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]

Amaranth founder Nick Maounis, whose hedge fund lost $6.4 billion late this summer and is in the process of dissolving, is thinking of launching a new hedge fund and this time he totally promises not to let traders use the secret "Bet Everything On Weather" strategy. Also, there will be a sign on the door declaring "No Brian Hunters Allowed."

Amaranth's Founder May Start a New Fund [Wall Street Journal]

More former Amaranth guys landing jobs in London, according to the Financial Times:

US alternative asset manager The Carlyle Group becomes the latest firm to hire staff from Amaranth Advisors, the US hedge fund manager that collapsed in September, according to Financial News, who quoted the news source as HedgeWorldNews. Scott Davidson, a former Amaranth structured product portfolio manager, John Bailey, an ex-long/short energy equities manager at the firm, and Jaime Gualy join Carlyle Blue Wave, the firm’s new hedge fund unit.

Someone suggested that we start keeping track of where Amaranth's orphans end up working. Below we've linked to to previous items on the subect, and we're initiated a new tag to cover this: "After Amaranth." If you've heard anything more about Amaranth orphans getting jobs, not getting jobs or interviewing somewhere, please email us at tips@dealbreaker.com. Thanks!

People: Lehman Brothers, Carlyle Group, Fleming, Robeco-Sage Capital [Financial Times]

Previously on DealBook:Amaranth's London Squad Landing On Its Feet
Goldman Scoops Up Amaranth Bond Traders

Sponsored by Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today – the ultimate stocking-stuffer.

No list of the biggest movers and shakers of 2006 would be complete without including Brian Hunter—the once esteemed and envied energy trader who move and shook the hedge fund Amaranth right out of business. Hunter came to Wall Street from Calgary, where he had worked for a pipeline company that was getting into the energy trading business. After a tumultuous few years at Deutche Bank that ended with Hunter suing his employer, Hunter was hired by Amaranth founder Nick Maounis and Amaranth's top energy trader Harry Arora (who had come to Amaranth after the collapse of Enron to start the energy desk). For a couple of years, the Hunter and Arora team did extraordinarily well, becoming the primary source of gains for Amaranth during a period when its equity investments are said to have lagged behind its competitors.

Hunter was richly rewarded, reportedly pulling down $75 to $100 million in compensation in a single year. SAC Capital's Stevie Cohen attempted to hire Hunter away from Amaranth, and Maounis responded by making Hunter the co-head of energy trading and allowed him to move his operation up to Calgary. That was the year that Hunter bet big on natural gas futures, and won big when hurricane Katrina struck and disrupted energy supplies. Some reports say that Hunter made $1 billion for Amaranth in 2005.

Things changed in 2006 but Hunter stayed the same. Arora left to start his own energy trading fund, leaving hunter as the undisputed head of energy trading at Amaranth. He once again bet that the spreads on natural gas futures would widen. All the best forecasts were predicting another stormy summer. Al Gore had a hit movie explaining that global warming was more or less permanently transforming the Caribbean into a cauldron of hurricanes. But the storms never came to pass. The margins on gas futures contracted. Amaranth found itself forced to sell off assets to meet margin calls. Before long it was clear that the losses from Hunter's trades would bring down the hedge fund altogether.

If Hunter's story just involved the collapse of one fund, he probably wouldn't be a candidate for DealBreaker of the year. But Amaranth's collapse gave new life to calls for hedge fund regulation. Regulators were relieved that Amaranth didn't turn into another Long-Term Capital Management, the hedge fund which famously failed and required action by the Federal Reserve to bail out its creditors. But talk of "systemic risk" from hedge funds started to emerge from the mouths of regulators in the US and Europe. If the European Central Bank gets its way and creates a global regime of hedge fund registration, hedge funds everywhere will have Hunter to thank.

Value Added: It's been said that in finance that you're only as good as your last trade. But that's not true. Over the years Brian Hunter made quite a lot of money for a lot of people. Even his last, disastrous trades can be seen as providing two important lessons—that even the mighty can fall and that capital markets can thrive in the wake of a multi-billion dollar collapse.

Risk Factors: One word—Amaranth.

Should Brian Hunter be the DealBreaker of the Year? So far, Brian Hutner is up against challenges from Hank Paulson, Patricia Dunn and backdating. We invite you to let loose with your inner-most feelings in the comments section below. And if you have other candidate you’d like to nominate, please feel free to email us at tips@dealbreaker.com. (If you can use the format we’ve laid out above, all the better. If it’s a hassle, we’ll take ‘em as we get ‘em.) If we use your nomination, you’ll get a free copy of Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today.

Today’s edition of Platt’s Energy Trader takes in depth look at how Citadel and JPMorgan took over Amaranth’s energy portfolio, turning Amaranth’s losses into profit. The basic outline of the story is that after gas prices sank and the spread between March 2007 and April 2007 natural gas futures shrank, Amaranth found itself in the troubling position of having to sell off assets, in part to meet the margin calls of its broker, which happened to be JP Morgan. Citadel and JP Morgan then teamed up and bought the portfolio at a steep discount—a move that some at the time thought looked like a bailout of Amaranth.

As it turned out, Amaranth collapsed anyway. It’s energy trading desk was at the heart of its operations, and after the meltdown it had little hope of going on. And the “bailout” was anything but an act of charity or an LTCM-style attempt to shore up market stability. JPMorgan and Citadel had their eyes keenly on the prize—profits. In a matter of weeks, JPMorgan turned around and sold it’s half of the Amaranth position to Citadel, pocketing a cool $750 million.

It must be nice to be a JPMorgan prime brokerage client. First they squeeze you on the margin call, then scoop up your assets and make $750 million by selling them. Wonder how Amaranth founder Nick Maounis feels about JPMorgan these days.

Here’s how Platt’s describes Citadel’s side of the bargain.

Citadel acknowledged that there is still substantial risk connected to the remaining Amaranth trades, and it set aside cash reserves to cover those risks. “These reserves reflect the illiquidity of the portfolio and the operational risks involved in the initial assumption of the portfolio,” Citadel said.

Citadel said it expects to have eliminated those risks, and the need to reserve funds, by the end of the year.

Which is to say, Citadel expects to have fully turned-around the trades that brought down a large and long-standing hedge fund in a matter of three-months. Like we said earlier, damn it’s good to be Ken Griffin.

We've been assured by quite a few people that Harry Arora was indeed set to leave Amaranth to start his own fund, and that the rise of Brian Hunter had very little to do with it. This leads to our new, favorite theory of How Brian Hunter Got That Way.

