Money managers deny improper activity in CSX case

By Martha Graybow

NEW YORK, May 22 (Reuters) - Two money managers said in court on Thursday that they did not secretly discuss a joint strategy to acquire stakes in CSX Corp (CSX.N: Quote, Profile, Research, Stock Buzz) months before they disclosed they had formed a group to try to shake up the rail company's board of directors.

The testimony by officials at 3G Capital Partners and The Children's Investment Fund Management (TCI), a London-based hedge fund known for its shareholder activism, came on the second day of a civil trial in U.S. District Court in Manhattan.

CSX sued the funds in March, saying they had violated federal securities laws aimed at preventing groups of investors from secretly coordinating their efforts because they did not properly disclose their holding in the company.

The Jacksonville, Florida-based rail company wants the court to block the funds from proposing their slate of five alternate candidates to the 12-member board, block the funds from voting some shares and force them to sell part of their CSX stake.

The funds countersued, accusing the railroad of securities law breaches including illegally enriching corporate directors. They contend in court papers that CSX's lawsuit is the latest in "a long series of scorched earth tactical maneuvers" by the board and CEO Michael Ward to entrench themselves.

Under questioning by a lawyer for CSX, TCI Managing Partner Christopher Hohn testified that he told 3G Managing Director Alexandre Behring in January or February of 2007 about TCI's investment in CSX but did not provide details about the size of the position. The funds officially announced in December 2007 that they had formed a group and intended to nominate a minority slate of directors.

In early 2007, "we had a discussion about the sector," Hohn said. But "I believe I did not" tell Behring about the position size, Hohn testified.

Behring also took the stand, saying that he did not recall discussing the total position that 3G had taken in CSX ahead of the discussions on forming a group with TCI later that year.