You kind of had to root for the Amaranth guys, right? I mean, sure, we weren’t totally psyched about everything thing they did—hushed voice: Solengo—but after the wipe out a lot of very good people found themselves without desks, jobs or reasons to take the train to Greenwich. Even the wild and wooly Calgary office—Brian Hunter, please, just call us, we’ll totally get along—had a lot of good lads who had to polish their resumes when the great “meltdown” (or, if your prefer, “blowup”) sunk the firm.

So it’s with a heavy heat we note that Moore Capital Management has closed its Canadian hedge fund unit. Moore’s Canada team was based out of out Toronto and employed a number of former Amaranth traders. It’s fate was apparently sealed after its mangers lost 15 percent in November on stock and convertible-bond positions.

The Canada team was led by Manos Vourkoutiotis, who cut his teeth at Amaranth. Apparently anumber of other traders were also former Amaranth boys. They managed $1 billion for Moore funds before last month's decline, according to two people who Bloomberg describes as “people with knowledge of the firm.” Moore has about $13 billion, so a 15 percent decline in $1 billion of its assets under management is not exactly something it could afford to shrug off.

Moore Capital Closes Canadian Unit Following Losses [Bloomberg]

We’re back on the Amaranth beat this morning, and as long-time readers know, once we get our jaws around something, it takes awhile for us to let it go. After writing a bit about Amaranth’s lawsuit against JP Morgan this morning, we decided to take another look at an item published on the suit by BreakingViews, a subscription-only financial news site. It’s written as if it’s uncovering a new strategic mistake by Amaranth but we can squint our eyes a little bit and see it as a bold attack on JP Morgan.

The thrust of the BreakingView’s piece was that Amaranth had blundered by using JP Morgan as its principal broker.

“In the wake of the 1998 near-collapse of hedge fund Long-Term Capital Management, many funds that used only one prime broker found those banks pulled their credit lines, forcing the funds out of business,” Breaking Views explains. “It’s now standard practice to use several prime brokers in the hope of avoiding such a fate, and to ensure no one institution can see a fund’s entire trading strategy. Amaranth itself had a dozen prime broker relationships. But it put the bulk of its trades for its main energy strategy through only one.”

Relying too heavily on JP Morgan may well have been a mistake on Amaranth’s part. But we expect that’s not an argument that JP Morgan’s prime brokerage business would like to hear made too loudly. After all, they hardly market themselves to clients with the warning: don’t give us too much business or we’ll hold you hostage and capitalize on knowledge of your strategies. But that’s exactly the danger Breaking Views is saying Amaranth ought to have recognized.

Double whammy [BreakingViews; subscription required]

We noted in yesterday’s Opening Bell that Amaranth had filed a lawsuit against JP Morgan, claiming the bank undermined its efforts to stave off collapse. We’re late to the details of the lawsuit because we were overtaken by events yesterday but we’ve now had a chance to review the lawsuit.

Amaranth’s main claim is that JP Morgan interfered with Amaranth’s negotiations with Goldman Sachs and Citidel, forcing Amaranth to cut a more expensive deal with JP Morgan. According to Amaranth’s lawsuit, Goldman had agreed to take over its money-losing positions in the natural gas market for a $1.85 billion payment from Amaranth. But JP Morgan, which as acting as the hedge fund’s clearing broker, refused to execute the transaction and Goldman walked. The suit also claims that Citadel initially to assume the positions $1.85 billion but the JP Morgan executives talked Citadel out of it, according the lawsuit.

With nowhere else to turn, Amaranth ended up selling its positions to JP Morgan—which took them over in exchange for a $2.5 billion payment.

JP Morgan is denying any wrong doing, of course, and calls the lawsuit “baseless.” But there have long been questions about the many roles JP Morgan played in the collapse of Amaranth. At the very least, JP Morgan’s role as Amaranth’s broker gave it insider knowledge of Amaranth’s trading strategies—which may have allowed its traders better access to information than some of the outside bidders. In the months after Amaranth’s collapse, several top energy traders were left the bank under somewhat murky circumstances. And from what we know about lawsuits, this may well be just the start of things. Amaranth could use this lawsuit to start a discovery process that would include depositions of JP Morgan executives and review of internal documents in hopes of uncovering even broader wrong-doing.

