Amaranth Advisors, the US-based hedge fund whose investments were hit by a misplaced bet on gas prices, has seen its losses reach about $6bn (£3.2bn).
Natural gas prices have hit two-year lows in recent days
The firm has now sold its portfolio of energy trades and off-loaded other assets in a bid to stave off collapse.
Recently valued at $9bn, the fund has lost 65% so far in September, according to a letter Amaranth sent to investors.
A number of major investment and pension funds are thought to have lost millions through Amaranth's deals.
Falling gas prices
Amaranth invested most of its funds on trades that bet the longstanding trend in rising natural gas prices would continue.
However, natural gas prices have dropped sharply in recent weeks on higher reserves, a quiet hurricane season and predictions of a mild winter.
As Amaranth's losses mounted, the fund's bankers called in their loans, forcing the fund to sell more assets to avoid defaulting.
The collapse in the fund's value has raised major questions over the lack of adequate risk management controls at Amaranth, and wider concerns over lax control of hedge fund managers.
"This will bring further attention to understanding what hedge fund managers are investing in," said Justin Dew, a senior hedge fund strategist at Standard & Poor's.
"Some institutions will be less likely to simply go with the concept of 'trust us'... they will want verification."