What's the Most Important Thing in Finance?

"What's the most important thing in finance?" J.P. Morgan was asked. "Character," he replied.

If indeed Amaranth was telling its investors one thing and doing another, it is so history:

WSJ.com - Amaranth to Discuss Losses With Clients: By ANN DAVIS and HENNY SENDER: Fighting for its survival and the reputation of its managers, Amaranth Advisors plans today to answer questions from its clients, many of whom want to know if the Greenwich, Conn., hedge fund was saying one thing about its trading tactics and doing another.... For years, investors have accepted a trust-me approach from hedge-fund managers....

The hedge fund revealed this week that it lost about $6 billion this month, or 65% of its assets, primarily at the hands of a 32-year-old natural-gas trader working thousands of miles from its headquarters. With investors seeking withdrawals, it has unloaded its energy investments to J.P. Morgan Chase & Co. and hedge fund Citadel Investment Group LLC and is selling other assets while negotiating to sell at least a stake to Citigroup Inc.

For months, the energy-trading community had buzzed about extraordinary risks taken by the Calgary-based natural-gas trader, Brian Hunter. Yet Amaranth's founder and chief executive, Nick Maounis, repeatedly assured investors that Mr. Hunter and others in the fund were operating cautiously and making diversified bets. If anything, Amaranth executives said, it had cut back on risk.

Last month, representatives of private Swiss bank Union Bancaire Privée visited Amaranth.... The official said the bank "was told their risk taking was being reduced." Muirfield Capital Management... was given similar assurances.... On Aug. 29, less than two weeks before it disclosed the multibillion-dollar losses, Mr. Maounis said in an interview with The Wall Street Journal that the perception that Mr. Hunter was taking recklessly large bets was "greatly exaggerated" because he designed his trading strategies to limit big simultaneous losses.

Late Wednesday night, Amaranth told investors in a letter that the transfer of its energy portfolio and sale of other assets helped avoid a "forced liquidation."...

Its investors signed up for two main Amaranth funds that by their very name were supposed to be "Multi-Strategy."

In interviews in the weeks before this month's losses, several clients said they were comforted that energy trading wasn't Amaranth's sole business and that its other activities gave a financial cushion....

For its part, Amaranth can argue that it was no secret that energy drove its profits. And a person close to Amaranth says the hedge-fund firm's offering documents make clear to investors the high risks involved in energy trading. The fund explicitly credited the energy team for blowout profits in April and blamed energy trading for a $1 billion, or 10%, loss in May....

An investment adviser with clients' money in the hedge fund recalls questioning Amaranth managers about that loss.... Amaranth, he added, said the experience prompted it to reduce its use of borrowed money and other leverage for energy bets "drastically...by as much as 50 or 60%."

There were some red flags. Mr. Hunter had taken control of about $4 billion of the fund's $9 billion under management after Amaranth's head of energy investing, Harry Arora, left in the spring. Mr. Arora had told the firm that while he liked some of Mr. Hunter's bets, he was uncomfortable with their size and concentration....

After a huge one-month energy gain earlier this year, investment-advisory firm Blackstone Group sent representatives to Mr. Hunter's Calgary offices to discuss his trading, a person familiar with the matter said. What they learned made them nervous, this person said, so Blackstone pulled all its clients' money out.

Later, UBP, the private bank, reduced its allocation to Amaranth's main multi-strategy holdings.... Mr. Hunter said in an interview with The Journal that traders exaggerated the size of his trades and that dozens of financial and commercial players are betting right alongside him.... Mr. Hunter hasn't returned phone calls this week...