Morgan Keegan Fires Fairfax Analyst on Early Report Disclosure
2008-09-10 15:03:07.760 GMT
By Anthony Effinger and Thom Weidlich
Sept. 10 (Bloomberg) -- Morgan Keegan & Co. Inc., a
Tennessee-based brokerage, said it fired stock analyst John
Gwynn in August for giving his reports on Canada's Fairfax
Financial Holdings Ltd. to selected clients before publication.
Fairfax had sued Morgan Keegan, Gwynn and a group of hedge-
fund managers including Jim Chanos of Kynikos Associates Ltd.
and Steven Cohen of SAC Capital Advisors LLC in July 2006,
alleging they had ganged up to drive down Fairfax's shares and
profit from the decline. The defendants have denied the claims.
Fairfax said Gwynn, 62, collaborated with the hedge funds
to write negative reports on the Toronto-based insurer, and that
the funds knew when the reports would be released and what they
would say.
``Gwynn was discharged from Morgan Keegan for violation of
a firm policy relating to his apparent advance disclosure of his
pending research coverage of Fairfax Financial Holdings,''
spokeswoman Kathy Ridley said by e-mail in response to
questions. ``Advance notice of pending research is not permitted
by the firm.''
Gwynn's dismissal doesn't support Fairfax's claim that the
analyst at the Memphis, Tennessee-based firm was paid to tarnish
Fairfax's reputation, Ridley said.
``The evidence shows that Mr. Gwynn strongly believed in
the accuracy of the facts in his report,'' Ridley wrote. ``The
apparent advance disclosure of coverage has no bearing on the
content or accuracy of the report. We continue to believe that
the lawsuit is completely without merit.''
`Indirectly'
Gwynn, reached at home, said his dismissal was
``indirectly'' related to the dispute with Fairfax and referred
questions to lawyers at Carrington, Coleman, Sloman & Blumenthal
LLP in Dallas. Bruce Collins, a lawyer at the firm, declined to
comment on the dismissal.
Morgan Keegan is a unit of Regions Financial Corp.,
Alabama's biggest bank, based in Birmingham.
Fairfax, owners of U.S. and Canadian insurers, filed its
complaint in New Jersey Superior Court in Morris County,
alleging racketeering, commercial disparagement, tortious
interference with contractual relationships and conspiracy.
Judge Deanne Wilson is handling the case.
Other defendants include Daniel Loeb, founder of Third
Point LLC; Adam Sender, founder of Exis Capital Management Inc.;
William Gahan, a trader at Institutional Credit Partners LLC;
and Spyro Contogouris, head of MI4 Reconnaissance LLC.
The hedge funds denied the allegations in court documents.
In November, ICP countersued, saying Fairfax subjected it to a
campaign of harassment and intimidation. It said Fairfax sued
the hedge funds to deflect scrutiny of its accounting problems.
Two Reports
Gwynn started covering Fairfax Jan. 16, 2003, with a report
that said Fairfax was short $5 billion of reserves needed to
cover future insurance claims, the complaint said. Fairfax
shares listed in Toronto tumbled 28 percent in three trading
sessions, to C$85 ($55.40), a seven-year low. Its U.S. shares
also plunged.
Hedge funds run by the other defendants profited, the
complaint said, because they borrowed Fairfax shares and sold
them, betting the stock would fall so they could buy back the
shares at a lower price, return them to the owner, and keep the
difference.
Two weeks later, in a Jan. 30 report, Gwynn trimmed his
shortfall estimate by 40 percent, to $3 billion. Fairfax shares
in Toronto jumped 9.7 percent. Gwynn continued to issue negative
reports on Fairfax the complaint said.
`Pressure Investors'
``Enterprise members used Gwynn's unreasonably negative and
materially misleading analysis to pressure investors, analysts
and rating agencies into selling their shares or downgrading
their ratings,'' Fairfax said in its complaint.
Gwynn sued Fairfax in April. He said the company defamed
him by asserting that he had issued fraudulent research. Fairfax
posted those allegations on its Web site, and drew attention to
them by publishing a press release, Gwynn said.
Fairfax asked the judge to dismiss Gwynn's libel complaint
as insufficient to support the claim. At an Aug. 8 hearing,
Gwynn's lawyer, Collins, defended the complaint, saying Fairfax
``specifically targeted the dissemination'' of the press
statement to Memphis, where Gwynn lives.
``They are accusing my client of being part of a criminal
conspiracy,'' Collins said at the hearing. ``The allegations
against my client, Mr. Gwynn, are extraordinarily damaging, and
they make accusations which we know are absolutely false.''
Fairfax lawyer Michael Bowe of Kasowitz, Benson, Torres &
Friedman LLP in New York said at the hearing that the statement
was ``a full, fair and accurate report of the complaint,'' and
that there was no evidence of malice in sending it out.
Wilson denied Fairfax's motion to dismiss Gwynn's
defamation claim, without ruling on its merits. The case is
proceeding.
The case is Fairfax Financial Holdings Ltd. v. SAC Capital
Management LLC, L-2032-06, Superior Court of New Jersey, Morris
County (Morristown).
For Related News:
Legal news about Fairfax Financial:
FFH CN <Equity> TCNI LAW <GO>
For Fairfax Financial stock performance:
FFH CN <EQUITY> COMP D <GO>
Top legal stories: TLAW <GO>
--Editors: Steve Geimann, William Ahearn
To contact the reporters on this story:
Anthony Effinger in Portland, Oregon,
at +1-503-471-1358 or aeffinger@bloomberg.net;
Thom Weidlich in New York at +1-212-617-2670
or tweidlich@bloomberg.net
To contact the editors responsible for this story:
Patrick Oster at +1-212-617-4088 or poster@bloomberg.net
?
And incidentally, while I said that the best single stock market call I've ever seen was Prem's 1999 Letter to Shareholders, I have to say that the 2006 Letter comes awfully close as well! Cheers!