Book Explores Amaranth Implosion

May 23 2013 | 10:38am ET

Amaranth Advisors collapsed more than six-and-a-half years ago. A new book attempts to explain why.

In Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster, author Barbara Dreyfuss lays the blame squarely on the culture of star traders on Wall Street. According to Dreyfuss, a former analyst at Prudential Securities, there were ample opportunities to stop Brian Hunter, the natural-gas trader whose massive bets destroyed Amaranth.

For one, Amaranth hired Hunter after a stint at Deutsche Bank punctuated by the trader's demotion. Hunter's boss would later say that Hunter could not be trusted to "do the right thing for the bank." After just a year at Amaranth, SAC Capital Advisors came calling, and to hold onto its star, Amaranth allowed him to return to Calgary from its Connecticut office and freed him from his boss, who quit, warning that Hunter "could blow up the entire firm." And when Hunter began to do just that, he did so ignoring requests that he cut back on his positions, but wasn't disciplined for his failure to do so.

But oversight wasn't the only—or even the primary—problem, according to Dreyfuss. Instead, she seeks to show that deregulation set the stage for traders like Hunter, who were encouraged and fueled by the juvenile and masculine culture of the business. She cites Hunter's frequent battles with Centaurus Capital founder John Arnold, one of the most successful futures traders of all times, among others.

"If you want to succeed and make money, you want to destroy someone else," a trader explains to Dreyfuss. "That's just how it works. If I want to be successful in this industry, I'm going to want to destroy five guys."

Dreyfus also shows how much Hunter's own distorted perceptions of his prowess contributed to Amaranth's fall. Having already lost more than $1.1 billion, on his way to losing $5 billion more, Hunter complained that the markets—rather than he himself—"were getting out of control." He also lamented the "fricken deviant market" as he racked up huge losses.

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