Bloomberg News

Cohen, SAC Are Dismissed From $8 Billion Fairfax Lawsuit

September 14, 2011

(Updates with Fairfax comment in fifth paragraph.)

Sept. 14 (Bloomberg) -- 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 granted Cohen and Stamford, Connecticut-based SAC Capital’s request that he rule in their favor without the need of a trial.

The complaint is dismissed against them with prejudice, meaning that it can’t be refiled, according to the Sept. 12 order.

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 Fairfax, 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.”

‘Entirely Baseless’

“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’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’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.”

Buying Stock

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.

Bowe argued SAC Capital didn’t include certain trading in Fairfax in its calculations. SAC Capital has $14 billion under management. In a short sale, an investor sells borrowed shares hoping to return them later with stock bought at a lower cost, pocketing the difference.

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).

--Editors: Mary Romano, Stephen Farr

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, federal court at tweidlich@bloomberg.net.

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


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