Amaranth's Hunter Joins the Hunted

Notorious gas trader Brian Hunter is starting off his new hedge fund, Solengo Capital, as only he can. Nothing says your money is in good hands like commodities regulators hot on the trail.

Known for taking down Greenwich, Conn.-based Amaranth about a year ago with wrong-way bets on natural gas, Hunter is facing a civil suit from the Commodity Futures Trading Commission. The suit alleges the hedge fund natural gas trader manipulated the New York Mercantile Exchange (NMX) on two occasions in attempt to benefit from short positions he had in another commodity market.

The news comes as the gas trading maven, who earned a cool $100 million in gas trading bets in 2005, is kicking off his new hedge fund, as first reported by TheStreet.com.

Named in the CFTC suit are two Amaranth entities and Hunter, who is accused of artificially driving down gas prices on Feb. 24 and April 26 of last year. He did so, regulators claim, by flooding the market just before the close of trading in the Nymex in attempt to benefit from short credit derivatives positions, known as swaps, that he had in place in the InterContinentalExchange(ICE) and in other markets. Regulators also allege that Hunter et al. attempted to cover up the intent of their trades.

At the same time, the Federal Energy Regulatory Commission is pursuing Hunter for pretty much the same thing. The trader has countered with his own lawsuit, asking for a restraining order that challenges the FERC's jurisdictional authority in the matter.

More importantly, the trader is saying that all this regulatory wrangling might impinge upon his ability to operate his new fund.

But if regulators have their way, Hunter may have bigger gas pains, since the suits are asking the court to block Amaranth and Hunter from commodity trading forever. Regulators are also seeking $130,000 in fines.

Hunter has been trying to raise more than $700 million from domestic and foreign investors who are willing to buy into the gas trader's vision of a second act. But the allegations could make for a public relations nightmare for Hunter.

In some ways the legal action taken by the CFTC is part of its own PR campaign, as it attempts to take a hard line on violations in its industry. In the past, the CFTC has been viewed as soft on regulation, and some have called for the Securities and Exchange Commission to absorb the entity.

Understaffed and pushing to build its credibility on the Street has been the modus operandi of the CFTC over the past few years.

The CFTC has had challenges asserting itself and at times has been at loggerheads with the SEC. Some of the issues stem from the emergence of new derivatives and futures instruments that have blurred the jurisdictional lines between regulatory bodies. That has led to disputes on how to define credit default swaps as options or futures.

CFTC enforcement chief Greg Mocek noted during a Wednesday conference call his hope that lawmakers would provide the CFTC more transparency in monitoring platforms such as ICE in order to better prevent future schemes.

But the fact that the CFTC, the SEC and FERC appear to be playing nice could bode ill for Hunter.

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