Bloomberg News

‘Big Short’ Author Lewis Asks Judge to Dismiss Libel Suit

August 01, 2012

Michael Lewis

Author Michael Lewis in New York. Photographer: Jonathan Fickies

Lawyers for Michael Lewis, the author of “Liar’s Poker” and “Moneyball,” asked a judge to dismiss a lawsuit by a bond manager who claimed Lewis’s book about subprime mortgage investing, “The Big Short,” defamed him.

U.S. District Judge George Daniels heard arguments in Manhattan today on Lewis’s motion to dismiss the libel suit by Wing Chau and his company, Harding Advisory LLC, without a trial. Daniels said he will rule “sometime after Labor Day.”

“There’s not an iota of evidence Michael Lewis thought anything he was writing was false,” Celia Barenholtz, a lawyer for Lewis, told the judge. She said Chan was a “limited purpose public figure” and hadn’t proved that Lewis’s comments showed “actual malice,” a legal standard for libel.

Chau’s Morristown, New Jersey-based Harding Advisory manages collateralized debt obligations, or CDOs, which are often backed by pools of mortgage-backed securities. Chau sued Lewis in 2011, claiming that “The Big Short” made “false and defamatory statements about him” and damaged his reputation in the financial industry.

“They should be held accountable,” Steven Molo, a lawyer for Chau, said of Lewis and the other defendants. “There should be a jury trial.”

Molo told the judge that Chau was a “private person,” not a public figure. “Being a prominent manager of CDOs is not enough. He did not inject himself into a public debate.” He argued that Lewis’s book “paints Mr. Chau as the worst of the worst” CDO managers.

‘Sleepy’ Companies

Daniels repeatedly questioned Molo about statements from the book that are alleged to be libelous, including Lewis’s comments that Chau had worked for “sleepy” insurance companies for much of his career before managing CDOs and that CDO managers didn’t work hard.

“Most of your argument is based on the implications of certain statements, not on the actual statements,” the judge told Molo. “There’s no proof you can offer to a jury whether an insurance company is ‘sleepy.’ That is hyperbole. That is opinion.”

Chau also sued Lewis’s publisher, New York-based W.W. Norton & Co., and a hedge fund manager, Steven Eisman, who was a principal source of information for Lewis’s book.

The book tells of a group of investors who made fortunes by shorting, or betting against, the residential subprime mortgage market before it collapsed in 2007. Eisman, who managed FrontPoint Partners LLC, was one of those investors.

Harding Investors

Chau’s firm managed about $20 billion worth of CDOs in 2007, making it the fourth largest in that category, according to court papers. Investors in Harding’s CDOs included UBS AG and Deutsche Bank AG, according to court filings. CDO sales collapsed in 2007 along with the subprime-mortgage market.

The book describes a dinner conversation in Las Vegas in 2007 between Chau and Eisman, after which Eisman increased his bets against CDOs. Chau claims Eisman “fabricated the statements” attributed to him.

“He had no reason to lie,” David Schulz, a lawyer for Eisman, said of his client. He argued that the things Eisman told Lewis about the Las Vegas meeting were in fact true, such as Chau wanting to increase his CDO business to $50 billion and not having any equity in the CDOs he managed.

Schulz told the judge that Chau was indeed a public figure. “He chose to go into a highly controversial business, knowing he might be the subject of attention. He chose to become a major player in it.”

‘Eventually Defaulted’

Lewis, who wasn’t in court, said in a written declaration that he sent several messages to Chau seeking an interview for the book and never received a response.

“I did not have any reason to doubt my sources, and believe that they were reliable, and the book was accurate,” Lewis said in the declaration. “Many of the CDOs under Chau’s management eventually defaulted, and his investors had lost literally billions of dollars.”

The book was published in March 2010. It spent more than 28 weeks on the New York Times nonfiction bestseller list and has sold more than 1 million copies, according to court records.

“If I had any concerns about the accuracy of Lewis’s work, I would not have allowed Norton to publish it,” Starling Lawrence, who was Lewis’s editor at Norton, said in a declaration.

Lewis, who is a columnist for Bloomberg View, published his first book, “Liar’s Poker,” in 1989 after working in bond sales at Salomon Brothers. It describes the bond trading culture at the investment firm.

Chau’s father fled Mao Zedong’s China in 1953, settled with his family in Rhode Island and ran a restaurant, according to court papers. Chau worked as an analyst for Prudential Securities Inc., among other jobs, before forming Harding in 2006 to manage CDOs.

The case is Chau v. Lewis, 11-01333, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net

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


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