Amaranth Story (Finally) Ends: Hedge Fund Settles Market Manipulation Charges

Aug 12 2009 | 12:53pm ET

Almost three years after its spectacular collapse rocked the hedge fund world, Amaranth Advisors has settled regulatory charges that it sought to manipulate the natural-gas futures market.

The defunct Greenwich, Conn.-based firm, which lost more than $6 billion on bad natural gas bets in August 2006, will pay $7.5 million to settle the charges, levied by the Commodity Futures Trading Commission and Federal Energy Regulatory Commission. The CFTC originally sought $20 million, Amaranth founder Nicholas Maounis told investors today, while FERC had sought $291 million in fines against the hedge fund and two of its former traders.

FERC said its climbdown stemmed from the fact that Amaranth’s “assets have been substantially diminished.”

“There is only a very small chance that it would be able to collect the proposed penalties,” FERC added.

For his part, Maounis said settling would cost “materially less” than continuing the legal battle; the hedge fund’s fight with FERC has already cost it $10 million.

The settlement with the CFTC and FERC covers both Amaranth and former trader Matthew Donohoe, but not Brian Hunter, the infamous trader whose natural gas bets killed the hedge fund. Neither the CFTC case nor the FERC case against Hunter is affected by the settlement, the regulators said.

The settlement comes after FERC in February rejected a proposed deal with Amaranth. Terms of that settlement proposal have not been made public.

The CFTC case arose from natural gas trades made by Amaranth in February and April of 2006. According to FERC, Amaranth and its related parties “stipulate to facts regarding their positions” in the futures contracts, and agreed not to publicly deny the regulators’ charges.

The settlement was approved today in New York federal court.

In addition to the fine, Amaranth agreed not to try to manipulate the market in natural gas futures ever again (if it ever did in the first place). That should not be too difficult for a firm on the way out, and Maounis stressed in his letter that the settlement does not bar anyone from trading.

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