Amaranth Advisors LLC and its former head energy trader, Brian Hunter, must face a lawsuit brought by the Commodity Futures Trading Commission claiming they sought to manipulate the price of natural gas futures contracts.
U.S. District Judge Denny Chin in New York Thursday rejected a request by Amaranth and Hunter to dismiss the suit. He denied a claim that the commission, known as the CFTC, wants to "transform legitimate speculative trading" into a violation of the Commodity Exchange Act.
"The complaint makes a number of factual allegations from which one could reasonably infer an intent on the part of the defendants to affect the prices of natural gas futures contracts," Mr. Chin wrote in a 28-page opinion dated Thursday.
Amaranth, of Greenwich, Conn., lost US$6.6-billion in wrong-way bets on gas before collapsing in September 2006. The Federal Energy Regulatory Commission last year imposed a US$291-million fine on the hedge fund, after FERC and CFTC filed enforcement actions against Amaranth for its trading practices.
Amaranth's lawyer, David Mollon, and Mr. Hunter's lawyer, Michael Kim, didn't immediately return calls seeking comment. Mr. Hunter now advises the Peak Ridge Commodity Volatility Fund, which seeks to profit from price differences in the natural-gas market. The fund returned 17% last month using a strategy similar to one that Mr. Hunter used at Amaranth.
Mr. Chin didn't rule on the merits of the case and said only that the complaint alleged enough facts to go forward. In his opinion, Mr. Chin cited Mr. Hunter's instant-message conversations as proof that he intended to affect the price of the contracts. In one message, Mr. Hunter said he "needed the March 2006 contracts to 'get smashed,"' Mr. Chin wrote.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices, and participate substantially in profits from money invested.