Thursday, July 26, 2007

Amaranth: In All Fairness...

Nick Maounis of Amaranth got taken, deep.
But it was his fund, his trader.

I once knew a guy who lost retail clients a bunch of money in a deal in which the manager also had some skin. His legal team brought this up repeatedly in court.

Finally the judge got tired of the B.S. and said:
"I am not allowing the stupidity defense".

At that point one of the spectators on the rail said
"Billy, you done bammed your last boozle".

Even the judge couldn't keep a straight face and the defense attorney was giggling as he asked for an immediate mistrial.

Mr. Maounis sent this three page letter to the Amaranth investors yesterday.

The CFTC today commenced a cease and desist action against Amaranth Advisors L.L.C. and Amaranth Advisors (Calgary) ULC (collectively, “Amaranth”) and Brian Hunter.1 In its action, the CFTC has alleged that Amaranth and Mr. Hunter attempted to manipulate the NYMEX natural gas futures market on two specific days in 2006 and that Amaranth inaccurately described its trading activities to the NYMEX. Although Amaranth has cooperated fully and voluntarily with the CFTC’s investigation, the CFTC did not propose any settlement or offer to entertain settlement discussions prior to bringing this action. We are disappointed that the CFTC has chosen this path and intend to defend the action vigorously.

The highlighting is mine, the sinking sensation is theirs. The letter goes on to say:

The CFTC did not allege that Amaranth manipulated the natural gas futures market on any date. In fact, CFTC Director of Enforcement Gregory Mocek explained in a press briefing this morning that the two alleged attempts to manipulate natural gas futures prices addressed in the complaint were “unsuccessful” and did not create an artificial price.
The CFTC did not allege that Amaranth’s trading in any way created artificially high prices. In fact, the central allegations in the complaint were that Amaranth unsuccessfully attempted to reduce natural gas futures prices.
• The CFTC did not allege that Amaranth manipulated, attempted to manipulate or otherwise “propped up” summer/winter spreads or any other natural gas futures prices other than two specific contracts on two specific dates.
• The CFTC did not allege that Amaranth engaged in “excessive speculation,” that it “dominated” the markets or that its positions were otherwise too big for the market.
• The CFTC did not make any allegations relating to the losses experienced by Amaranth in September 2006 or profits made earlier in 2006. In fact, the CFTC does not allege that Amaranth profited in any way from its supposed attempt to manipulate the market, which the CFTC has admitted was unsuccessful.
• The CFTC did not present any “smoking gun” or other direct evidence that any Amaranth personnel intended to manipulate the market. Rather, the CFTC relies on inferences that certain trading conduct can only be understood as an attempt to manipulate.
• The CFTC did not allege that Amaranth was in violation of applicable position limits on the two trading days addressed in its complaint.
• The CFTC did not name the Amaranth Funds as defendants in the action, nor has the CFTC indicated that it will seek disgorgement of profits from the Amaranth Funds—to do so would obviously be highly inappropriate.

The CFTC did not allege Crimes against Humanity, Desecration of a Corpse, Public Lewdness or Jaywalking.
So what's your point.

HT: Naked Shorts