Billionaire Steven A. Cohen and his SAC Capital Advisors LP should be dropped from a lawsuit accusing it and other hedge funds of conspiring to spread negative information about Fairfax Financial Holdings Ltd. (FFH), a lawyer argued in court.
Fairfax, a Toronto-based insurer, sued the hedge funds in 2006, alleging they acted to harm the company because they were betting its stock price would decline. Fairfax seeks more than $8 billion in damages.
“We simply didn’t do anything to injure Fairfax,” Martin B. Klotz, a lawyer for Cohen and SAC Capital, told New Jersey Superior Court Judge Stephan C. Hansbury today in Morristown. “We did nothing to participate in the enterprise alleged here.”
Fairfax alleges that the funds coaxed John Gwynn, a former insurance analyst at Morgan Keegan & Co. in Memphis, Tennessee, into giving them his negative Fairfax reports before they were published. It also says the funds disseminated false information about the company to the media, the government and ratings services.
The hedge funds named in the suit, including Stamford, Connecticut-based SAC Capital, James Chanos’s New York-based Kynikos Associates LP and Daniel Loeb’s New York-based Third Point LLC, have denied Fairfax’s accusations.
Cohen and SAC Capital asked Hansbury to rule in their favor without the need of a trial.
Michael J. Bowe, a lawyer for Fairfax, said there was enough evidence in the case to present to a jury.
“Certainly there’s evidence that SAC was part of the group that was working with John Gwynn,” Bowe said.
Hansbury said he would issue his ruling this month.
In December 2003 and January 2004, when Fairfax alleges SAC Capital was “shorting” the stock in anticipation of Gwynn’s first report, it was actually eliminating its short position and buying the stock, Klotz said.
It held a long Fairfax position for most of 2004 and no Fairfax position in 2005, when the funds are accused of hiring an outside analyst, Spiro Contogouris, to spread false Fairfax information, Klotz said.
SAC Capital didn’t include in its calculations its short trades in Fairfax unit Odyssey Re Holdings, Bowe said. SAC Capital also had indirect short sales in Fairfax through its investments in New York-based Exis Capital Management Inc. and Bridger Capital Management LLC, he said.
SAC Capital, with $14 billion in assets, didn’t control what Exis and Bridger invested in, Klotz said.
Exis is a defendant in the case. Bridger isn’t.
In a short sale, an investor sells borrowed shares hoping to return them later with stock bought at a lower cost, pocketing the difference.
“The evidence shows that SAC never participated in any short-selling scheme, never made any defamatory statements about Fairfax to anyone, never conspired with anyone to injure Fairfax and had no motive to injure Fairfax,” Cohen and SAC Capital wrote in court papers.
Bowe said it was inconceivable that Cohen wasn’t part of other funds’ conversations about attacking Fairfax.
Morgan Keegan, a unit of Birmingham, Alabama-based bank company Regions Financial Corp. (RF), fired Gwynn in 2008 for disclosing research on Fairfax to selected clients before publication. He has since died.
Last month, SAC Capital asked Hansbury to disqualify Bowe’s New York law firm, Kasowitz Benson Torres & Friedman LLP, from representing Fairfax in the case, alleging its investigators talked with a former defendant who was represented by counsel, violating ethics rules. Hansbury hasn’t ruled on that request.
Klotz is a partner at Willkie Farr & Gallagher LLP in New York. The firm’s clients include Bloomberg LP, the parent of Bloomberg News.
The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).
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