Morgan Stanley Sues Peak Ridge Over $40.6 Million Loss

Morgan Stanley sued a Peak Ridge Capital Group LLC fund for $40.6 million in losses this year tied to natural gas futures trades.

The lawsuit, filed yesterday in the Manhattan federal court, seeks damages as well as legal and other fees stemming from Morgan Stanley’s role as the futures broker for Boston- based Peak Ridge.

The Peak Ridge account lost $9.8 million in natural gas trades on June 4, according to the lawsuit, after which Morgan Stanley increased the amount of cash it required the firm to post to back its trades, known as margin. The bank declared the fund in default later in June after Peak Ridge failed to meet its new margin requirements. Over the next two weeks, Morgan Stanley sold off the positions and “incurred substantial losses,” the lawsuit said.

Peak Ridge was previously advised by Brian Hunter, the former Amaranth Advisors LLC natural-gas trader who lost $6.6 billion in 2006. Hunter “does not work at Peak Ridge,” said Shauna MacDonald, a spokeswoman for Hunter. She declined to comment further on his employment at the company. Calls to Michael McNally, Peak Ridge’s chief executive officer, and Laura Small, a spokeswoman, weren’t returned.

Peak Ridge used Hunter to devise trading models and strategies. The Peak Ridge Commodity Volatility Fund, for example, seeks to profit from price differences in the natural-gas market. The company also bought the assets of Solengo Capital Advisors, a hedge-fund firm that Hunter tried to start six months after Amaranth’s collapse in September 2006.

In 2006, Hunter had bet that the difference between the price of natural gas for 2007 March and April contracts would widen. Instead, the spread narrowed, creating losses for Amaranth.

(Corrects amount of losses in headline and first paragraph of story originally published Nov. 9.)