Amaranth Advisors, the largest hedge fund in history to collapse, had its first investor lawsuit filed against it last week by the San Diego County Employees Retirement Association, according to Reuters.The lawsuit claims that Amaranth’s investing strategy violated its contract that stipulated that the firm’s strategies would be diversified and it would take proper risk controls.
“Amaranth collapsed in September 2006 as a result of excessive and unbridled speculation in natural gas futures that was directly contrary to statements made to SDCERA that Amaranth would be diversified and risk controlled,” the pension fund said in a statement.
The lawsuit is no surprise to hedge fund experts who have long expected some legal action to be taken against the defunct hedge fund. Amaranth wrote a letter to investors last month proposing speedier redemptions of its remaining assets to investors who agreed not to sue.
Amaranth criticized the litigation, stating it would increase its legal costs and thereby reduce recovery for investors as it winds down its assets and returns cash to investors. The hedge fund stated it has hired top attorneys David Boies of Boies, Schiller & Flexner and Dan Webb of Winston & Strawn to defend against the litigation.
“Everybody except SDCERA seems to get the point that there is nothing to be gained from litigation,” said Boies in a statement. “We are disappointed that SDCERA has chosen to undertake meritless litigation that will inevitably reduce its own recovery and potentially the recovery of other investors.”
“Amaranth told us that a team of highly experienced professionally would carefully manage our pension funds,” said SDCERA Chairman David Myers in a statement. “Instead they turned our money over to [trader] Brian Hunter, who in my opinion was a rookie trader.”
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