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July 29, 2006

Do Dirty Words Drive Down Share Value?

It’s a war of words and it’s getting downright dirty. The battle is heating up between the Canadian insurance firm Fairfax Financial Holdings Ltd. and the hedge fund SAC Capital Management LLC.
Fairfax has filed a lawsuit that alleges that SAC, together with other hedge funds, a research analyst, and a few hedge fund operatives, tried to muddy the personal and professional lives of Fairfax’s CEO Prem Watsa, in an attempt to reduce the company’s share value and gain huge profits in the process.

The rumors spread according to the lawsuit include:

  • An RCMP raid on Fairfax offices.
  • News that Watsa had fled the country after transferring his assets to his wife.
  • A letter sent to Watsa’s pastor comparing Watsa and a conman who scammed the Catholic Church. The letter paralleled Watsa’s management of Fairfax and his handling of his church’s funds to the fraudster’s money-laundering scheme.

This is not the first time that hedge funds have been accused of such lowdown tactics. Don’t the US Securities and Exchange Commission (SEC) regulations seem a good idea now?

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