Second Canadian Company Blames Shorting

Date: Wednesday, July 26, 2006
Author: HFN Daily Report

Following the example of money-losing drug maker Biovail, a second Canadian company has filed suit against a group of hedge funds, blaming short selling for the firm's woes.

Fairfax Financial Holdings announced Wednesday it has filed suit in New Jersey alleging violations of various state laws. The company is targeting SAC Capital, Exis Capital, Lone Pine Capital, Third Point, Rocker Partners and Trinity Capital, among others.

Toronto-based Fairfax is seeking not only $6 billion in compensatory damages, but also punitive damages, including the treble damages allowable under New Jersey's Racketeer Influenced and Corrupt Organizations Act (RICO).

Fairfax claims the funds worked together to profit from sustained short selling and even threatened, harassed and sought to intimidate Fairfax executives and their families. In one case, Fairfax says defendants sent a letter to the pastor of the chief executive officer's church, implying the executive was a fugitive living under an assumed name.

The suit further alleges the defendants prepared biased analyst reports and engaged in a disinformation campaign so they could profit from shorts.

The charges echo those made by Biovail against SAC earlier this year. Biovail is under investigation by the Ontario Securities Commission and the Securities and Exchange Commission for accounting and disclosure problems dating back to 2003. According to the company, however, its flagging stock price is unrelated to its internal difficulties, and instead the fault of false negative reports issued at the bidding of SAC.

Biovail in turn, followed the lead of eccentric Overstock.com chief Patrick Byrne, who blamed his company's problems on a hedge fund short-selling conspiracy overseen by a shadowy figure he has identified only as the "Sith Lord."

Fairfax is requesting a jury trial so it can attempt to prove the charges against the funds.