Amaranth seeks $1bn from JP Morgan

Discussion in 'Wall St. News' started by CPTrader, Nov 14, 2007.

  1. What do you think of this??


    Amaranth seeks $1bn from JP Morgan William Hutchings
    14 Nov 2007

    Failed US hedge fund manager Amaranth Advisors has sued JP Morgan Chase claiming the US bank sabotaged its negotiations with Goldman Sachs over the sale of an energy derivatives portfolio.

    The lawsuit claims JP Morgan Chase used its position as the hedge fund's broker to scupper a sale of the portfolio to Goldman Sachs, according to Bloomberg. This allegedly forced Amaranth to sell the portfolio to JP Morgan Chase and US hedge fund manager Citadel on less favourable terms.

    Amaranth is seeking more than $1bn (€700m) in damages. JP Morgan Chase declined to comment.

    Amaranth Advisors last September recorded a loss of $6.5bn, 70% of the value of its multi-strategy fund, after the positions it had taken on natural gas futures went against it. JP Morgan Chase and Citadel took over the energy derivatives portfolio. Amaranth Advisors said a cash concession made to JP Morgan Chase in connection with this transaction caused $2.5bn of the total losses.

    The legal documents said that Amaranth asked Goldman Sachs on September 15 to assume its money-losing positions because the fund's losses were mounting and its margin requirements had topped $3bn. The bank agreed to take the trades for a $1.85bn concession, according to the documents.

    The documents said JP Morgan Chase refused to execute the order for the Goldman Sachs trade, causing Goldman to walk away from the deal. Amaranth then contacted Citadel, which initially agreed to take over the energy portfolio for $1.85bn, but changed its mind after JP Morgan Chase executives warned it about Amaranth's solvency, the documents said.

    JP Morgan Chase told Amaranth on September 19 2006 that it would take over the energy portfolio, according to the documents, which said Citadel bought it from JP Morgan for $725m a fortnight later on September 29.
  2. I think they don't know the definition of fortnight.
  3. I think it has become the American way. That is when things go bad sue everybody with deep pockets and hope something sticks.
  4. JP did the same thing with LTCM.

    Yes, they made a killing back then also.
  5. Amaranth Sues JPMorgan for Disrupting Transactions (Update1)

    By Katherine Burton

    Nov. 14 (Bloomberg) -- Amaranth Advisors LLC, the hedge- fund firm that failed last year after losing $6.5 billion, sued JPMorgan Chase & Co., accusing the bank of sabotaging its efforts to stave off collapse.

    Amaranth lost 65 percent of its assets in September 2006 because of a wrong-way wager on natural gas. JPMorgan, the third-largest U.S. bank, and hedge-fund manager Citadel Investment Group LLC later took over the Greenwich, Connecticut- based firm's energy trades. Amaranth returned cash to investors this year.

    In a letter yesterday to investors, founder Nicholas Maounis said $2.5 billion of the firm's losses came from a cash concession made to JPMorgan for taking over the energy derivatives portfolio after negotiations with other parties failed. He said the bank interfered with his attempts to strike a better deal with Goldman Sachs Group Inc. or Citadel.

    ``JPMorgan used its position as the fund's clearing broker to prevent the fund from executing a more favorable transaction, to extract that massive concession payment and inflict other damages on the fund,'' Maounis, 44, wrote in the letter. He said that, without JPMorgan's actions, ``the losses, though significant, would have been survivable and far less dramatic.''

    Kristin Lemkau, a spokeswoman at New York-based JPMorgan, declined to comment because she had yet to see the suit.

    Goldman Agreement

    A summons filed yesterday in New York State Supreme Court says Maounis approached Goldman Sachs on Sept. 15 to assume its money-losing positions because the fund's losses were mounting and its margin requirements had topped $3 billion. The New York- based investment bank agreed to take the trades for a $1.85 billion concession, the suit says.

    The suit says JPMorgan, Amaranth's broker, ``refused to execute the order for the Goldman Sachs trade,'' causing Goldman to walk away from the deal. Meanwhile, the fund continued to lose hundreds of millions of dollars as natural-gas prices continued to fall, according to the suit.

    Charles Winkler, Amaranth's chief operating officer, then called Kenneth Griffin, founder of Citadel, a Chicago-based hedge-fund company where Winkler used to work, the suit says. Griffin had sent him an email earlier in the day, asking if the firm needed a ``liquidity line.''

    Citadel Terms

    Citadel initially agreed to take over the energy portfolio for a $1.85 billion concession, according to court documents. Then Griffin spoke with Steve Black and Bill Winters, co-chief executive officers at JPMorgan's investment bank. The suit alleges that Black and Winters lied to Griffin, saying ``Amaranth is not as solvent as they are telling you they are.'' Griffin also walked away from the transaction.

    On Sept. 19, JPMorgan said it would take over the energy trades, and would then sell them to Citadel. On Sept. 29, Citadel bought the positions from JPMorgan for $725 million.

    Amaranth and the fund, Amaranth LLC, are seeking damages of more than $1 billion.

    ``Even Wall Street banks trying to make big profits have to obey the law,'' said Phil Beck, a partner at Bartlit Beck Herman Palenchar & Scott, the Chicago-based law firm representing Amaranth. ``This lawsuit is about a bank that went too far.''

