SAC Capital Partners, New York, is being accused of playing dirty.
Fairfax Financial Holdings Corp., Toronto, brought a lawsuit against the hedge fund, accusing it of trying to smear the company's image so it could profit from short selling its holdings of Fairfax Financial stock. The 88-page lawsuit, filed July 26 in Morris County, N.J., civil court, accuses SAC officials of hiring people to follow Fairfax Chief Executive Prem Watsa in his car and spreading rumors that Mr. Watsa had embezzled company funds. It also claims SAC President Steven A. Cohen "frequently directed" an analyst at New York-based investment bank Morgan Keegan as to when to issue negative reports.
Perhaps the most unusual charge was that SAC officials sent an anonymous letter to Mr. Watsa's priest, asking him to prompt Mr. Watsa to confess that he had stolen company funds. The return address on the letter was St. Patrick's Cathedral in New York City, according to the lawsuit.
Fairfax, coincidentally, is under investigation by the Securities and Exchange Commission over stock ownership and disclosure issues.
According to a published statement from Morgan Keegan, officials there deny the charge and will "fight the lawsuit vigorously."
"This is another baseless lawsuit by a company attempting to shift the blame from its fundamental business problems. We are confident we will prevail," said Jonathon Gasthalter, a SAC spokesman.
Marc Kasowitz, an attorney for Kasowitz, Benson, Torrez & Friedman LLC, New York, the law firm representing Fairfax, said, "The lawsuit is highly detailed and very factually specific, and is based on an extension factual investigation."