Brian White

Brian Hunter of Amaranth Advisors was considered a hot commodity in 2005 at the Connecticut hedge fund when investments he made in natural gas futures rendered windfall profits. Thanks to those surging profits, Hunter earned the firm’s largest annual salary that year, estimated between $75 million and $100 million.

Yet, the following year, Hunter overplayed those gas futures, and when the prices for natural gas went in the opposite direction, he continued playing the same hand, betting on future prices into 2012.

These and other details about Amaranth’s meltdown are contained in a lawsuit filed March 29 by the San Diego County Employees Retirement Association, or SDCERA, in a New York federal court against Hunter and three Amaranth executives, Nicholas Maounis, Charles Winkler and Robert Jones.

The suit seeks $150 million in lost funds and damages.

A call to Amaranth attorney David Bois was not returned by last week’s deadline.

SDCERA invested $175 million into Amaranth starting in 2005. Since the hedge fund began liquidating its assets last year, the county pension fund was returned $61 million.

“We believe we’ve been defrauded,” said Brian White, SDCERA’s chief executive. “What they told us they were going to do and what they did were two different things.”

Playing It Safe?

According to the complaint, at a meeting with pension fund officials in March 2005, Amaranth officials told county investment advisers that energy trading was one of five sectors it was pursuing. Amaranth also emphasized that its 14-member risk management team and other controls it put in place ensured the fund’s relative safety.

“The most important thing for us is really to minimize the downside. … We don’t want to hit home runs, we want to get singles and doubles,” Maounis told county investment staffers in a July 2005 meeting in San Diego, according to the suit.

But in reality, Maounis encouraged Hunter “to take such enormous, leveraged positions in natural gas markets that the fund’s own trading volume influenced spreads and prices in these markets,” the suit states.

By Jan. 31, 2006, Amaranth allocated about $2.5 billion of the fund’s capital into energy/commodities trading and leveraged that amount by 6.5 times, creating a total exposure to the fund of $16.25 billion, the suit says.

At one point, Hunter entered into so many natural gas contracts that Amaranth “controlled at least 100,000 contracts, or the equivalent of one trillion cubic feet of natural gas, representing 54 percent of the monthly demand in the United States,” the suit says.