Here's the unsubstantiated gist: WIth Amaranth's equity underperforming, the hedge fund was increasingly dependent on its energy traders to produce returns. With Harry practically out the door, the threat of SAC scalping Brian Hunter was a very serious threat to Amaranth's bottom line. Following this line of thinking, it was Harry's departure that was the "first domino," the one that created the desperate need to retain Brian by giving him $1 billion of the firm's assets, letting him run his own shop up in Calgary and giving him 15% of the desk's returns.

A bid by SAC Capital's Stevie Cohen to hire away energy trader Brian Hunter may have been "the first domino" in the series of decisions that eventually led to the collapse of Amaranth, the Greenwich, Connecticut-based hedge fund brought down in September by bad bets on energy futures, according to a report from Bloomberg this morning.

Here's the lede:

Nicholas Maounis, founder of the Amaranth Advisors LLC hedge fund, made a decision in April 2005 that eventually cost him his firm.

His promising natural-gas trader, Brian Hunter, had been offered a $1 million bonus to join Steven Cohen's SAC Capital Advisors LLC. Maounis, who had built his Greenwich, Connecticut- based fund to $6 billion in assets, didn't want Hunter to go.

Convertible bond and equity prices were falling and oil and natural gas prices were increasing, making Hunter's expertise more valuable. So Maounis named Hunter co-head of the energy desk and gave him control of his own trades.

But you really should read the whole thing. There are lots of details about Amaranth's internal controls (or lack thereof) and investment diversification (or lack thereof).

The dog that doesn't bark in this article, however, is named Harry Arora. Harry was an Enron Zombie—an energy futures trader at the now infamously collapsed Houston company who had found new at Amaranth. He ran the hedge fund's energy trading desk, leaving right around the time Brian Hunter got his big promotion. What's unclear is whether Harry was forced out to make room for Brian, whether he left rather than share leadership of the desk with Brian or whether he was leaving anyway. He went on to start his own energy fund, Arcim Advisors.

[Editors note: The picture above the left represents Brian Hunter. And some other guy holding him up for the camera.]

Amaranth's $6.6 Billion Slide Began With Trader's Bid to Quit [Bloomberg]

JPMorgan may have hauled in as much as $750 million from the trades it took over from Amaranth, according to a story in Investment Dealers’ Digest. That’s pretty good for a position JPMorgan held for just a few weeks before handing it off to Citadel.

But even more importantly, the IDD story provides the outlines of what we’ve come to think of as the Amaranth Conspiracy Theory (ACT for short).

In its third-quarter earnings call, JPMorgan said it profited by taking over Amaranth's natural-gas positions. JPMorgan did not disclose how much it made, but according to one senior commodities executive at a JPMorgan rival, the bank earned $750 million on the trades. A JPMorgan spokesman declined to disclose the size of the bank's windfall.

JPMorgan earned money from Amaranth's losses by purchasing the hedge fund's natural gas positions when prices were under pressure and the fund was forced to liquidate to meet its margin requirements. When prices rebounded, JPMorgan reaped the benefits.

The eyebrow-raising part, for some observers, is that JPMorgan was prime broker to Amaranth and so was presumably the one doing the forcing. "I don't know if they did anything wrong, but when you pull the plug on a company and make a lot of money, it's a bit curious," says Berman (a lawyer for some Amaranth investors). The JPMorgan spokesman declined to give details on the dealings between Amaranth and the bank.

You get the idea: Amaranth didn't fall off a cliff. It was pushed.

Amaranth Fallout Could Hold Surprises [Investment Dealers' Digest subscription only]

Lawyers representing two sets of Amaranth investors have said they may not sue the failed hedge fund, Investment Dealers’ Digest writer Dan Freed reports.

Scott Berman, an attorney with Friedman Kaplan Seiler & Adelman who represents investors in Amaranth, sees a possibility that no one will sue the hedge fund over its loss of more than $6 billion in about a week in September. (The fund took the hit after it lost a massive trading gamble on natural gas prices.)

"If we found there was fraud or that they deviated dramatically from what they promised in the offering memorandum, we could make a case, but we haven't found that yet," he says.

Another attorney, Sean Coffey of Bernstein Litowitz Berger & Grossman, who represents the San Diego County Employees Retirement Association, also holds out the possibility that his client will not sue. "SDCERA continues to evaluate its various options," he says, "but no decision has been made yet whether there will be litigation and, if so, who will be sued."

Hold on a minute. Where are people finding these so-called lawyers who cannot come up with a cause of action after a fund loses $6 billion? Isn't that what lawyers do? Or is that just people who get to call themselves Attorney General?

Perhaps even more importantly, IDD also reports that on Monday Amaranth sent letters telling investors that their long awaited distributions were on the way.

Investors have some reason for cheer, however. On Monday, Amaranth sent them letters indicating that they would receive their first distributions since the blowup, according to executives close to two investors. The executives gave differing accounts of the size of the distribution - one says it is about 15% of remaining accounts, and the other says it is around 21% - but both say further distributions are planned for next month.

Amaranth Fallout Could Hold Surprises [Investment Dealers' Digest subscription only]

Citadel's acquisition of Amaranth's energy portfolio was approved by the Chicago-based hedge fund's founder Ken Griffin himself. Speaking to a group of potential investors on a conference call this afternoon, the Griff revealed that he personally approved the transaction in which Citadel and JPMorgan teamed up to acquire the energy portfolio that had resulted in a meltdown at Amaranth. Other top people at Citadel also reviewed the transaction, including the head of the fund's energy trading group and a sub-set of the firm's eleven-member management comittee.

Until now it wasn't known how far up the chain the Amaranth transaction had to go. The answer is: all the way. So those of you who thought the Griff spent his time contemplating his fancy art collection now know, at the very least, that the collection includes Amaranth's energy portfolio.

We're listening to the Amaranth conference call right now. Probably have more to say on this later.

Throughout the Amaranth meltdown, the best source has been Platts, the subscription only energy investing newsource. This morning, Platts Gas Daily has the scoop on how much Amaranth's losses cost it's investors, including a few funds run by Morgan Stanley.

Just in case you forgot to renew your subscription, here's Platt'\s report:

Investors in defunct energy hedge fund Amaranth Advisors saw two-thirds of their money disappear following the Greenwich, Connecticut-based hedge funds spectacular September meltdown, according to filings made this week with the US Securities and Exchange Commission by institutional fund managers.

Amaranth Advisors lost billions when the spread between March 2007 and April 2007 natural gas futures prices--which the fund bet would widen--collapsed from $2.14/MMBtu to a few pennies.

While hedge funds by nature are large pools of capital with few regulatory reporting requirements, so-called "fund of funds"--publicly-held mutual funds that invest in hedge funds--do report the performance of their investments to the SEC.

A closer look at Amaranth's collapse comes from Tuesday's report of Morgan Stanley's Alternative Investment Partners Absolute Return Fund which invested $4.3 million in Amaranth at the beginning of this year only to see that investment lose 66% of its value by the end of the third quarter.