Amaranth’s Dream-Team Law Firm: Beck, Webb & Boies [LawBlog]
Amaranth's lawsuit [Wall Street Journal]
Amaranth's letter to investors regarding the lawsuit [Wall Street Journal]
Amaranth Sues JPMorgan for Disrupting Transactions [Bloomberg]

Former Amaranth energy trader and current fishing enthusiast Brian Hunter, whose natural gas picks turned out to be so wrong that they lost the hedge fund $6 billion in week, filed an 18-page plea with a federal court in Washington, D.C. on Friday, asking them to stop FERC from looking into his job history. Why? It’s causing all sorts of problems for him at his new place of employment, and not just catty inter-office talk, like “B-bone’s ass looks huge in those pants.” (That was just a for instance. “That picture with the fish was totally staged. Dude’s never caught a guppy in his life” would work, too). According to Hunter, as a direct result of FERC’s investigation into his alleged market manipulation, Solengo has lost fund directors, traders and potential investors.

“The FERC’s OSC has continued to damage Solengo Capital Advisors and the company is now on the brink of complete disintegration,” Hunter noted in a supplemental declaration, and you know he must mean it because this guy never lies. Among the supposed ways Solengo has been victimized by FERC are the fact that two directors of the Solengo Managed Funds resigned on July 25, two portfolio managers who’d previously given their word to join the firm reneged, and the fund has lost an enormous amount of (potential investor) money, though not as much as Brian misplaced at Amaranth (come on now). The filing states that prior to FERC’s (just plain rude) action, 25 investors had plans to fork over $800 million in ‘lengo. The fine wine now counts less than 12 entities with a total of $100 million among them willing to give the fund any money. And—get this—there’ve been no new inquiries since FERC started sticking its nose in other people’s business.

Hunter also jumps in his Delorean and comes back to report in the filing that he may have to walk away from the operation entirely, since Solengo will probably not win the approval of Alberta regulators while his name remains on the box. (Unsolicited: maybe that’s what you should’ve done in the first place? Taken the hundreds of millions that remained in your bank account even after you guessed everything wrong at Amaranth, sat on a beach in the Virgin Islands (or down the shore, whatever) and promised to never trade again, even through E*TRADE Financial? OR, alternatively, used these psychic powers to not blow up your former employer?).

If salty discharge hasn’t appeared around your eyes yet, wait. By Hunter’s estimation, he has invested $1.7 million of his own money and an “enormous amount of [his] time” setting up the fund that may soon just be a distant memory (remembered for getting miffed at us for showing its marketing brochures, which have since been replaced with pictures of puppies in the sun). Anyone need a minute? There's no judgement in this room.

Anyone who’s ever interfaced with a jerk knows that the best of breed have an uncanny ability to turn situations around so that, all of a sudden, they’re accusing *you* of being the prick. Brian Hunter is no exception. In the middle of an interview earlier this year with Washington regulators, everyone’s favorite salmon lover went off for lunch and “never came back.” Just, you know, never came back. Made small talk about the turkey sandwiches from the deli across the street, acted as though he would be returning, like everyone else, and then never came back.

When FERC chairman Joseph Kelliher dared to go public with this information, a spokesman for Hunter said that he "voluntarily flew to the U.S.A. to meet with FERC officials and give an interview. Brian ended the interview when he and his attorney became aware that the FERC had misrepresented the agenda for the discussion." Got that? Not only will the Hunter not be apologizing for unilaterally ending the meeting, but *he,* Brian Hunter is accusing *other people* of pulling the wool over *his* eyes.

The trader who went to lunch and never came back [globe and mail]

The job of a trader is a confluence of responsibilities, essentially limited to executing trades and IMing. Anyone who's ever interfaced with one of God's special creatures through AIM knows such an experience is a guided tour through copious spelling errors, homonym problems that suggest serious learning disabilities, response times that range from jackhammer to 3-hours-later-I'm-still-sitting-here and cockiness as far as the eye can see (*very* occasionally justified, most often not).

