Financial Times reports that Amaranth Advisors has retained the law firm of Skadden Arps Slate Meagher & Flom to represent, signaling that the Greenwich, Conn.-based hedge fund manager is bracing for a wave of lawsuits. The question is, what will investors sue for? Three legal possibilities have been floated. First, investors may claim they were misled either through oral communication or written documents about how deep Amaranth was in energy (reportedly more than 55% of its assets). A second theory says investors may sue Amaranth for failing to properly supervise Brian Hunter, the star trader who reportedly was responsible for making the heavy energy bets (media reports say the fact that he worked out of Calgary, Alberta, and not the main office may have been a problem). Finally, according to FT, investors can charge that the firm sent a letter to investors informing them that Sept. 18 was the last day to request redemptions for the quarter ending Oct. 31, but allegedly knew already that the firm would sustain extensive losses and did not disclose it for fear of mass redemptions. It’s too soon to tell whether any of these theories will fly. But Chuck Jaffe of MarketWatch says in a column in that increased regulation would not have prevented the blow-up. “Amaranth was no fraud; it was just bad management.” Of course, what action the Securities and Exchange Commission takes is a different story. The SEC reportedly is investigating “whether investors received misleading information,” said SEC Commissioner Annette Nazareth. Amaranth is said to have contacted the SEC, the Commodity Futures Trading Commission, the New York Mercantile Exchange, and even foreign authorities. That could help soften whatever blow comes the firm’s way.