Fairfax Case Against Morgan Keegan, Exis Dismissed

Broker-dealer Morgan Keegan & Co. and Exis Capital Management persuaded a judge to dismiss a $3.2 billion lawsuit by insurer Fairfax (FFH) Financial Holdings Ltd. over what it said was a campaign of false negative information.

Superior Court Judge Donald Coburn threw out Fairfax’s commercial-disparagement lawsuit just before a trial was set to begin yesterday in Morristown, New Jersey.

Fairfax, which owns stakes in Canadian and U.S. insurers, claimed that Exis and Morgan Keegan, now known as Raymond James Morgan Keegan, coordinated with stock analysts to drive down its share price by spreading false rumors in a so-called bear raid. Coburn dismissed some of the case Sept. 11 and some yesterday.

The judge ruled that while “it’s clear here that there was evidence of intent to adversely affect the actual business dealings” of Fairfax, the Toronto-based company wasn’t entitled to damages under New Jersey law, according to a transcript of his Sept. 11 ruling.

Fairfax wasn’t entitled to damages it claimed for the sale and repurchase of stock, notes and debentures issued and repurchased, lost income and earnings, or legal fees, according to Coburn’s ruling. Other judges had dismissed other counts and defendants from the 2006 lawsuit.

‘Day One’

“Today’s ruling is in keeping with what we have said since day one: Our company plays by the rules and this lawsuit should never have been filed in the first place,” Adam Sender, fund manager at Exis, said yesterday in a statement. “Our plan is to move forward and work to reestablish Exis Capital as one of the leading hedge funds in the world.”

Sender and Exis Capital Chief Operating Officer Andrew Heller were also defendants dismissed by the judge.

Steve Hollister, a spokesman for Memphis, Tennessee-based Morgan Keegan, declined to comment on the judge’s ruling.

On June 27, Superior Court Judge Stephan Hansbury, who previously handled the case, ruled that Fairfax had “suffered massive pecuniary/economic loss in this case.” He dismissed some of the counts by Fairfax. Seven of the eight hedge funds that Fairfax originally sued, including Steven A. Cohen’s SAC Capital Advisors LP, earlier won dismissal from the case.

“We strongly disagree with the decision that the massive damage caused by that indisputable and intentional conduct is not recoverable,” Michael Bowe, a Fairfax attorney, said in an e-mail. “We will appeal this erroneous ruling and are confident the appellate court will find there is a remedy for what the trial court has described as ‘a scheme of tremendous proportions.’”

Consent Judgment

On Sept. 11, Coburn signed a consent judgment between Fairfax and Spyro Contogouris, an independent analyst who allegedly harassed company officials with phone calls and a visit to Fairfax offices.

The judgment said that Contogouris and his research firm, MI4 Reconnaissance, are liable to Fairfax. It also said he may not call, visit, e-mail or text message any executives at Fairfax. Nor may he post anything on the Internet about Fairfax or trade its stock. Fairfax’s complaint against Contogouris was dismissed and could be filed again, according to the judgment.

Fairfax claimed Contogouris was hired by the hedge funds to help with a broad scheme to drive down Fairfax’s shares so that the funds would profit by betting on a decline. As part of the plan, Contogouris and the funds sent a letter to Fairfax Chief Executive Officer Prem Watsa’s pastor in Toronto, saying Watsa was cheating his shareholders, Fairfax alleged.

A phone number listed in Contogouris’s name in New Orleans rang without answer. His lawyer, Michael Critchley, didn’t immediately return a call yesterday seeking comment on the ruling.

The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).

To contact the reporters on this story: David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net; Anthony Effinger in Portland, Oregon, at aeffinger@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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