So while they're not particularly revealing, it's nice to read through some instant-message conversations between Brian Hunter, Matthew Donohoe, other Amaranth employees and a trader at another firm, who were all included in CFTC's complaint against Hunter y Amaranth, and see that the biggest hedge fund fuckup of all time's "experimental" grammar is no better than his actual trading. Next, we'll publish his IMs with thefish. Those are some quality exchanges not to be missed.

"Brian Hunter simply did not undertake any manipulative trading and we are going to prove it,” said Michael S. Kim. Kim is a partner at the Kobra Kai dojo Kobre & Kim lawfirm that advises Hunter’s new hedge fund, Solengo.

Earlier today the CFTC filed a lawsuit charging that Hunter, who was trading gas for Amaranth at the time, had illegally manipulated the natural gas futures market by exploiting the New York Mercantile Exchange’s rules for determining the settlement price on futures contracts. Prices for futures contracts are set according to the volume-weighted averages of trades executed during between 2:00 p.m. and 2:30 p.m. on the last day of trading for each contract, a period known as the “closing range.”

According to the CFTC’s lawsuit, Hunter attempted to push the price of the futures contracts down by dumping large amounts of the contracts into the closing range. The complaint states that Amaranth traders would buy up large amounts of gas contracts prior to the closing range, then dump them in order to depress prices. Amaranth wanted lower prices because it held a huge short position in the contracts, the CFTC report alleges.

Hunter’s lawyers say that the contention that Amaranth desired lower prices prices is contradicted by a recent report from the Senate Permanent Subcommittee on Investigations, which they say concluded that Amaranth sought rises in natural gas futures prices.

“None of these various government bodies can come up with a consistent theory of Mr. Hunter’s alleged misconduct because in fact there was no misconduct” said Mr. Kim, “These accusations from the CFTC and the FERC against Brian Hunter are aimed at finding a scapegoat to bear the public outrage over ever-increasing energy prices. We will not stand idly by as the regulators use Brian for political cover, their action is meritless and we will prove it.”

After our review of confidential trading documents, which you may download here,* DealBreaker has concluded that Brian Hunter should tell us whether he wanted to inflate or deflate the prices in the gas futures markets while he was making these trades. Pointing out that the government is confused, inconsistent and probably abusing its power is a bit like pointing out that the Pope is Catholic. That’s what governments do.

But just because the government is out to get you, doesn’t mean you didn’t do anything wrong. So come on, Brian, give up the goods. Was Amaranth after a higher or a lower price?

*We're totally kidding about those confidential documents. Sorry.

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]

The head of the San Diego Country pension fund accused of impeding a civil grand jury investigation denied that fund officials set out to interfere with the investigation. He admitted, however, that witnesses were told not to discuss privileged matters related to a lawsuit the pension fund has filed against the failed hedge fund Amaranth Advisors. The grand jury’s report found that the San Diego County Employee Retirement Association has attempted to “influence [witness] responses in almost every area of our investigation.” The grand jury connected this to the lawsuit against Amaranth for losses suffered when the hedge fund collapsed.

“In no way did we attempt to impede their process,” said Brian White, the chief executive of the pension fund.
The civil grand jury in San Diego is made up of 19-members, mostly retirees. It is not connected to the criminal grand jury process. Last week the grand jury filed a report on the pension fund. The report included a finding that the pension fund had impeded the grand jury’s investigation by “pre-screening” witnesses to instruct them about what they should and should not tell the grand jury. DealBreaker reported these findings yesterday.

“We are surprised at their finding,” White said. “We provided them with all the witnesses and documents they requested, without requiring the grand jury to go through the subpoena process.”

White noted that experts were provided to the grand jury at the expense of the pension fund. He said that witness interviews often ran over far past the allotted time, lasting two to three hours.

“We did tell them that the Amaranth litigation was not something we could discuss with them. And we told witnesses not to discuss matters they had heard in closed meetings related to the litigation,” White said.