Another Morgan Stanley fund, the Institutional Fund of Hedge Funds, also reported Tuesday that it began investing an eventual $92 million in Amaranth starting in November 2004 and by the end of the third quarter saw a 55% drop in Amaranth's value. A sister Morgan Stanley fund, Institutional Fund of Hedge Funds II had the unfortunate timing to invest $2 million in Amaranth on July 1, losing 68% of that money in three months.

Amaranth, the hedge fund that collapsed after making bad bets on energy futures, has taken down a fund of fund listed on the London Sotck Exchange. The $61 million fund was managed by a smaller, Chicago-based unit of the Man Group.

The Wall Street Journal reports:

A fund of hedge funds listed on the London Stock Exchange five years ago by hedge-fund giant Man Group PLC wants to shut down after recent losses tied to the collapse of U.S. hedge fund Amaranth Advisors and persistently poor liquidity in the shares.

The fund lost about one-fifth of its gains this year from the collapse of Amaranth Advisors in September. In the 10 months through October, its portfolio gained 6.5%, mainly from strong performance at the start of the year and in October.

[Editors note: The picture above the left represents Amaranth's Calgary-based trader, Brian Hunter, and some other guy holding him.]

Man Group Fund Looks To Shut Down [Wall Street Journal]

Speaking of Amaranth, Financial news online reports that at least some of London's Amaranth team is landing on their feet. Of the twenty-six or so employees in the London office, the report estimates that half have left. The head of the London office has found work with a rival hedge fund, which should bode well for the prospects of the more junior staffers. [Note: Despite being called "Ulf Ek," at this time we cannot confirm that the former head of Amaranth London is, in fact, an Orc.]

The five staff to have officially left the London office are: Hai Chen, Ulf Ek, Tuomo Huolman, Harry Sardanis and James Scully.

Ulf Ek, who headed Amaranth’s London office for just over a year, has moved to rival hedge fund Brevan Howard, which will give the Swede a $1m (€800m) signing-on bonus.

Albert Kim, Xunhua Wong and Sujit Sahadevan, who are supposedly among those still working at Amaranth, did not return calls.

Separately, Bloomberg reports that Ospraie Management, a $4bn New York-based commodities hedge fund, has hired Scott Kerson from Amaranth as a quantitative analyst. Kerson will start next month, according to a spokesman at Ospraie.

Five more exit Amaranth in London [FinancialNewsOnline]

Everyone talks about the Amaranth collapse and all the money lost. Of course, for certain folks at JP Morgan and Citadel, Amaranth represents something else entirely: the day they made lots and lots of money.

JPMorgan, the No. 3 U.S. bank, got a profit boost in the third quarter from the collapse of Amaranth, which unloaded its natural gas portfolio at a discount to the bank and Citadel Investment Group.

Bill Winters, co-chief executive of JPMorgan's investment banking business, said the bank has unique insight into the hedge fund industry because it has broad relationships with firms that have some $1 trillion in assets under management.

"We are not exposed from a credit perspective, materially, which allows us to respond quickly to opportunities when they come up," Winters said at Merrill Lynch's banking and financial services conference in New York.

"Amaranth was one obvious example of that," Winters said. "I imagine there will be others as we go through time where our ability to be on the inside, but not compromised, is extremely powerful."

JPMorgan exec sees more Amaranth-type opportunities [Reuters]

A few days ago we asked whether it was possible to dress as Amaranth for Halloween. And now we know it is. Meet Brian Staver. He worked at the failed hedge fund, according to blogger/venture capitalist Andrew Parker. "So, he dressed up as a Texan natural gas tycoon for Halloween and wrote the Amaranth balance sheet on his chest. Totally awesome," Andrew writes.

Best Halloween Costume [The Gong Show]

DealBook has a simply brilliant piece today about the impact of Amaranth’s collapse on the cabbies of White Plains and Greenwich. When the hedge fund was roaring, cabbies could count on a regular stream of reverse commuters taking the $45 cab ride into the Connecticut back-country. These days, business is down. Way down.

And, of course, there are always vultures circling over the corpse.

...the taxis still carry some riders to Amaranth as well.

“Now I think we’re bringing lawyers,” Mr. Talley. “Helping to close the company, I think.”

Is it just mean that we assume the lawyers aren’t tipping the way the hedge fundsters did.

Amaranth’s Other Casualty: The Cabbies [DealBook]

No. Not those Canadians. So far as we can tell, the Calgary team—a/k/a Brian Hunter—that made the trades that crashed the house of Amaranth has vanished without a trace. The folks we’re talking about this afternoon are the team led by Manos Vourkoutiotis, who has been at Amaranth for six years. Bloomberg reports that his team is going to be based in Toronto, working for Moore Capital.

Now a lot of Amaranth people have already found work at banks and other funds. But Vourkoutitotis is by far the most senior of the Amaranth staff to publicly land a new position. This is a good sign for other senior Amaranth folks, some of whom were reportedly worried that their reputations might be tainted by association with such a large failure.

Hedge fund Moore Capital Management said it will open an office in Canada with a new team of traders hired from Amaranth Advisors, the Greenwich, Connecticut firm that lost $6.6 billion last month on natural-gas trades.

Manos Vourkoutiotis, 37, managed Amaranth's Canadian debt, equity and derivatives portfolios for the last six years. He and his team of former Amaranth employees will be opening Moore Canada in Toronto, where they will trade a range of securities, including equities, convertible bonds and high-yield debt.

Moore Capital Hires Amaranth Team for New Canadian Office [Bloomberg]

The Real Problem With Hedge Funds [NYM]

The San Diego Country Employees Retirement Association, which lost more than $100 million in the Amaranth collapse, is considering bringing a lawsuit over the loss, Josh Gerstein at the New York Sun reports. Uh-oh. This may prompt a series of lawsuits, as Amaranth’s investors may find themselves in a race to the courthouse to grab whatever dollars might be left over—either at Amaranth itself or with its money managers. There’s a limited pool of money out there, and an almost unlimited number of plaintiffs lawyers who will be all too eager to carve legal fees out of the carcass of Amaranth.

The big looming threat—fraudulent transfer lawsuits. What happens if a court decides that Amaranth shouldn’t have liquidated its assets on the way out? The picture of our courts second guessing Amaranth’s investment and divestment decisions, and also deciding on the legality of Amaranth’s end days redemptions and spending is not a pretty one.

Lawyers Circle After Failure Of Hedge Fund
[New York Sun]

There will be no April Fools pranks at Amaranth this year. It’ll all be over before then.

Amaranth Advisors LLC, the hedge-fund manager that lost $6.6 billion on natural gas trading, started firing employees Oct. 13 and plans to shut down for good by March 31, founder Nicholas Maounis told Connecticut labor officials.

