Fairfax Restates Earnings

Date: Tuesday, August 1, 2006
Author: HFN Daily Report

Days after filing a suit against hedge funds for conspiring to bring down its share price, Canadian insurer Fairfax Financial announced it would have to restate its earnings.

Fairfax has identified a number of accounting errors arising primarily in 2001 and prior. The company estimates the impact of the restatement will be a decrease in shareholder equity by as much as CAN$190 million ($168 million).

In a statement, Fairfax chief executive officer Prem Watsa said the correction would not impact cash flow or the fundamental strength of the company.

Watsa has accused a number of hedge funds, including SAC, Lone Pine, Third Point and Rocker Partners, of conspiring to spread false information and short its stock. According to a complaint filed in a New Jersey court, the funds falsely and unfairly criticized Fairfax's business and accounting practices, comparing the company with Enron, Refco and fraudulent Australian insurer HIH.

In filing suit against hedge funds for short selling, Fairfax joined money-losing drug maker Biovail and discount retailer Overstock.com. Patrick Byrne, CEO of Overstock, gained notoriety by comparing short sellers to villains in the Star Wars movies.