A New York State judge has ruled that Amaranth Advisors LLC and affiliate Amaranth LLC can pursue their lawsuit against JPMorgan Chase & Co. for allegedly derailing the failed hedge fund’s efforts to mitigate losses from natural gas trades in 2006.

In a decision filed in the Supreme Court of the State of New York, Judge Richard B. Lowe III ruled that the Amaranth affiliates could proceed with their allegation of breach of contract against JPMorgan, but it dismissed several other claims against the investment banker.

The dismissed claims were for tortious interference, unjust enrichment and alleged violations of the Connecticut Unfair Trade Practices Act, according to the court ruling.

In their lawsuit the Amaranth affiliates alleged that JPMorgan exploited the hedge fund’s financial difficulties to reap “handsome profits” for itself, and caused Amaranth billions of dollars in losses in 2006.

Specifically, the Amaranth affiliates claim that JPMorgan, as the hedge fund’s clearing broker for trades, derailed transactions with two companies — Goldman Sachs Group and Citadel Investment Group — that could have helped cut the billions of dollars in losses on natural gas trades that led to the collapse of the hedge fund in 2006.

In September 2006 the hedge fund agreed to a deal in which Goldman Sachs would have assumed the risk related to the fund’s gas derivatives portfolio in return for a concession fee payment of $1.85 billion. But JPMorgan refused to execute the proposed Goldman trades, which caused Goldman to walk away from the transaction, the court documents said.

Citadel entered into a comparable deal with the hedge fund, but it fell through after JPMorgan executives allegedly told Citadel that “Amaranth is not as solvent as they are telling you they are.”

One deal between Amaranth and Merrill Lynch was approved. Merrill Lynch agreed to assume, for a concession fee of several hundred million dollars, approximately one-quarter of the hedge fund’s open natural gas positions via offsetting trades.

In July 2006 the Amaranth hedge fund was riding high — it had assets of $9.2 billion, making it one of the largest hedge funds in the world. However, in August and September of that year the fund sustained significant losses and ultimately collapsed.

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