About 350 employees in Amaranth's headquarters will lose their jobs following the biggest-ever loss of hedge-fund assets.

Amaranth's failure to sell part or all of its business to an outside investor made layoffs unavoidable, Maounis wrote in a letter Oct. 12 to a Connecticut Department of Labor unit that monitors business closures.

Connecticut officials, concerned about a loss of high-paying jobs, are trolling for potential employers who can hire Amaranth workers and keep them in the state. Rival hedge funds and financial firms have told Amaranth of at least 1,000 jobs that might fit its employees, Amaranth spokesman Steve Bruce said.

We tried, very hard, to write our own version of “The Night The Lights Went Out In Greenwich” but failed utterly to find a suitable rhyme for Greenwich. So we’re starting a contest. Send your Amaranth flavored lyrics of "The Night The Lights Went Out In Georgia" in to tips (at) dealbreaker (dot) com. The winner will garner the first official prize given away in a DealBreaker contest—we just haven’t decided exactly what yet.

Amaranth cuts jobs in prelude to March closing [Bloomberg in the Chicago Tribune]

The Times of London is reporting that fund-of-funds manager Chistopher Fawcett wrote a letter to clients calling the collapse of Amaranth easily foreseeable.

Okay. Color us cynical. But writing a letter to clients 10 months after you get out of a position and one month after the position collapses seems to, at the very least, leave the door wide open for accusations of post-hoc rationalizing. Which is to say, it's possible that this article reflects part of what went wrong at Amaranth--the mentality that says everyone's a genius when they are right and everyone's a fool when they are wrong.

Fauchier Partners, which inherited a $30 million position in Amaranth last summer when it took over a competitor, took one look at the hedge fund and demanded its clients’ money back.

In a letter to his investors yesterday, Christopher Fawcett, co-founder of Fauchier, said that his team had spotted no fewer than 11 red flags after visiting Amaranth. He wrote: “Following on-site meetings with [Amaranth] founder Nick Maounis and his team, we decided to redeem from the fund. Moreover, our concerns were sufficient to justify paying a redemption penalty for an early exit.”

In an implicit criticism of the many fund-of-hedge-funds investors that piled into Amaranth, Mr Fawcett said the problems at Amaranth were “anything but unforeseeable”.

But if we take off our cynical spectacles for a moment we can at least notice that Fauchier did get out of Amaranth in a hurry, so its possible that they did see something wrong there. Something that Goldman Sachs, Morgan Stanley, Deutsche Bank, Man Group, Credit Suisse and Union Bancaire Privee, among others, all missed.

Investor paid out extra penalties to quit Amaranth [Times]

Reuters reports this morning that the total assets of Amaranth were around $2.78 billion at the end of September, which probably means the numbers are even lower this morning. Presumably Amaranth, which has announced its plans to liquidate, continues to sell assets and honor investor redemption notices.

It’s probably a good sign that assets are still as high as they are and that Amaranth continues to employ as many people as it does. It shows that Amaranth is not exactly conducting a fire-sale. Rather, they seem to be actually trying to have an orderly wind-down, salvaging some value for investors through asset sales.

At least that was our argument to a friend in the investment community last night. He disagreed. His position was that Amaranth should get rid of everything and everyone right now and get its investors back all their money now.

"If I had money in Amaranth, I'd want it out now. I can make more with my money buying things that work than they can selling things that don't," he said.

We looked down into our glass, wondering if anyone else had overheard the conversation. The bar was very quiet. Mostly the jingle-bell sounds of icecubes in glasses. Everyone had heard this rant of the angry capitalist. At least it was over.

Then he started up again. "They've still got hundreds of employees? They're being nice and finding them all jobs. Fuckers. Are they a labor union now? Who told them this was the way to spend investor dollars? If I were an Amaranth investor I'd be pissed that they were still turning the lights on over in Greewich," he said.

We took a long draw on our scotch. Ice banging against our teeth and wondering why our instinct was to imagine ourselves as an Amaranth employee while our friend could only see himself as an Amaranth investor. Some of us, it seems, are born to work for others. And some of us are those others.

Amaranth Advisors LLC on Tuesday disclosed its net asset value has fallen nearly 70 percent in September from a peak of $9.2 billion in August after wrong-way energy trades decimated the once-prominent hedge fund group.

Greenwich, Connecticut-based Amaranth, which previously estimated it lost 65 percent to 70 percent of its assets in bad commodity bets in September, disclosed the latest results in a letter to investors Tuesday obtained by Reuters.

Amaranth suffered a $6.4 billion loss -- the worst hedge fund loss ever -- in September, leaving the firm with about $2.78 billion at the end of the month from a peak of around $9.2 billion in August.

Amaranth net asset value fell 69.8 pct in Sept [Reuters]

One of the best places to find out what really went down at Amaranth at the end of this summer was the Platts news service, which is pretty much the go-to for energy news. Well, the go-to place if you have plenty of cash to fork over for the subscription only service. Today they picked up on Amaranth’s latest SEC filing. The damage is severe. The funds stock holdings are down to $175.2 million.

Here's an excerpt.

The value of hedge fund Amaranth Advisors' stock portfolio dropped 97% in the third quarter, according to filings with the US Securities and Exchange Commission, as the fund was forced to liquidate the bulk of its holdings to meet margin calls on more than $6 billion worth of bad gas trades.

Amaranth controlled $175.2 million worth of stocks and puts and calls on
those stocks at the end of the third quarter, the Tuesday filings showed.

By comparison, Amaranth's stock portfolio was worth $5.7 billion at the
end of the second quarter, according to SEC filings.

Stocks and puts and calls on those stocks made up an undetermined portion
of Amaranth's investments.

You didn't actually think we were going to make through an entire day without mentioning Amaranth, did you?

London’s Sunday Times Prufrock column says it's hearing that Amaranth trader Brian Hunter has hired bodyguards. Even more striking, the Times report says the guards were hired after “several attempted attacks” from colleagues.

Are Amaranthers really trying to attack Hunter? We’re putting this at about a 30% chance of being true, because we find it hard to imagine energy traders in Calgary as thugs or assassins. And we find it hard to imagine Amaranth’s Greenwich, Connecticut staffers actually making the trip all the way out to Calgary just to deliver a beat down on the guy.

So has Hunter hired bodyguards? We’d give this about a 60% chance of being true. If we’d lost more than $6 billion of other people’s money, we’d probably think about a little extra security ourselves. Just because Amaranth employees aren’t attacking Brian Hunter doesn’t mean he’s not paranoid.

The trader they hate [Sunday Times; fourth item]

Hey, look! Some good news coming out of Amaranth.

