Downfall

Being on the wrong side of wide swings in energy futures appears to have caused the downfall of yet another hedge fund as Ospraie Management LLC reported Tuesday that it will close its fund after its value fell 38.6% this year, according to a letter to investors. The collapse could have repercussions within the energy industry.

Kentucky rain keeps pouring down — er, Elvis, make that rain all across the Midwest, and the heavy downfall in recent weeks was blamed for the delays in starting up a portion of the Rockies Express (REX) pipeline and the Big Sandy Pipeline project.

Allowing that much is still unknown surrounding the $6 billion downfall of hedge fund Amaranth Advisors LLC, veteran energy analyst John Olson of Poole Capital Partners LLC said it appears the fund tried to dominate the market by taking enormous position sizes. In Washington, DC, calls for regulation of over-the-counter trading continued.

As the downfall of Amaranth Advisors LLC continues to produce more questions than answers, Robert McCullough, manager of McCullough Research, said Tuesday that he believes Amaranth trader Brian Hunter quite possibly attempted to corner the natural gas market and that the “lack of federal oversight” of energy markets and hedge funds by FERC, the CFTC and the SEC helped him almost accomplish his goal.

With an initial investigation of several special purpose entities (SPEs) used by Enron Corp. completed, the court-appointed examiner now will carefully scrutinize “a number of significant questions” about the complex off-balance-sheet transactions, including what role they played in the company’s collapse, whether they were illegally used to manipulate financial statements, and if the SPEs were illegal, whether the officers, directors or professionals involved may be liable.

With an initial investigation of several special purpose entities (SPEs) used by Enron Corp. completed, the court-appointed examiner now will carefully scrutinize “a number of significant questions” about the complex off-balance-sheet transactions, including what role they played in the company’s collapse, whether they were illegally used to manipulate financial statements, and if the SPEs were illegal, whether the officers, directors or professionals involved may be liable.

Banc of America analysts Tuesday admitted they had “misjudged the snowball effect of Enron’s collapse,” and dropped the ratings of 11 energy wholesalers they cover. Other analysts followed with their own downgrades, all noting that the liquidity for many of the formerly well-heeled traders was quickly evaporating.

Banc of America analysts Tuesday admitted they had “misjudged the snowball effect of Enron’s collapse,” and dropped the ratings of 11 energy wholesalers they cover. Other analysts followed with their own downgrades, all noting that the liquidity for many of the formerly well-heeled traders was quickly evaporating.

In what at first glance appears to be part of the continuing fallout from the rapid downfall and bankruptcy of Enron Corp., the Securities and Exchange Commission (SEC) last week amended its rules and forms to require more transparent company disclosures of employee stock option plans (ESOP) and other equity compensation arrangements.