 2,500 square-foot shop (C$13,255 per month, with a very optimistic five-year lease) features “a traditional trading floor,” conference room, client seating area and “a fully functional kitchen,” as well as such creature comforts as four sofa chairs, four TVs and a Bloomberg terminal.