We’re told that employees at the hedge fund manager Amaranth, which suffered massive losses at the end of this summer and is now in the process of winding down its funds, are indeed landing financial industy jobs, thanks in part to Amaranth’s reaching out to many of the banks and other Wall Street outfits with which it has relationships.

According to a source familiar with the situation who spoke with DealBreaker over the weekend, Amaranth’s employees won’t be hitting the dole anytime soon. The fund has so far been successful in placing many employees at clients, vendors and competitors, we’re told. Since the problems at Amaranth arose from its tiny Calgary office, employees in the Greenwich, Connecticut offices do not seem to be suffering from any “scarlet letter” shunning when looking for new positions.

Amaranth has announced plans to lay off 250 workers, about 60% of its workforce.

It wasn’t just Amaranth energy trader Brian Hunter who thought this was going to be a tough hurricane season. Some of our most prestigious weather scientists were making dire predictions, according to a report from Bloomberg news.

In many years, "Dr. Gray's Tropical Storm Forecast," the title of a Colorado State Web site where the free report is updated monthly during the hurricane season, proved uncannily accurate. Early in 2002, 2003 and 2004, the reports correctly predicted the number of named storms in the Atlantic Ocean and Gulf of Mexico for the entire year… Last year, when a record 28 named storms formed in the Atlantic, the Colorado State report sounded an early alarm, warning in May 2005 of "a well-above-average hurricane season" and predicting 15 named storms. That track record is one reason this year's first forecast, published in April, drew so much attention. "We foresee another very active Atlantic basin hurricane season," Klotzbach and Gray wrote. They predicted 17 named storms, five of them intense hurricanes. The paper said there was an 81 percent chance of a major hurricane striking the U.S. coastline. It put the risk of one of them hitting the Gulf Coast, the center of U.S. oil production, at 47 percent.

Investing: The hurricane forecast that hit Amaranth hard [Bloomberg in the International Herald Tribune]

TAs we reported last week, people are still working at Amaranth. You haven’t forgotten them already, have you? They were the hedge fund whose Calgary based energy trading desk bet big on natural gas futures and lost big. So big, in fact, that Bloomberg says its losses were the costliest ever for hedge fund investors.

Well, people are still working there. But not for long. About 250 of Amaranth’s 420 employees will be dismissed, the firm announced. It’s offering to help employees find new jobs. It’s even stressing that unlike a traditional recruiting firm, there won’t be head-hunting fees associated with job placements it makes for its people.

The mystery here is what the remaining 180 employees not being dismissed by Amaranth are going to do. Some will no doubt have to be kept on to oversee the transfer of Amaranth assets to buyers and the redemption of funds to investors—but that sounds like a job for about twelve people. What’s everyone else there doing?

Or maybe the real mystery is why anyone would stay on at Amaranth? Again, maybe it’s appealing for some wind-down specialists, but what’s in it for everyone else? After a couple of months, won’t remaining Amaranth employees start to look like people who couldn’t get a job anywhere else?

Amaranth to Cut About 60% of Workers as It Liquidates [Bloomberg]

Gary North, in the middle of a long column warning that the inverted yield curve is telling us a recession is on the way, touches on the Amaranth meltdown and the illusions of trading geniuses.

There is a temptation that faces investors who happen to buy into a market just before a major rise. They think, "I’m a genius. I can beat the market."

The most recent example of this mentality is the 32-year-old hot-shot who made two billion dollars for hedge fund clients in the highly leveraged natural gas futures market. Then, in just two weeks, he lost six and a half billion dollars with his technique. Amaranth Partners, a hedge fund, suffered the consequences.

On October 1, Amaranth suspended redemptions by its clients. They are now locked in. Their capital is no longer accessible to them. Redemption is by grace – the grace of the directors. The directors giveth, and the directors taketh away.

The clients thought, "I’m a genius. I got into Amaranth Partners." They are all ex-geniuses this month.

Genius is a rising market.

But go read the whole thing.

When the Yield Curve Flips. . . . [LewRockwell.com]

The Wall Street Journal’s big story this morning on how Citadel and J.P. Morgan bought out Amaranth’s energy positions and then flipped them back onto the market is a great uncovering hidden value tale. It’s also a good illustration about how risk tolerance differs for different market actors—Citadel and JP Morgan could tolerate holding the troubled Amaranth positions in part because their size allowed them to make additional investments to hedge against the risk. The best ‘graphs are toward the end of the story.

Citadel and J.P. Morgan employed their risk-management systems to estimate the investments' value. Their conclusion: Once transferred from Amaranth, the trades would be more valuable than the market assumed. The new owners would be able to hold them until they proved to be winners, in part because each was bigger than Amaranth and so could afford to wait. J.P. Morgan and Citadel also felt they could hedge, or reduce the risk of the trades, through other investments.

Working with Amaranth's traders, they concluded that enough collateral remained to back the investments, so they could be assumed. The collateral totaled $2 billion, people familiar with the situation said. Along with the investments, that money was transferred to J.P. Morgan and Citadel.

To reduce some of their risk, the partners immediately moved to sell some of the investments after concluding that the energy market wasn't buckling, despite worries about ripple effects from Amaranth's woes. Willing buyers quickly emerged. Some were J.P. Morgan's investor clients. Others were traders on the other side of Amaranth's bets eager to cash out and pocket their winnings.

Within days, the firms had sold enough of the portfolio to shift more than 50% of its risk to others, according to someone close to the matter.

Both Citadel and JP Morgan are generally being treated as knights in shining armor who rescued Amaranth investors (and perhaps the broader commodities markets) from even worse losses. But we're sure somewhere in the back of his brain Amaranth energy trader Brian Hunter must have watched those traders flipping his investments and thought "sharks in the water."

How the Wreck From Amaranth Was Contained [Wall Street Journal]

One of the explanations for Amaranth’s outsized position in natural gas futures is that energy trader Brian Hunter may have been predicting that hurricanes this summer would hurt energy production. So where did Hunter get the idea that hurricanes would be worse this year than last?

Maybe from Al Gore. Last night we had occasion to flip through the book version of An Inconvenient Truth and came across this paragraph in the introduction.

The voluminous evidence now strongly suggests that unless we act boldly and quickly to deal with the underlying causes of global warming, our world will undergo a string of terrible catastrophes, including more and stronger storms like Hurricane Katrina, in both the Atlantic and the Pacific.

Maybe we should have added Al to our poll on who to blame for Amaranth.

Going private touches on one of our pet peeves today in a post about the reaction to Amaranth.

This is why I believe Cramer is confused. He believes both that you can be smart enough to beat the system, but at the same time admits that the capital reserve cushion is the only way to protect "the public." “The only government regulation we need," he quips, "is a prophylactic one: If you aren’t rich or your clients aren’t rich, you shouldn’t be in hedge funds." The fantasy that the market is more "knowable" than the weather serves Cramer, another expert for hire, though. I just can't decide if he knows it, or if he just believes his own lie.

