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So the county’s pension system has finally sued the hedge fund Amaranth.

From its press release:

The lawsuit was filed in the U.S. District Court for the Southern District of New York on March 29, 2007 against Advisors, which was Amaranth’s manager; Advisors’s principals, Chief Investment Officer Nicholas Maounis, Chief Operating Officer Charles Winkler, and Chief Risk Officer Robert Jones; and its former trader Brian Hunter.

David Myers, Chairman of SDCERA’s Board of Trustees, said, “We invested in Amaranth because Mr. Maounis and the other officers of Amaranth told us that a team of highly experienced professionals would carefully manage our pension funds. Instead, as we state in the suit, they turned our money over to Mr. Hunter, who in my opinion was an absentee rookie trader located thousands of miles from Amaranth’s office.” SDCERA’s suit alleges that Mr. Hunter made bet-the-fund natural gas investments that were more concentrated, volatile, leveraged, and illiquid than represented. Mr. Myers added, “We filed the lawsuit to correct the wrong committed against SDCERA and its members.”

This is good. The county’s pension is still out more than $100 million from its initial $175 million investment in the hedge fund. I have no doubt that they want to get as much money back, for the good of the fund, as they can and that they’ve decided to go this route as the best way to do that.

But also, I have a couple of questions: Won’t it be a bit difficult for them to argue that they made a risky investment and that they lost it, not because it was risky but because it was fraud? Their own investment advisor has said that they can expect at least one of their big hedge-fund investments to “blow up” each year. That’s the nature of investing in secretive and risky hedge funds, isn’t it?

The county’s pension team picked the consultants who recommended Amaranth. Then the pension board approved the investments.

Hedge funds are secretive for a reason. You play their game, you might take one in the chin. Isn’t that why you make a risky investment — because the opposite of taking it in the chin is so attractive?

I’ll be interested to see where you cross the line from joining up with bad investors to actually joining up with fraudsters in the hedge fund world. Where does the personal responsibility for risky investing end and victim claims begin?

SCOTT LEWIS

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