* Hedge fund manager Dan Loeb sends subpoenas to reporters
* Loeb lawyer now says reporter testimony unnecessary
* At least one reporter may still have to testify
By Matthew Goldstein
NEW YORK, March 7 Some well-known business
journalists are getting caught in the legal crossfire between a
Canadian insurer and a group of hedge funds it accuses of
betting against its shares.
Last month, in a little-noticed move, Daniel Loeb, one of
several prominent hedge fund managers sued by Fairfax Financial
(FFH.TO), served subpoenas on a number of journalists seeking
to take their depositions in the now five-year-old litigation.
Fairfax alleges that Loeb, who manages Third Point LLC,
teamed up with famed short-seller James Chanos and SAC Capital
Advisors founder Steven Cohen to spread disinformation about
the insurer to a number of business journalists. The
Toronto-based company claims the hedge fund managers organized
a campaign to drive down the prices of Fairfax's shares because
they were shorting, or betting against, its stock.
Short sellers profit when a company's share price falls.
Loeb, however, appears to have had a recent change of heart
about the subpoenas, which were sent to columnist Joe Nocera of
The New York Times and former Fortune writer Bethany McLean,
among others. A lawyer for Loeb told Reuters on Monday the
subpoenas were withdrawn.
"Third Point has no intention of seeking testimony or
documents from any member of the media, and any prior subpoenas
issued to journalists have been fully withdrawn," said Loeb
attorney Bill Carmody of Susman Godfrey in New York.
But at least one other defendant in the case, which is
pending in New Jersey state court, is still seeking to take a
deposition of a reporter who once wrote about Fairfax.
Seeking to take testimony from journalists is often
controversial because it can infringe on protection afforded to
the press under the First Amendment.
One journalist who may still be deposed is Peter Eavis, a
former columnist with The Wall Street Journal. Eavis was served
a subpoena by lawyers for Morgan Keegan and Co, another
defendant, over columns he wrote about Fairfax when he worked
Fairfax alleges that a former Morgan Keegan analyst gave
some of the hedge fund managers advance notice of critical
research report he was about to issue on Fairfax.
A lawyer for the Tennessee-based brokerage, which is a
division of Regions Financial (RF.N), declined to comment.
Eavis' lawyer, Elizabeth McNamara, said her client had yet to
receive the subpoena.
Lawyers for Fairfax recently said in court filings that
they may seek to take testimony from former New York Post
reporter Roddy Boyd, now a freelance writer. In court papers,
Fairfax's lawyers argue that Boyd wrote a number of critical
stories about Fairfax after receiving information from people
working for the hedge fund managers. Boyd declined to comment.
Fairfax attorney Michael Bowe said if Third Point decides
not to go ahead with its depositions of journalists, his client
also may abandon plans to take testimony from Boyd.
Reporters often will fight requests to testify on the
grounds that it may turn them into advocates for a particular
point of view, or it could force them to divulge the identify
of confidential sources.
For instance, the Securities and Exchange Commission in
2006 was forced to abandon a plan to take testimony from
several journalists during an investigation into allegations
that some traders were trying to manipulate shares of online
discount retailer Overstock.com. (OSTK.O) The SEC did a quick
about-face and decided not to take testimony from reporters
after several news organizations protested.
A number of the reporters served with subpoenas by Loeb's
lawyers had hired lawyers to fight the deposition demand, said
people familiar with the situation.
Loeb and the other hedge fund managers contend they did
nothing wrong and are being targeted by Toronto-based Fairfax
simply because some of their funds were betting on a decline in
the insurer's stock price.
The case is captioned Fairfax Financial v. SAC Capital
Management, Morris County, NJ, MRS-L-2032-06.
(Reported by Matthew Goldstein, editing by Matthew Lewis)