A lawsuit by Amaranth , the largest hedge fund ever to fail, against J.P. Morgan Chase & Co., the financial services firm that Amaranth blamed in part for its downfall, will go forward, following the New York Appellate Division, First Department’s reinstatement yesterday of the fund’s claim for tortious interference.

Amaranth, the $9.2 billion hedge fund that collapsed in 2006, alleged among other things that J.P. Morgan, the fund’s prime broker, breached its contract by refusing to release money from its margin account, which prevented Amaranth from making multi-billion-dollar trades with Goldman Sachs and the Citadel Investment Group that would have substantially reduced the fund’s exposure. Amaranth also alleged that two J.P. Morgan executives called Citadel and told executives that “Amaranth is not as solvent as they are telling you they are.” The broken deals allegedly cost Amaranth more than $1 billion.

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