California open-meeting laws allows the pension fund to hold closed meetings when the subject matter discussed will be on-going litigation, according to White.

“One of our concerns was that something privileged would end up in the grand jury report that may have been used by Amaranth in their defense,” White said.

Earlier: San Diego Pension Fund Impeded Grand Jury Investigation, Report Finds [6.11.07]

Could the lawsuit filed by the pension fund for San Diego County employees against Amaranth Advisors be less innocent than it appears?

That’s the suggestion of Stephen Rosenberg in a recent posting on the Boston ERISA & Insurance Litigation Blog. The lawsuit against Amaranth may be a pre-emptive strike by the managers of the San Diego pension fund aimed at fending off claims of pension fund plaintiff class action lawyers seeking to sue on behalf pension fund beneficiaries, Rosenberg says.

The chief executive of the pension fund, Brian White, denies that any such fear of litigation motivated the fund to file the lawsuit. “We have had no threats of litigation as a result of Amaranth,” White said. He stressed that the fund has performed quite well despite losses from Amaranth’s collapse, and expects to have double digit returns for the year.

[After the jump, follow along as the dots are connected.]

A San Diego County pension fund tampered with witnesses in a grand jury investigation into the fund’s operations, the county civil grand jury said in a report released last week. The grand jury found that the pension fund had “impeded” the investigation by “pre-screening” witnesses, perhaps out of concerns arising from its litigation against the hedge fund Amaranth Advisors LLC. The pension fund is suing Amaranth over losses it suffered when Amaranth collapsed after the market in natural gas futures turned against its positions last year.

The grand jury’s report states that the San Diego County Employees Retirement Association, SDERCA, sought to influence witnesses “in almost every area” of the investigation. The civil grand jury in San Diego is made up of 19 volunteers. It is not related to the criminal grand-jury system.

“During the course of our interviews, it became apparent that SDCERCA was pre-screening our witnesses and suggesting what information could or could not be said,” the grand jury report states. The report goes on to detail one instance where an expert witness declined to respond to questions despite the fact that the information was disclosed in public record.

“The efforts of the Grand Jury were, at times, impeded by SDCERA,” the report states as an official finding.

The grand jury’s findings of interference with the investigation contrast with the pension fund’s public statements about the investigation. The press section of the pension fund’s website calls it a “positive report” but makes no mention of the finding that it impeded the investigation. No other media sources seem to have picked up on this finding.

Last Thursday, the pension fund’s chief executive, Brian White, denied that the grand jury’s findings had anything to do with the lawsuit. ``The report did not have any findings in relation to Amaranth or our investments in Amaranth,'' White said, according to Bloomberg. White did not return calls from DealBreaker seeking comment.

[More on pension fund grand jury chicanery after the jump]

Amaranth Advisors responded today to the lawsuit filed by San Diego County’s pension fund, which suffered large losses when the hedge fund collapsed. The response reminds us of the old story about the woman who nurses an injured snake back to health only to get bitten by the snake. As she dies from the venom, she asks the snake why he would bit her. The snake responds, “Look, bitch, you knew I was a snake when you picked me up.”

Lawyers sometimes use the story to illustrate the concept of assumed risk. Amaranth attorneys didn’t go that far but the message of their court filing seeking to dismiss the lawsuit was essentially the same: the professionals at the pension fund “knew exactly what they were getting into” when they invested 2% of their capital in Amaranth.
The hedge fund’s lawyers ask the court to dismiss the lawsuit on the grounds that “investors who knowingly make risky investments to take the bad with the good.”

Amaranth's Motion for Dismissal [pdf from Abovethelaw.com]
Amaranth’s Dynamic Duo: Dan Webb & David Boies [Law Blog]

The dog that didn't bark last September finally seems to be finding it howl. When Amaranth Advisors imploded last year many were surprised that there was so little collateral damage. There were losses incurred by some of the investors in Amaranth, including some large pension funds, but no panic ensued and no other dominoes fell. It seemed that despite lots of talk about hedge funds posing a "systemic risk" the Amaranth collapse was an isolated event.