This kind of rule by experts is one of the most striking features of our era. And one of the least observed aspects of this regime is that it large reflects the outlook and interests of the experts themselves. And in reaction to Amaranth we hear the usual mantra: Look out for those those lonewolf traders. Be suspicious of those small hedge funds. Regulate everyone till the cost of regulatory overhead means only the certified, established experts get to play the game. Success always springs from knowledge and expertise; failure from luck and superstition.

Luck as Marketing Illusion [Going Private]

Jenny Anderson delivered the best detailed account of the trades that wrecked Amaranth. In case you missed the story on Friday, here’s the goods:

Amaranth’s energy desk, run by a young, brash trader named Brian Hunter, bet on a number of different things, including certain “spread trades” in the natural gas market.

Among the spread trades Amaranth placed was a bullish one on the difference between the March and April futures price of natural gas for both 2007 and 2008.

The bet was that the spread between the two months would widen. The rationale was reasonable: Amaranth anticipated the price of the March contract would rise (March is the last month of winter and higher demand would result in higher prices) and April prices would fall, as summer approached and more supply led to lower prices.
The spread between the March and April futures contracts for 2007 was $2.49 during the last week of August. By Sept. 15, it fell to $1.15, more recently tumbling to 58 cents. Contracts for March-April bets in 2008 and 2009 — contracts that tend to be less volatile — also narrowed, wreaking havoc on the fund’s portfolio.

The reasoning was straightforward: inventories of natural gas were strong, sending futures prices down and souring Amaranth’s bet.

Betting on the Weather and Taking an Ice-Cold Bath [New York Times]

It’s reassuring to keep hearing calming noises from the SEC when it comes to Amaranth. Last week, SEC commissioner Paul Atkins was reported to have said that Amaranth’s meltdown was demonstrating that market risk controls were working and that no knew regulations were needed. Today, we learn that higher ups with the the SEC’s enforcement arm are not planning any action against Amaranth or its traders.

At Practising Law Institute’s Hedge Funds 2006: The Changing Regulatory Landscape Conference in New York, Gene Gohlke, associate director at the Office of Compliance, Inspections and Examinations, said Amaranth was a high-risk investment and billed itself as such. And the SEC had no plans of regulating risk, he said. As long as the investors knew what was going on, there was no legal issue for the firm.

SEC Plans No Action after Amaranth Meltdown [CCH Wall Street]

Despite it’s founder’s protests last week that Amaranth planned to stay in business, the troubled hedge fund has hired Fortress Investment Group to advise it on selling its remaining assets. The move comes after negotiations for a sale to Citigroup broke down late last week.

The story of Amaranth’s meltdown has progressed quickly following revelations to investors of enormous losses suffered by the fund after its energy trading desk badly judged the direction of natural gas prices. Although the fund succeeded in selling off its energy positions, last week several staffers were reportedly not showing up to work and attempts to find a white knight financial institution to bail out the fund ended only in frustration.

A DealBreaker source who drove by Amaranth's Norwalk Greenwich headquaters over the weekend reported that there were still lights on over there, so they apparently haven't entirely closed up shop. We guess someone has to stick around to tell investors that their redemption notices aren't going to be honored.

Amaranth Hires Fortress Investment to Liquidate Hedge Funds [Bloomberg]

CNBC is reporting that talks between Citigroup and Amaranth have fallen apart. It had been reported that Citigroup was considering a large stake in the fund. The collapse of these negotiations—and the possibility that they collapsed because Amaranth is in even worse condition than its managers have let on—is likely to prompt even more redemption notices from investors.

Amaranth continues to claim that it plans to stay in business but many employees are reportedly not even showing up to work. One friend of ours at a prominent Wall Street firm tells us he's already had two Amaranth resumes cross his desk.

In the grand tradition of continuing to make money off of dead businesses in the eBay aftermarket (see here), a reader notes that Amaranth swag is now up for auction here.

The seller's description:

Get yourself a peice of the biggest hedge fund loss in history, Bloomberg news most ever searched item. Bought for marketing, sold here for memorabilia. Luxury large beach towel, quality polo shirt in 'Amaranth Green' and logo baseball cap, as worn by the infamous Brian Hunter himself. Halloween costumes? This is the chance to get into something really scary.Office partys, christmas parties, amuse your fellow traders or dealers. A percentage of profits made are guaranteed to maybe, perhaps,possibly, erm....might do, probably won't, not on your nelly, no 'kin chance, be donated to the impoverished hedge fund traders. The TRADERS.....THINK OF THE TRADERS.....WON'T SOMEONE JUST THINK OF THE TRADERS!!

Amaranth: 6 Billion Dollars Later and This is All That's Left [eBay]

Paul Atkins is our favorite SEC commissioner. When last we met him, Atkins was explaining how certain kinds of options timing schemes might not be quite the scandal they were being made out to be. Today he’s being quoted in the press saying that the Amaranth meltdown shows that the post-LTC risk controls work and no further regulation is needed.

"If you look at the latest one with Amaranth, it looked like the system worked as far as the prime broker getting nervous about exposure and taking steps to ensure it did not grow," Atkins told reporters during a tour of Europe.

"On the whole, from what I can see... the system worked."

Asked if new regulation was needed, Atkins said: "Not at all."

SEC's Atkins says risk system worked with Amaranth [Reuters]

Amaranth is contemplating liquidating its remaining assets or selling itself to a larger financial institution, according to a report in the Financial Times. In addition, the FT says Amaranth plans to let investors cash out regardless of various lock-up agreements.

Earlier Amaranth founder Nick Maounis had said that the fund plans said to stay in business. CNBC's Charlie Gasparino is reporting that he has heard the change of heart of Amaranth came after the fund met with major investors, including big Wall Street financial institutions. The investors were apparently not happy with the possibility of having to stick with the fund, raising the possibility of lawsuits against Amaranth.

It looks like the final chapter in the Amaranth affair is just about to be written.

Amaranth outlines its liquidation plans [Financial Times on MSNBC]

One of our favorite sources just passed on more about Amaranth’s asset sales. It seems it’s not exactly a fire-sale. Despite its troubles, Amaranth is doing pretty well in selling some of its assets.

Just heard from other colleagues that Amaranth unwound their asset-backed "residuals" portfolio. Was marked in mid-$500 million valuation and it got sold at just under $500 million. Pretty decent realization for such an illiquid set of assets.

People's first reaction to Amaranth blowing up is to say -- and this seems like natural reaction -- that counterparties are going to be a lot more cautious about hedge fund exposure. I think that the lesson may actually wind up to be the opposite. If a fund can blow up so hugely, losing 65% of its value in a couple of day, and yet get unwound in orderly fashion, counterparties (if not investors) may in fact become more relaxed about hedge fund exposure.

