Chanos Frontruns Research.........

Discussion in 'Wall St. News' started by flytiger, Feb 12, 2009.

  1. This is a story broken on

    It's good to see Bloomberg pick it up. Now, maybe Kernan can finally understand those 50% returns.

    Chanos, SAC Saw Nonpublic Fairfax Research, Court Papers Show
    Say it so Matilda?

    Feb. 12 (Bloomberg) -- Jim Chanos’s Kynikos Associates Ltd., a short seller of Fairfax Financial Holdings Ltd., learned of negative analyst research on that company before it was published, according to unsealed court documents.

    Chanos, Steven Cohen’s SAC Capital Advisors LLC and other hedge-fund managers were accused in 2006 by Fairfax of cooperating to drive down the firm’s shares through short sales, according to a complaint by Fairfax seeking $6 billion in damages. Toronto-based Fairfax owns U.S. and Canadian insurers.

    Chanos forwarded an e-mail about research by John Gwynn, an analyst with brokerage Morgan Keegan & Co., to rival SAC Capital, the documents show. Morgan Keegan fired Gwynn for telling clients before publication that he planned a negative report. Morgan Keegan and Gwynn were also sued. All defendants denied Fairfax’s claims. Fairfax filed that e-mail and others provided by the defendants with a New Jersey state court to support its claims.

    “Last night John Gwinn at Morgan Keegan faxed over to me an outline detailing the issues at FFH, basically those he will be publishing,” Mark Heiman, then an analyst at Kynikos, wrote in a Dec. 21, 2002, e-mail to Chanos that was filed in the case.

    FFH is Fairfax’s stock ticker. Gwynn’s name is misspelled.

    “Kynikos rejects any claim that it participated in a conspiracy or that it did anything improper when it decided to sell short Fairfax stock,” Peter Haveles, an Arnold & Porter LLP lawyer for Kynikos said in an interview.

    Jonathan Gasthalter, a spokesman for SAC Capital, declined to comment. Gwynn didn’t immediately return a call for comment.

    Morgan Keegan spokesman Eric Bran said the company didn’t have an immediate comment. Memphis, Tennessee-based Morgan Keegan is a unit of Regions Financial Corp., Alabama’s biggest bank.

    Racketeering Claim

    Fairfax filed its complaint in New Jersey Superior Court in Morris County. Fairfax accuses the defendants of racketeering, commercial disparagement, tortious interference with contractual relationships and conspiracy.

    The company accused Gwynn of collaborating with the hedge funds to write negative reports on the insurer. The funds knew when the reports would be released and what they would say, Fairfax claims.

    When he learned of Gwynn’s research, Chanos began increasing his bet that Fairfax’s shares would fall, a Fairfax lawyer said at a Sept. 25 hearing in the case. A Kynikos lawyer disputed him.

    Gwynn sued Fairfax in April. He said Fairfax defamed him by asserting that he had issued fraudulent research. Judge Deanne Wilson, overseeing the Fairfax case, in August ruled against the company’s request to dismiss Gwynn’s suit.

    ‘Speaks for Itself’

    “The evidence demonstrating that Gwynn leaked his research to hedge funds before publication, and his subsequent termination for that misconduct, speaks for itself,” said Marc Kasowitz, a lawyer for Fairfax. “It further proves his prior denials about such misconduct and counterclaim were utterly without merit.”

    On Dec. 11, 2002, Heiman wrote his boss Chanos that an insurance analyst at another investment firm told him that Gwynn was going to initiate Fairfax coverage “at ‘underperform,’ with the thesis being that they are extremely under-reserved in the $3-$5 BN area,” according to an unsealed e-mail.

    “Just spoke to John Gwinn at Morgan Keegan, and he was more critical of FFRX than I’ve ever heard a sell side analyst,” Heiman told Chanos in a Dec. 16, 2002, e-mail, using Fairfax’s former ticker symbol. “Everything from underwriting to accounting to dishonesty.”

    Chanos, on Dec. 18, 2002, forwarded that e-mail to Jeff Perry, then of New York-based SAC Capital, who’s also a defendant. Perry didn’t return a call for comment.

    Gwynn’s first report on Fairfax was dated Jan. 16, 2003, and released the next day.

    The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).

    To contact the reporter on this story: Thom Weidlich in New York at

    Last Updated: February 12, 2009 17:18 EST
  2. Largest Shorts

    “Fairfax is one of our largest shorts,” Chanos told a Inc. columnist in August 2002, according to an e- mail unsealed in the case.

    Ah - the Herb Connection!
  3. mokwit


    Who would have thought it?
  4. Not me. I always thought dose guyz were juz hard workin' traders doin' da research ta find dose damn crooked companies, to generously help protect the investing public. Who'd a thunk they was all sleazy crooks... :D
  5. zdreg


    before jumping to conclusions is there any reason to believe they acted upon it?
  6. I'd say 1 1/2 million share short initiated by Third Point a day earlier might be a clue.
  7. I'm appalled and shocked.

  8. patchie


    Most disturbing, Fairfax had to spend shareholder capital to acquire this evidence in civil court after the SEC refused to respond to their complaints.

    Based on what you see in these e-Mails, and where discovery was limited to just Fairfax, you have to wonder how many others are out there exactly like this. You can rest assured that all other e-Mails of this quality are being purged at breakneck speed.
  9. Just watched that for the 400th time last night.

    "I'm shocked! Shocked , Rick, to here gambling is going on in this establishment1"

    "Here are your winnings".

    "thank you!"