No longer. The Globe and Mail is reporting that the flagship fund of funds of Abria Alternative Investments Inc. has been brought down by Amaranths collapse.

The Abria Diversified Arbitrage Trust, which at its peak had assets of more than $150-million invested in various hedge funds, began its plunge after investors began demanding their money back in the wake of a loss of more than 8 per cent in September because of an investment in Amaranth.

In a bid to fund redemptions and stem further losses from Amaranth, Abria's managers sold two positions at a loss in December, leading to another monthly decline, this time 5 per cent, that fuelled demands from investors for their money back. Investors had to give 100 days notice for redemptions.

With the fund shrinking rapidly, and total assets headed toward $20-million as the redemptions piled up, it made little sense to go on, said Henry Kneis, chief executive officer of Abria.

We can’t believe that this is the first time we’ve ever heard this story. The basics are known to everyone. Long Term Capital Management, the now infamous hedge fund started by the real-life characters from Michael Lewis’s Liar’s Poker, collapsed dramatically in a very short period of time when bond spreads moved in an unlikely way against their positions. LTCM was so levered up that its collapse provoked fears that it might “bring down the financial system.” Then-Fed chief Alan Greenspan stepped in to organize a Wall Street bailout of LTCM. It was a scary spectacle for those involved and those merely watching.

Now comes the story that all of this might have been unnecessary. Or at least the meltdown might not have been quite as scary as it was because apparently Warren Buffett was ready to ride to the rescue, scoop up LTCM’s bond positions and save them from the margin call squeeze. Except that Bill Gates had invited him to go on vacation, so the whole thing never got done.

Here's Jeremy Siegel telling the story:

The LTCM crisis was a ready-made example of Warren’s philosophy of buying firms when the economics was right, yet fear ruled the markets. He noted that “off-the-run” (non-benchmark) government bonds were selling to yield 30 basis points more than the “on-the-run” (benchmark) bonds that were maturing just six months later. He rightly claimed that this made no sense economically.

LTCM had taken a huge leveraged position in these bonds when the spreads were much smaller, but didn’t have the collateral to hold on to it when the spread widened. Buffett quoted John Maynard Keynes, who wrote in 1931 that “The market can stay irrational longer than you can stay solvent.” As the spread widened, Keynes’ dictum became devastatingly relevant for LTCM. But Berkshire, with its huge cash hoard, could withstand the pressure of even more market irrationality before the spread eventually returned to normal.

Unfortunately, Warren was never able to consummate the deal. He had been invited by Bill Gates to vacation in Alaska when the crisis broke and it was hard to negotiate such a deal on a cell phone... “Bill Gates cost me about $3 billion,” he shrugged.

Uhm. Wow. Imagine what would have happened if Citadel's Ken Griffin had an art museum date when Amaranth faced a similar margin-call, collateral squeeze following Brian Hunter’s misadventures in the natty-gas futures markets. Citadel reportedly lead the charge to buy up Amaranth's energy trading positions in a move that many credit with helping prevent the "contagion" from the Amaranth meltdown from spreading. I guess we should be glad that gerbils don’t need vacations.

Buffett Wisdom [Yahoo Finance via Marginal Revolution]

"Wonder-twin powers activate."

"Form of unhedged bets on Gulf hurricanes."

"Shape of hedge fund crashing."

Super group sues failed hedge fund [The Australian]

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.

Details are emerging about the funds managed by the hedge fund reportedly founded by Brian Hunter, the energy trader who became famous when his natural gas bets helped topple Amaranth Advisors just six months ago. Notable features of the fund they are calling Solengo: quick exits for investors if portfolio managers cross risk control lines and the ability to opt out of funds managed by Brian Hunter himself. (We’re cribbing all this from Ann Davis, the Wall Street Journalreporter who had the cover story interview with Hunter shortly after news broke of Amaranth’s woes. The closest we’ve ever been to Hunter is hearing he ate at Sparks. Maybe he’s pissed about that fish picture.)

