NY Judge: Amaranth Lawsuit Can Proceed Against JPMorgan

A state judge has ruled that a lawsuit by collapsed hedge fund Amaranth Advisors LLC can proceed against JPMorgan Chase & Co. (JPM) over the bank allegedly undercutting the fund's efforts to avoid collapse after a series of bad natural-gas trades in 2006.

In an order dated Oct. 28 and filed publicly on Monday, New York State Supreme Court Justice Richard B. Lowe III in Manhattan ruled that a breach-of-contract claim can proceed against JPMorgan, but dismissed five other causes of actions against the bank.

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In its lawsuit filed last November, Amaranth had alleged JPMorgan used its position as Amaranth's clearing broker to prevent the hedge fund from transferring the remaining risk in its natural-gas derivatives portfolio to Goldman Sachs Group Inc. (GS) and later made false statements to kill a deal with Citadel Investment Group LLC. The judge dismissed the claims related to false statements allegedly made by JPMorgan to Citadel.

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The lawsuit alleges JPMorgan wanted to take control of the natural-gas portfolio itself in hopes of making substantial profits and the fund suffered several hundred million dollars of additional market losses on Sept. 18, 2006, as a result of JPMorgan's refusal to execute the transaction.

JPMorgan ultimately entered into a trade with Amaranth and then a subsequent agreement with a Citadel affiliate, pocketing $725 million, according to the lawsuit.