Amaranth is suing JPMorgan for $1billion, accusing the bank of attempting to inflict damage on the fund.
Amaranth lost $6.6 billion in September 2006 following a wrong-way bet on natural gas prices, causing the eventual collapse of the fund. JPMorgan and hedge-fund manager Citadel Investment Group later took over Amaranth’s energy derivatives portfolio.
The fund is claiming that $2.5 billion of the firm’s losses came from a cash concession made to JPMorgan.
Bloomberg reports that Amaranth founder Nicholas Maounis yesterday wrote to investors saying that the investment bank interfered in his efforts to strike better deals with Goldman Sachs or Citadel, using its position as the funds’ clearing broker to prevent the fund from “executing a more favourable transaction, to extract that massive concession payment and inflict other damages on the fund,” he wrote.
A summons filed yesterday in New York State Supreme Court says that Maounis approached Goldman Sachs on Sept. 15 2006 to assume its money-losing positions because the fund's losses were mounting and its margin requirements had topped $3 billion.
The suit says that Goldman agreed to take the trades for a $1.85 billion concession but that JPMorgan, Amaranth's broker, ``refused to execute the order for the Goldman Sachs trade,'' causing Goldman to walk away from the deal and prolonging the fund's costly exposure to falling natural gas prices.
Amaranth then approached Citadel which also agreed to take over the energy portfolio for a $1.85 billion concession, according to the suit. It alleges that JPMorgan then raised questions about Amaranth’s solvency, causing the Chicago-based hedge fund manager to change its mind.
In the months following the collapse, JPMorgan had been applauded for its role in striking a deal to assume the fund's risk.
"Amaranth's lawsuit is an effort to rewrite history, and to blame JPMorgan for losses that were the result of Amaranth's disastrous trading," the bank said in a statement.
"JPMorgan's conduct was entirely appropriate, and consistent with its rights and obligations as Amaranth's future commissions merchant. The firm intends to defend this baseless lawsuit with the utmost vigor."
The week on Risk.net, July 7-13, 2018Receive this by email