UPDATE 1-Morgan Stanley sues Peak Ridge fund over gas trades

* $40.6 million in losses allegedly suffered

* Fund took “extreme risk,” Morgan Stanley says

* Peak Ridge not available to comment
(Adds natgas price moves and fund losses in June)

NEW YORK, Nov 8 (BestGrowthStock) – Commodities hedge fund Peak
Ridge has been sued by Morgan Stanley (MS.N: ) (Read more about the money market today. ) for allegedly
failing to cover $40.6 million of losses stemming from the
fund’s bad bets on the natural gas market.

Morgan Stanley contends it suffered the losses in
connection with the Peak Ridge Commodities Volatility Master
Fund Segregated Portfolio, after Peak Ridge failed to maintain
proper margin requirements and went into default.

The lawsuit was filed on Monday in U.S. District Court in

Morgan Stanley said it undertook several transactions in
the Peak Ridge account from June 11 to June 23 “in order to
reduce risk and stabilize the book in an orderly fashion.”

It said, however, that it suffered losses because of
adverse market movements and the “extreme risk” that Peak Ridge
had taken. Morgan Stanley said the account had lost $9.8
million, or about 39 percent of its value, on June 4 alone.

Even by the volatile standards of the natural gas market,
many traders were shocked by the 20 percent surge in prices
over the first two weeks of June amid a flurry of activity.

Peak Ridge was not available to comment.

The fund is based in Bermuda and incorporated in the Cayman
Islands, according to the lawsuit. The case is Morgan Stanley &
Co v. Peak Ridge Master SPC Ltd, U.S. District Court, Southern
District of New York, No. 10-08405.

Funds that were short on natural gas (NGc1: ) suffered losses
in June, when prices unexpectedly surged by more than 20
percent to hit a four-month high of nearly $5.20 per million
British thermal units on June 15, despite broad expectations
for a continued price decline as inventories bulged.

While hot U.S. weather kicked up air conditioning demand
and rising tropical weather activity stirred concerns about
possible Gulf Coast supply disruptions early in the summer,
natural prices did fall from that mid-June peak to a low of
around $3.20 per mmBtu last month.

On Monday, they hovered above $4 per mmBtu.
(Reporting by Jonathan Stempel, with additional reporting by
Barani Krishnan; Editing by Walter Bagley)

UPDATE 1-Morgan Stanley sues Peak Ridge fund over gas trades