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Amaranth says suing fund 'knew the risks'

Date: Saturday, June 9, 2007
Author: Paula Schaap, Financial News

Collapsed hedge fund Amaranth Advisors is trying to get a US pension fund’s lawsuit thrown out of court on the grounds that it knew exactly what it was getting into.

Amaranth imploded last fall after losing about $6.6bn (€4.9bn) when its bets on natural gas price movements went awry. The hedge fund asked a federal district court on Thursday to dismiss the suit lodged against it by the San Diego County Employees Retirement Association.

The suit claims that Amaranth’s investments in natural gas futures were contrary to its representations that it would invest pension fund money in a diversified portfolio.

In the court papers, Amaranth claimed that San Diego “knew exactly what they were getting into” when the pension fund's chief executive officer, Brian White, agreed to invest about $150m in the hedge fund.

Amaranth said that the pension fund was amply warned that investing in the volatile energy sector was Amaranth's core strategy and investors were told that the hedge fund might concentrate most of its investments in one sector.

Amaranth also said that San Diego was told about the natural gas losses in June, leaving time for the pension fund to withdraw its investment. However, San Diego elected to remain in the fund, Amaranth claimed.

Dan Webb, of Winston & Strawn, counsel to Amaranth said: “Recently a Grand Jury investigating San Diego County Employees Retirement Association found that Amaranth's fund documents clearly ‘highlighted the risks involved in energy trading' along with 'a wide variety of risks that could cause the investor to lose all or part of his money.’”

A spokesman for San Diego's pension group said that the fund was not contesting the contents of Amaranth's disclosure documents, but rather whether the hedge fund misrepresented its intentions.

“When you look at the whole set of the documents and their representations, we believe that they haven’t been honest in what they told us what they would do," the spokesman

In March, the San Diego fund filed a complaint for securities fraud against Amaranth Advisors; Nicholas Maounis, chief investment officer; Charles Winkler, chief operating officer; Robert Jones, chief risk officer; and the hedge fund’s former natural gas trader Brian Hunter.