One other notable feature: the fund’s founders won’t discuss why they’ve named it after an Italian wine. Which raises the hairs on the back of our neck. These guys are going to make the very name of their fund an inside joke, and they expect you to give them your money? We’re kind of worried that Solengo might also be the name of the best stripper in Calgary.

Trader Behind Amaranth Collapse Launches Fund Focusing on Commodities [Wall Street Journal]

The energy trader who brought down hedge fund giant Amaranth with his bets on natural gas futures is "said to be planning an energy-focussed hedge fund," according to senior TheStreet.com writer Mark DeCambre. (You might recall that we reported this rumor back when Brian Hunter was allegedly spotted in New York City's Sparks in February.)

So who are Hunter's new sugar daddies?

The planned venture is said to have been seeded with around $750 million to $800 million, from primarily Middle East investors.

Now this makes sense: those "Middle East" types often come from countries that sit atop the Western world's oil supply and might be very interested in diversifying their portfolio with a fund centered around alternative energy strategies.

But we can't help recalling that in Liar's Poker whenever traders couldn't explain the movement of the markets, they blamed the Arabs. Mike Lewis calls it the "logical lie" because it kind of makes sense and is basically irrefutable.

"I spent much of my life inventing logical lies like this. Most of the time when markets move, no one has any idea why. A man who can tell a good story can make a good living as a broker. It was the job of people like me to make up reasons, to spin a plausible yarn. And it's amazing what people will believe. Heavy selling out of the Middle East was an old standby. Since no one ever had any clue what the Arabs were doing with their money or why, no story involving the Arabs could ever be refuted. So if you didn't know why the dollar was falling, you shouted something about the Arabs."

Amaranth's Hunter Tries Again [TheStreet.com]

Just when the rumor mill on Red Kite seemed to have finally ground to a halt, smashing the last grains of truth and falsehood into the finest of over-analyzed and undifferentiated meal, the Wall Street Journal's "Heard on the Street" column blows new wind into the sails.

A lot of it is a rehashing of what you've probably already heard before. Red Kite reportedly suffered losses as high as 20% in just the first few weeks of 2007. Investors have been asked to extend the notice period for redemptions from 15 to 45 days. And, of course, Red Kite won't comment on the record about any of it but a friendly, anonymous trader (who may or may not be exactly the same people at Red Kite who won't comment on the record) is talking up the firm's successful exit from its worst trading positions. This is meant to make the market feel more confident that Red Kite isn't headed for a meltdown.

But our memories are long enough to remember that there were a couple of days when Amaranth was in a similar position. People were whispering, and then shouting, about huge losses from bets on one commodity (natural gas futures then, copper now). Others were reassuring us that the firm wouldn't collapse. After all, the market was showing an appetite for Amaranth's positions and there seemed a possibility that the fund could be salvaged.

Keeping in mind that at this point we still know very little about what's happening at Red Kite, the main difference between the Kiters and the Amaranthers seems to be in how the two funds handled the meltdown. Amaranth founder Nick Maounis decided to let the investors bail out, letting go even those who were contractually bound not to redeem for several more weeks or months. Red Kite is apparently moving in the opposite direction, seeking to stem redemptions by extending the notice period.

So here's the question: when a fund starts taking losses, who would you rather have holding onto your money: Amaranth's Nick Maounis or Red Kiters Michael Farmer and David Lilley?

Hedge Fund's Heavy Metal [Wall Street Journal]

We wouldn't recognize Brian Hunter if we stole a cab from him on Water Street at four a.m. Our famous picture (see left) of Brian Hunter being held aloft by a friend is even more famously unhelpful for figuring out what the guy looks like. We haven't been able to find any confirmed pictures of the Amaranth energy trader whose bets on natural gas futures brought down what was once the "biggest hedge fund you've never heard of."

But apparently not everyone is as ignorant as we are. And some of those "in the know" folks are our readers. One writes in with a totally unconfirmable sighting of Hunter in New York City. And so, of course, we would be totally irresponsible to actually go ahead and publish such an unconfirmed report. But we're doing it anyway. 'Cause this is DealBreaker.