    To contact the reporters on this story: Katherine Burton in New York at

    Last Updated: November 14, 2007 10:03 EST
  6. Amaranth Sues JPMorgan

    Wednesday November 14, 5:43 pm ET
    By Chad Bray, Dow Jones Newswires
    Amaranth Sues JPMorgan, Alleges Bank Derailed Efforts to Save Fund

    NEW YORK (AP) -- Amaranth Advisors LLC has sued JPMorgan Chase & Co., alleging that the bank undercut its efforts to avoid collapse after a series of bad natural-gas trades last year.

    The lawsuit, filed in New York State Supreme Court in Manhattan late Tuesday, alleges JPMorgan used its position as Amaranth's clearing broker to prevent the hedge fund from transferring the remaining risk in its natural-gas derivatives portfolio to Goldman Sachs Group Inc. and later made false statements to kill a deal with Citadel Investment Group LLC.

    "Even Wall Street banks trying to make big profits have to obey the law," said Phil Beck, a partner at Bartlit Beck Herman Palenchar & Scott in Chicago, which is representing Amaranth.

    Amaranth collapsed in September 2006 with more than $6 billion in losses, the largest hedge-fund failure in history.

    The fund itself is facing investor lawsuits, an enforcement action by the Federal Energy Regulatory Commission and a lawsuit by the Commodity Futures Trading Commission.

    Amaranth's lawsuit is seeking at least $1 billion in damages from JPMorgan.

    The complaint alleges that JPMorgan refused to execute a trade on Sept. 18, 2006, that would have transferred the fund's natural-gas derivatives positions to Goldman Sachs in exchange for a concession payment of $1.85 billion from the fund. The lawsuit alleges JPMorgan wanted to take control of the natural-gas portfolio itself in hopes of making substantial profits.

    "As a result, Goldman Sachs walked away from the trade," the lawsuit said. "The effects on the fund were devastating."

    JPMorgan rejected the lawsuit as "baseless."

    "Amaranth's lawsuit is an effort to rewrite history, and to blame JPMorgan for losses that were the result of Amaranth's disastrous trading," said Kristin Lemkau, a JPMorgan spokeswoman. "JPMorgan's conduct was entirely appropriate, and consistent with its rights and obligations as Amaranth's future commissions merchant.

    Amaranth claims it suffered several hundred million dollars of additional market losses on Sept. 18, 2006, as a result of JPMorgan's refusal to execute the transaction.

    After Goldman Sachs bowed out, the lawsuit claims Citadel agreed to enter into a trade comparable to the Goldman Sachs transaction, which would require the $1.85 billion concession payment and that the fund absorb two-thirds of the market losses on Sept. 18, 2006.

    The complaint alleges that Steve Black and Bill Winters, co-chief executives of JPMorgan's investment bank, told Kenneth Griffin, Citadel's founder, that "Amaranth is not as solvent as they are telling you they are" during a telephone call on Sept. 18, 2006, in order to deter Citadel from entering the transactions. The Citadel trade was killed as a result, the complaint said.

    JPMorgan ultimately entered into a trade with Amaranth and then a subsequent agreement with a Citadel affiliate, pocketing $725 million, the lawsuit said.

    "It is our view that absent JPMorgan's actions, the fund's losses, though significant, would have been survivable and far less dramatic," said Nick Maounis, Amaranth's CEO, in a letter sent to investors Tuesday.

    In the letter, Maounis said more than $2.5 billion of Amaranth's trading losses resulted from a cash concession payment required by JPMorgan in connection with taking over the fund's energy derivatives portfolio.
  7. It took Maounis this long to file a lawsuit? When will the Bear funds' lawsuit against Merrill PB hit?

    The reality is that since JPM is the primebroker for Amaranth's positions, it provides financing for those positions, usual through an off-shore financing entity. And JPM can choose to cut off the off-shore financing terms at anytime it feels uncomfortable, and potentially auction off the collateral (as what ML did with the Bear funds), *without* the consent of the fund itself.

    So this is essentially what JPM did, JPM froze Amaranth's positions, demanding more collateral (or at least sent a letter as such). Hence any buyer for the positions, such as Goldman or Citadel, JPM told them that the positions are insolvent, and it is frozen pending infusion of collateral. Naturally, any trading once the position is frozen can not occur, unless it is liquidating.

    The only case the lawsuit has some ground, IMO, is that JPM is in a conflict of interest situation, being both financing party for the positions, and the eventual acquiring party for them. But this is not the major aspect of what the lawyers are claiming. Also, Bartlit Beck Herman Palenchar & Scott??? geez, you would think Maounis can get better lawyers, maybe he is running out of money, or maybe this is just something that the more well known litigators are willing to take on.
  8. I think the real problem is Brian Hunter's lack of knowledge of the industry. Amaranth set themselves up for it. Goldman is no innocent party here, they don't walk away this easy and they have a great relationship with JP Morgan.

    It's like knowingly sitting down at a poker table filled with sharks and then making it clear you are a newbie. After you get taken, you try to blame the sharks for screwing you.