The lawyers are starting to circle over the remains of Amaranth, the once-giant hedge fund that melted down last week following a series of disastrous natural gas trades.

Two institutional investors who have sunk millions of dollars into Amaranth recently retained a New York attorney to explore the possibility of filing a lawsuit against the fund and its service providers.

Scott Berman, a partner with Friedman Kaplan Seiler & Adelman, says it's too soon to say whether Amaranth investors have viable claims. But he anticipates investigating not only the actions of the hedge fund, but those of the fund's auditors, administrators and prime brokers.

"Hypothetically we look to see whether there were any misrepresentations made in the offering materials or during in-person meetings with the managers," says Berman, who declined to identity his clients. "We look to see if misrepresentations were made in audited financial statements ... and what role service providers had in facilitating the problems."

Another area of possible scrutiny center on the two in-house brokers -- Amaranth Securities and Amaranth Global Securities -- that the hedge fund used to trade stocks and commodities, as well as to engage in securities lending. Berman says the use of an in-house broker to execute trades can pose a conflict-of-interest because there's the potential for a fund manager to ratchet up trading in an attempt to generate excessive commissions.

The in-house brokers cleared their trades through the

Bank of New York

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. Ivy Management, an investment fund managed by Bank of New York, was an investor in Amaranth.

In recent years, Berman has developed a growing niche in representing investors who have become victims of hedge fund fraud. He has represented investors who lost money in the high-profile collapses of Kenneth Lipper's convertible bond fund, Michael Lauer's Lancer Management Group and Samuel Israel's Bayou Management.

Berman says he expects other investors, which includes a number of pension funds and so-called funds of hedge funds, to begin hiring attorneys -- especially if investors have difficulty getting their money out of Amaranth.

The news that investors are beginning to line up lawyers come as talk swirls that Amaranth could be on the verge of shutting down. The hedge fund has scheduled a conference call with investors for Friday morning.

On Thursday, the hedge sold what remained of its energy trading portfolio to

J.P. Morgan Chase

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and Citadel, a giant $12 billion Chicago hedge fund. Amaranth also has been liquidating many of its stock holdings to meet margin calls from its brokers.

Market sources say

Citigroup

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is one of several Wall Street firms considering buying what remains of Amaranth, which billed itself as a multi-strategy hedge fund. Based in Greenwich, Conn., Amaranth employs more than 360 people, including 115 traders.

The fund began the year with $7.5 billion in assets under management, but soared to a little over $9 billion based on the initial success of its energy trading group. But last week, the fund lost some $4 billion when its high-risk natural gas trades went awry.