So here's the scenario. It's Sparks, the midtown steakhouse where mobsters go to get killed and women go to meet the kind of guys who want to eat steak in the kind of place where mobsters go to get killed. Dinner. The man who is allegedly Brian Hunter (known for the rest of this piece simply as "Hunter") is seated with an unknown group of financial types. Everyone orders steak.

Except "Hunter." Shocking our source, "Hunter" completely eschews the steak. Instead he goes with four orders of mac & cheese. That's right. On his first reported appearance in public, "Hunter" ate at a steakhouse and ate no steak.

Of course there are all sorts of questions responsible reporters would ask. We just aren't sure what they are. Our question: what is "Hunter" doing in New York? Who were those carnivores seated with him? For several weeks there have been rumors that Hunter was talking to investors about starting his own fund. But we'd heard those were mostly Europeans. Maybe New York money still wants to own a bit of Brian.

[Note: we love these people spotting tips. Please send more to tips@dealbreaker.com. Anyone whose name DealBreaker readers would or should recognize is fair game, and the more mundane the activity the better. We'll totally protect your anonymity. We'll even send Bess Levin to jail, Judy Miller style, rather than give you up to the authorities.]

Previously on Brian Hunter [DealBreaker Archives]

Michael Lewis latest column explains what connects this year’s most popular stories on Bloomberg. But before he gets going on that he talks a bit about a very special penis.

``New Jersey Man Clips Penis in Vacuum Mishap.''

As recently as 1998, this headline on the Bloomberg was born to attract a crowd on Wall Street. That one sentence was equipped to win any battle of financial news stories, and it did. On the day the story broke, May 15, there was no shortage of harder news: mass riots in Indonesia, a spike in U.S. inflation, Sandy Weill's announcement that he would like to buy Fidelity.

None of that news interested Bloomberg readers so much as the tale of the New Jersey man sucked into his own vacuum cleaner.

Last year’s biggest stories were a bit less, uhm, penisy.

Upon closer inspection, however, it wasn't the useful financial news that captured Wall Street's attention. You can count on one hand the stories that might move markets, or affect business: three items about the Federal Reserve and a pair of stories about giant corporate acquisitions.

News that implicated Wall Street jobs and paychecks, on the other hand, drew huge crowds: Goldman Sachs's bonuses, Morgan Stanley's bonuses, Credit Suisse's trading losses, commodity traders' losses, commodity traders' booming pay -- the list goes on.

And Amaranth. Amaranth. Amaranth. Amaranth. One reason you saw so many Amaranth stories last year is that you kept reading them. But not just any old Amaranth story.

What Wall Street readers wanted from their Amaranth stories was the answer to three simple questions: Who won, who lost and, above all, how much? The interest in Amaranth, in short, seems to have been the first cousin to the interest in Goldman Sachs's bonus pool. After all, the $6 billion lost by Amaranth didn't simply vanish. Someone on Wall Street was on the other side of those trades. Goldman's bonus pool came from somewhere.

Why `Penis' Will Make This a Most-Read Story

Yesterday we noted that calls for Nick Maounis to be banned—or at least shunned—from the capital markets after the collapse of his hedge fund, Amaranth, might be a little overwrought. The losses suffered by Amaranth were large, and many investors lost money, but more rational investors will want to ask whether this indicated some fundamental flaw with the way Maounis was running Amaranth’s investments rather than whether some abstract concept of justice will be violated if Maounis succeeds in launching a new hedge fund.

As a friend of DealBreaker’s said yesterday, “Are we in this to make money or dole out punishments? Cause if it’s the latter, there’s a long, long line of deserving parties and we’d better get started early.”

What’s more, it’s important to keep in mind that while Amaranth’s losses were large, so was Amaranth. The whole hedge fund industry is large. A more relevant measure of Amaranth’s losses is not the absolute dollars lost but the percentage of funds under management lost. According to someone familiar with the situation at Amaranth, its funds were down somewhere around 55 to 65 per cent when the decision was made to wind down. This was in a year when many funds made sub-par gains. And by shutting down operations when it did, Amaranth missed out on the fourth quarter in which many funds made up for earlier losses or paltry gains.