One aspect of funds counterparties have been showing concern about is the increasing level of illiquidity in HF portfolios. Well, if Amaranth can blow out of a large Asian convert book and half a billion dollars of asset-backed residuals in less than a week at discounts of less than 5%, then one might ask the question: how illiquid really are illiquid instruments?

In reality, it seems that illiquidity has less to do with the instrument in question than with the environment into which the holder needs to sell. Amaranth blowing up was a result of its own mistakes and not an exogenous shock that had a parallel effect on many funds. Plenty of funds were ready to pounce on Amaranth's "illiquid" portfolio.

Anyone else have any tales to share from the Amaranth meltdown? Bought any Amaranth assets? Tried too? Let us know. Email tips (at) DealBreaker (dot) com. Thanks!

Like obituaries, the business pages used to be the sort of place you stored reporters who were hitting the bottle a little too hard. They couldn’t cause too much trouble there, the job was mostly just reporting from press releases, and nobody read anything from the business section besides the stock quotes anyway.

These days, however, the financial press takes itself a bit more seriously. The various financial news organizations compete for stories, pride themselves on scoops, and practice habits they picked up from other journalists—like fact checking. (Sometimes. Every now and then we feel like we’re back in the days of the gin soaked business hack calling his story in from the payphone Costello’s.)

But what’s the point of competing if you don’t have a winner? So today initiates our first ever DealBreaker Business Press Reader Poll. Here’s how it works. Every week we’ll take the biggest business story and ask which news organization covered it the best. Sometimes we’ll focus on the wires, sometimes on television, sometimes on the glossies. And sometimes we’ll mix it up.

Since this week was mostly about Amaranth that’s where we’re starting: Who Covered The Amaranth Meltdown Story The Best?

Amaranth has cancelled its cancelled recruiting presentation at the Chicago Graduate School of Business, according to a source. Even as Amaranth’s founder Nick Maounis said earlier today that he intends to keep the troubled hedge fund in business, there is widespread speculation that the fund may fold. Maounis acknowledged in a 12-minute conference call for investors that the fund has received many redemption notices, and rumors are circulating that fund employees have been emailing resumes and burning up phone lines looking to reach dry land before the fund sinks. The Chicago recruiting session was scheduled for Tuesday, according to our source.

Got any stories about recruiting season at your school? Send 'em our way. Tips (at) dealbreaker (dot) com. Thanks!

The buck is supposed to stop with guys at the top, according to more than a third of DealBreaker readers voting in our most recent Reader Poll. Thirty-seven percent of you said the blame for Amaranth’s meltdown should rest upon the shoulders of the fund’s founder, Nick Maounis. Brian Hunter, the man who ran the energy trades that landed the fund in hot water came in a distant second place, garnering just twenty-two percent of the votes, just ahead of Canada, which got twenty percent of the votes (presumably all coming from South Park fans).

After the jump, you can view the full results of the poll.

Well, it’s a Brian Hunter. But we have nothing but circumstantial evidence indicating it’s the Brian Hunter. He looks about the right age. Same name. And he’s in Canada. So, like, maybe, right?

Yesterday we asked: Who is to blame for the Amaranth meltdown? With hundreds of votes cast, you are mostly casting your stones in the direction of Amaranth founder Nicky Maounis. Brian Hunter, the young man who ran the energy trading desk at the fund, trailed his boss closely for most of Thursday until falling behind overnight. He’s now running about 13 points behind Maounis. And about twenty percent of you Blame Canada for the hedge fund’s losses.

We’re going to keep the poll open for a few more hours before declaring a winner. So get your votes while you still can!

Unwinding Amaranth’s energy trades is getting more expensive everyday. Yesterday the losses were $4.5 billion. Today they are said to be $6 billion. It’s kinda hard to imagine those kind of numbers. So look at it this way. Yesterday Amaranth’s losses added up to a hole in the Caribbean opening up and swallowing the Bahamas. Today Barbados fell into the abyss too.

But Thursday wasn’t only about even bigger losses. Today came with news about a possible buyout, more trouble at pension funds, lawsuits and an analysts warning that JP Morgan might not be able to manage to energy positions it bought from Amaranth.

• Amaranth losses now at $6.5 billion. [Bloomberg]

• An analyst at Pru warns that JP Morgan might not have the expertise to handle the volatile Amaranth trades it just took on. [MarketWatch]

• Citigroup talks buyout/bailout with Amaranth. [Associated Press]

• Amaranth’s Wednesday letter to investors. [Reuters]

• Pennsylvania and New Jersey pension funds hit by Amaranth losses. [Associated Press]

• Amaranth readies itself for the inevitable lawsuits. Hires Skadden. [Financial Times]

• Banks still scrambling to ramp up their energy trading units. [Forbes]

We love the media cliché where you go and ask a murderer’s neighbors about him and they say, “He was a quiet boy. Kept to himself. I can’t believe he did anything like this.” We love it because it is so reliable. Happens almost every time.

Another reason for our love: because it is so creepy. Who doesn’t have a quiet neighbor who keeps to themselves?

So we’re hoping that this new one catches on. It’s the one where you ask the childhood friends of a financial bigshot to speculate on his finance prowess. Completely, wonderfully inane.

Anyway, here’s the Stamford Advocate’s version inspired by the meltdown of Nick Maounis’s Amaranth hedge fund.

Can Maounis lead Amaranth back? Rose said the boy who grew up next door is up for the challenge.

"I've been a neighbor for a long time, and I really have the utmost respect for his accomplishments."

We already know Amaranth sold off its energy portfolio to Citadel and JP Morgan Chase and had to liquidate about half its European bond portfolio to cover the energy trading losses. So what else is Amaranth selling off? A DealBreaker reader writes in with a firsthand account of Amaranth selling Asian assets.

Stuck here in HK, sitting next to our Asian converts trader.

Apparently, Amaranth's death throes attracted a school of hedge fund sharks trying to gobble up their Asian converts portfolio. By the time we got in touch with the Amaranth trader, they had 16 bidders, mix of hedgies and banks. The guy basically told us, "too late, piss off."

Nice to know his arrogance has survived the erasure of his deferred comp and job. In the end, the book traded to one buyer (identity not clear) at approx 2% discount "to where it was marked last week."

Got anymore good (or bad or ugly, for that matter) Amaranth stories? Send 'em our way. Tips (at) dealbreaker (dot) com. Thanks!

The finger pointing and buck-passing over Amaranths enormous--and still growing--losses has officially begun. We thought we'd get ahead of the game and settle the issue right now. And how do we arrive at the ultimate truths here at DealBreaker. By appealing to the highest authority: You!

