Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information.
Thursday, 8 December 2016
Last updated 13 hours ago
Nov 15 2007 | 7:44am ET
Collapsed hedge fund Amaranth Advisors has filed suit against JPMorgan Chase, alleging the Wall Street bank derailed its efforts to save the fund in an effort to profit from Amaranth’s dire straits.
Greenwich, Conn.-based Amaranth said in the lawsuit, filed in Manhattan yesterday, that JPMorgan, which served as the hedge fund’s clearing broker, refused to execute a trade transferring the fund’s disastrous natural gas positions to Goldman Sachs because it wanted to take control of the portfolio itself. Amaranth said that action, on Sept. 18, 2006, cost it several hundred million dollars in addition market losses.
On the same day, Amaranth said it struck a similar deal with Citadel Investment Group, which agreed to take on two-thirds of the portfolio in exchange for a $1.85 billion concession payment. But the complaint alleges that the co-CEOs of JPMorgan’s investment bank, Steve Black and Bill Winters, called Citadel founder Kenneth Griffin to warn him that “Amaranth is not as solvent as they are telling you they are.” Citadel then backed out of the trade.
According to Amaranth, JPMorgan eventually got its wish, assuming the portfolio along with Citadel, earning $725 million.
“It is our view that absent JPMorgan’s actions, the fund’s losses, though significant, would have been survivable and far less dramatic,” Amaranth CEO Nick Maounis said in a letter to investors. Maounis said that $2.5 billion of Amaranth’s $6 billion in losses were the result of the cash concession it had to pay JPMorgan to take on its energy portfolio.
Amaranth is seeking at least $1 billion in damages.
JPMorgan dismissed Amaranth’s story as “an effort to rewrite history, and to blame JPMorgan for losses that were the result of Amaranth’s disastrous trading.”
“JPMorgan’s conduct was entirely appropriate, and consistent with its rights and obligations as Amaranth’s future commissions merchant,” spokeswoman Kristin Lemkau said in a statement. “The firm intends to defend this baseless lawsuit with the utmost vigor.”