Historically, Amaranth’s funds under management relative losses are not enitrely unprecedented. Everyone remembers the Long-Term Capital Management debacle. But what about D.E. Shaw? Losses there in 1998 are said by some to have been, percentage wise, close to those Amaranth suffered. What’s more, D.E. Shaw’s losses wreaked havoc with one of it’s biggest investors, Bank of America. The bank was forced to disclose $372 million in trading losses, and saw its stock price plummet. (Amaranth's banking partners seem to have been far less scorched by its losses.)Today, D.E. Shaw is one of the most admired hedge funds in the industry.

But shouldn’t there be some sort of probationary period for Maounis? Some time where he’s benched, forced to sit on the sidelines? Before answer that, consider that this might result in real opportunity costs. Maounis presumably has quantitative investment models that, despite the natural gas blow-up, are still otherwise functional. But these things have sell-by dates, and won’t last forever. It seems odd that investors be forced to surrender the possible gains from investing with Maounis because a quick return offends our sense of propriety.

As we mentioned yesterday, the best test for whether it is too soon for Maounis to return will be the market. Investors are the referees here, and they are the ones who will decide whether Maounis deserves a yellow card for Amaranth’s losses.

We've talked before about the role of myth in business news and history. Every so often a company, individual or event will come to stand for something, and often what it comes to stand for is quite distant from the reality. The map is not the territory, as they say. And the myth is not the thing. Which isn't to say that maps and myths aren't helpful. Just that we should keep the distance between them and the actual territory in mind.

Increasingly, Amaranth has come to stand for something. It's becoming the mythological beast of hedge funds. This probably doesn't make Amaranth founder Nick Maounis very happy, and probably won't help him raise any money for the new hedge fund he is rumored to be contemplating. But the video above does a good job of showing how, in front of the right audience, a speaker can simply use Amaranth as a shorthand for overconfident, speculative-predictive investing and the audience will know exactly what he's talking about.

There's also a nice tidbit about Boone Pickens take on Brian Hunter, which is really what got our attention.
Quick Video Note on Amaranth [MichaelCovel.com]

Reacting to the news that Amaranth founder Nick Maounis may be starting a new hedge fund after his last venture lost billions, Bloomberg's Matthew Lynn asks "So what exactly does it take to make a man unemployable in the hedge-fund industry?"

There was a time when financial managers who lost everything were expected to defenestrate themselves. Or at least go away for a while. Maounis quick return has Lynn worried that the mechanism on reputational damage has somehow broken down.

Hedge funds have an unbalanced risk/reward ratio. Let's say you raise $1 billion from investors, and you stand to earn 20 percent of any gains you make on that money. The natural temptation is to take big risky bets. If they pay off, you will collect a fortune. If they don't, well it isn't your money going down the tubes.

It is rather like walking into a casino with a stack of someone else's chips. Most of us would go straight to the roulette wheel, pick a number, put the chips down and try to win.

In effect, the investors take most of the risk while the manager takes a lot of the gains.

Only one real safeguard is built into the system: Get it wrong, and your reputation goes out the window. Your investors abandon you. Your job disappears. Before long, you will have to start remembering the phrase ``Would you like fries with that?'' if you ever want to work again.

That, at least, builds in some incentive to think carefully before placing any wagers on the direction of the markets.

Maounis's possible return makes one wonder if that safeguard has worked this time.

But there is another possibility. That is, perhaps investors are just more rational now. Nick Maounis has a long track-record as a successful fund manager and investors may simply be unwilling to give up the gains they expect he can bring in order to punish him for the collapse of Amaranth. We're still not sure Maounis will succeed in getting his new fund off the ground. But assuming he does that seems a more reliable test of whether Maounis belongs back in the markets than whatever notions of justice journalists might have in their head.

Amaranth's Maounis Should Stay Out of the Markets [Bloomberg]