Double whammy

14 November 2007 By Cyrus Sanati

The defunct hedge fund lost a bundle on a huge natural gas wager. It now alleges that JP Morgan exploited its role as its broker to block white knights. The suit s merits are debatable. But the debacle illustrates a second bad bet: leaving a fund at the mercy of a single broker.

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Defunct hedge fund Amaranth Advisors sued JP Morgan, accusing the bank of undermining its efforts to stem losses originating from wrongway bets it made on natural gas futures.

Amaranth claims that $2.5bn of the fund's $6.6bn loss was due to JP Morgan blocking deals that the company made with Goldman and Citadel to take over its sour natural gas trades.

In letter in investors, Amaranth alleges that, ``JPMorgan used its position as the fund's clearing broker to prevent the fund from executing a more favorable transaction, to extract that massive concession payment and inflict other damages on the fund''.

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