That's right. It's time for another DealBreaker Reader Poll. Vote below and check back frequently for results. And remember, you can always vote other by leaving a message in the comments section.

It’s been…what…an hour-and-a-half since we wrote about the Amaranth debacle? We’re sorry for leaving you in the dark for so long when so much is happening. Here’s the second part of our Amaranth Roundup for today.

• You knew it wouldn’t be long before the white hat of Johnny Lawman appeared coming over the crest of the hills, right? Connecticut Attorney-General Richard Blumenthal has raised the specter of “alleged representations” by Amaranth. His office is in the process of gathering evidence. Everyone’s friggin’ Eliot Spitzer these days. [Globe & Mail]

• And, of course, Congress is looking to get into the action. Amaranth’s troubles may prompt lawmakers to renew the push to regulate hedge funds. [CnnMoney.com]

• A Goldman Sachs fund listed on the London Stock Exchange was in to Amaranth to the tune of $25 million, about 5% of the firm’s total office. [Reuters]

• 3M’s pension fund was in to Amaranth too. [Bloomberg]

• Moody's says Amaranth’s loses will not risk the credit ratings of dealers who dealt with the hedge fund. [Reuters]

Amaranth is out of the energy trading business all together (at least for now), according to CNBC's David Faber. Its entire energy portfolio has been off-loaded to Citadel and JP Morgan Chase, Faber reported moments ago. Those assets are even now most likely working their way into the broader markets.

No word on whether Brian Hunter, who headed the fund's energy trading operations and is said to be responsible for the enormous losses it recently suffered, still has a job.

So much Amaranth news and commentary, so little attention-span. Fortunately, DealBreaker is here to deliver a quick round-up of today’s Amaranth news.

• There’s a domino loss effect going on at Amaranth. The fund was forced to sell half of its European loan portfolio to cover to cover the natural gas trading losses. The arranging banks bought these back at 96 to 96.5 percent of face value, delivering a two percent loss after fees. The losses could be even worse, depending on how much leverage Amaranth used to buy the loans. [Reuters]

• San Diego County’s pension fund may have been hit hard by Amaranth’s losses. The pension fund had about $160 million invested in Amaranth. [New York Times in Sydney Morning Herald]

• Amaranth’s clearing house is not in trouble, according to NYMEX. Anyone know which clearing house Amaranth uses? [Dow Jones Newswire in the New York Sun]

• Reuters profiles Brian Hunter. [Reuters]

• Chris Cox says Amaranth is a reminder of hedge fund risks. [Reuters]

• Amaranth’s losses seem to have given Cinram International Income Fund the balls to stand up to its largest shareholder. Yesterday it publicly rejected calls from Amaranth to put itself up for sale. Cinram Rejects Amaranth's Request to Hire Adviser [Bloomberg]

• Man Group fund exposed to Amaranth losses. It had 2.35 percent of its assets in Amaranth. Man business hit by Amaranth losses. [Times]

• Amaranth says it has reached an agreement to transfer all of its energy trades to a third party. Anyone know who? [Bloomberg]

• Funds of funds opeated by Morgan Stanley, Credit Suisse, Bank of New York and Deutsche Bank all recently had stakes in Amaranth ranging from 4 percent to seven percent of their assets. [New York Times]

• Amaranth’s meltdown is “not entirely unrelated” to Long-Term Capital [Jeff Matthews In Not Making This Up]

Wall Street Journal reporter Ann Davis has a long profile in today’s paper on Brian Hunter, the energy trader whose energy trades brought Amaranth’s assets from $9 billion to around half that. It’s too long to properly excerpt, so go read the whole thing. The interviews with Brian (we’ve been thinking about him so much lately we’ve decided we’re on a first name basis) seem to have taken place months before his recent troubles but it is still fascinating to read.

The juiciest bits details Brian’s fiery relationship with his former employers, Deutsche Bank.

Mr. Hunter personally generated $17 million in profit in 2001 and $52 million in 2002, according to a complaint he later brought in state court in New York. By 2002, he pulled down more than $1.6 million in salary and bonus and began supervising the gas desk in 2003.

In December 2003, just as his group was close to ending the year up $76 million, he claimed in the suit, things went awry. In a single week, they had losses of $51.2 million, he said in the suit. He blamed "an unprecedented and unforeseeable run-up in gas prices" along with "well-documented and widely known problems with" Deutsche Bank's electronic-trade-monitoring and risk-management software, which he said hurt traders' ability to extricate themselves from bad trades. Deutsche Bank denied its systems were to blame.

Mr. Hunter argued that even though the desk as a whole posted a loss, he personally made trades that netted the bank $40 million that year. He and his natural-gas colleagues got no bonus. By February 2004, relations had soured to the point that supervisors locked him out of the trading system and made him an analyst, moving him off the desk. Mr. Hunter left in April and subsequently sued over the withheld bonus and claimed Deutsche Bank defamed him. It denied the allegations. The suit is pending.

There are also hints that the seeds of Amaranth’s current troubles may have been planted when the much more conservative energy trader Harry Arora left the fund to start his own energy trading outfit last spring. Brian became the head of the energy trading desk at Amaranth, and moved operations up to Calgary.

Mr. Maounis, the head of Amaranth, took a chance on Mr. Hunter. Amaranth was one of the first hedge funds to build an energy desk soon after the demise of Enron, under the leadership of former Enron energy trader Harry Arora. Messrs. Arora and Maounis hired Mr. Hunter and initially kept him on a tight leash. Mr. Maounis says the firm knew of Mr. Hunter's history at Deutsche Bank but did extensive checks and found "nothing that made us uncomfortable."

Mr. Arora was relatively conservative and sought to make diversified commodities investments. He brought Mr. Hunter along and the energy group posted steady annual returns of 20% to 40%.

Mr. Hunter wanted to make bigger bets in his main market, gas. He had an ability to keep calm with huge bets on the line and markets were going berserk. In July 2005, for instance, he was in Calgary at Stampede, a rodeo festival, when the gas market began moving erratically. Mr. Sabad, his former TransCanada colleague, says Mr. Hunter got on the phone a few times but didn't panic or trade from his hotel room. "He asks himself, 'Do I still like my position?' If he does, he adds more," Mr. Sabad says.

Around that time, Amaranth agreed Messrs. Hunter and Arora could separate their trading "books," each controlling his own trades. Then late last year, the double-whammy of Hurricanes Katrina and Rita made Mr. Hunter a hero at Amaranth and a minor legend on Wall Street, as he made $1 billion for Amaranth.

You have to wonder whether the fund would have placed as risky bets as it did if Arora was still there.

How Giant Bets on Natural Gas Sank Brash Hedge-Fund Trader [Wall Street Journal; subscription required]
[Free Version of the Same Article]