The Hedge Fund Industry: an increasingly litigious environment
cms lawnow, 12 December 2006
In July 2006, Fairfax Financial Holdings Limited (the insurance and financial services holding company based in Toronto Canada) brought a legal action in the Superior Court of New Jersey against a number of prominent US based hedge funds including S.A.C. Capital Management (the $10billion hedge fund operated by Stephen Cohen), Exis Capital Management, Lone Pine Capital, Rocker Partners L.P. and Third Point LLC alleging stock market manipulation.
It is alleged that the Defendants, after having taken short positions in Fairfax Stock, “engaged in an organised effort to damage severely, if not destroy, Fairfax and affiliated companies by, amongst other things disseminating false misleading information concerning Fairfax to …its employees, executives, shareholders, bankers, regulators and rating agencies; disseminating false and misleading information to the markets and the public through purportedly independent analyst reports, statements to the press and wholesale manufacture of bogus accounting and business issues; engaging in a long-term campaign of personal harassment of employees, executives and shareholders of Fairfax including personal attacks delivered to executives’ clergy and family members; and attempting to instigate regulatory investigations of Fairfax by providing false and misleading information and documentation to the regulatory agencies”. The resulting decline in Fairfax’s stock price brought with it substantial profits for those hedge funds that had short-sold Fairfax stock. Needless to say, the allegations are being contested by the defendants.
