Amaranth lost $6B in a week — one trader's gas bets destroyed a $9B hedge fund

Amaranth Advisors was founded in 2000 by Nicholas Maounis in Greenwich, Connecticut as a multistrategy hedge fund. By August 2006 it had grown to $9.2 billion in assets under management, investing across convertible arbitrage, mergers, and energy trading. The energy desk was run by Brian Hunter, a 32-year-old Canadian trader who had made an estimated $1 billion for the firm in 2005 by betting on natural gas prices after Hurricane Katrina. Hunter was paid roughly $100 million that year under a 15% profit arrangement and was given increasing control over the fund's natural gas positions.

In 2006, Hunter went long on winter natural gas futures and short on summer contracts — a bet that the winter-summer price gap would widen. When prices did not move as expected, losses accelerated. Margin requirements exceeded $3 billion. The fund was still marketing itself as up 25% for the year during the week of September 11. On September 18, Amaranth disclosed roughly $3 billion in losses — then the losses continued. By the time the position was unwound, the fund had lost over $6.6 billion, more than 65% of its value. It was the largest hedge fund collapse in history at the time.

Amaranth sold the natural gas position to JPMorgan and Citadel for $2.5 billion and suspended redemptions for two months. The fund was defunct by September 2007. The CFTC charged Hunter with attempted manipulation; he settled in 2014, paying a $750,000 fine and accepting a trading ban. A FERC judge ruled Hunter manipulated settlement prices, though a court later overturned FERC's $30 million fine. The fund sued JPMorgan for $1 billion, dismissed. Taleb noted the firm's twelve risk managers were meaningless — the models never questioned the position size.