Billionaire Steven A. Cohen and his SAC Capital Advisors LP won their bid to be dropped from an $8 billion lawsuit accusing them and other hedge funds of spreading negative information to drive down Fairfax Financial Holdings Ltd.’s stock price.
New Jersey Superior Court Judge Stephan C. Hansbury in Morristown on Sept. 12 granted Cohen and Stamford, Connecticut-based SAC Capital’s request that he rule in their favor without the need of a trial.
“There is no direct evidence of any sort of conspiracy involving SAC to take down Fairfax,” Hansbury wrote.
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. The hedge funds named in the suit, including James Chanos’s New York-based Kynikos Associates LP and Daniel Loeb’s New York-based Third Point LLC, have denied Fairfax’s accusations.
“Fairfax intends to appeal the ruling, which it believes is incorrect,” Seth Faison, a spokesman for the insurer, said in an e-mailed statement. “Otherwise, Fairfax remains confident in its claims against the other defendants. Indeed, a central basis for SAC’s motion was that it was very differently situated from the other defendants and did not trade in the same manner as the other defendants.”
“After five years of litigation, the court’s ruling affirms, as we have always maintained, that this vexatious proceeding against us was entirely baseless and without merit,’” Peter Nussbaum, SAC Capital’s general counsel, said in an e-mailed statement.
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, Michael J. Bowe, a lawyer for Fairfax, said at an Aug. 5 hearing on Cohen and SAC Capital’s motion. They also disseminated false information about the company to the media, the government and ratings services, Bowe said.
“We simply didn’t do anything to injure Fairfax,” Martin B. Klotz, a lawyer for Cohen and SAC Capital, told Hansbury at the August hearing. “We did nothing to participate in the enterprise alleged here.”
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.
SAC Capital 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, Spyro Contogouris, to spread false Fairfax information, Klotz said.
Bowe argued that SAC Capital, which has $14 billion under management, didn’t include certain trading in Fairfax in its calculations.
In a short sale, an investor sells borrowed shares hoping to replace them later at a lower cost, pocketing the difference. Hansbury wrote that the other short positions Bowe mentioned were offset by convertible bonds and the net position was positive.
“The fact that at no time did SAC trade similarly to its alleged enterprise members is baffling, and without explanation by” Fairfax, the judge wrote.
Morgan Keegan, a unit of Birmingham, Alabama-based bank company Regions Financial Corp., fired Gwynn in 2008 for disclosing research on Fairfax to selected clients before publication. He has since died.
Bowe is a partner at Kasowitz Benson Torres & Friedman LLP in New York. Klotz is a partner at Willkie Farr & Gallagher LLP in New York. Willkie Farr’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).