A lawsuit filed by Amaranth Advisors LLC four years ago that claimed JPMorgan Chase & Co. executives helped to cause the natural gas hedge fund to collapse may not proceed, a New York Supreme Court judge ruled on Friday.
The hedge fund imploded in a $6.4 billion debacle in 2006 on bad bets on natural gas futures and derivatives deals. Amaranth sued the bank in November 2007 for $1 billion for its alleged role in the fund’s demise in the Supreme Court for the State of New York (see Daily GPI, Nov. 15, 2007). The hedge fund claimed that JPMorgan officials interfered in a deal with Citadel by disparaging Amaranth’s financial condition.
As a “long-time” client of the bank, Amaranth claimed that JPMorgan officials “had virtually complete access to information” about the fund’s natural gas derivatives trading positions. However, by May 2006 “the fund’s formerly profitable natural gas derivatives trading strategies began to generate losses. In the summer of 2006, [bank] traders heard rumors from other natural gas derivatives traders that the fund’s positions were becoming well known to competing traders.”
By mid-September 2006 the fund was failing and Amaranth claimed in a lawsuit that JPMorgan officials took advantage of the situation (see Daily GPI, Oct. 3, 2006; Sept. 22, 2006; Sept. 19, 2006). According to court filings, Amaranth alleged that JPMorgan forced the default on a margin call to obtain collateral that the hedge fund had posted with the bank. To prevent its collapse Amaranth tried to unload some of its gas bets to other hedge funds, including Citadel and Goldman Sachs Group Inc.
Amaranth officials alleged that JPMorgan executives warned Citadel that “Amaranth is not as solvent as they are telling you they are.” The statement, and others, apparently interfered with an oral agreement that Amaranth officials had reached with Citadel, the filing stated. Many of Amaranth’s claims were dismissed in 2009. However, an appeals court in late 2008 allowed Amaranth to pursue its claims of “tortuous interference” (see Daily GPI, Nov. 12, 2008).
Judge O. Peter Sherwood in a 32-page ruling said the case had no merit because Amaranth officials could not prove that statements by JPMorgan executives were the reason that Citadel officials canceled their bailout offer. Citadel, he said, had “conducted its own research in connection with the proposed transaction with the fund and evidence of the tenuousness of the fund’s financial condition was readily available” (Amaranth LLC v. JPMorgan Chase & Co., No. 603756/2007, New York Supreme Court, New York County).
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