November 14, 2014 / 4:40 PM / 5 years ago

UPDATE 2-Author Michael Lewis prevails in 'Big Short' libel appeal

(Adds comment from Lewis’ lawyer)

By Jonathan Stempel

NEW YORK, Nov 14 (Reuters) - The author Michael Lewis did not libel a money manager in his 2010 best-seller “The Big Short,” a divided federal appeals court ruled on Friday.

By a 2-1 vote, the 2nd U.S. Circuit Court of Appeals in New York rejected an appeal by Wing Chau and his firm Harding Advisory LLC over 26 alleged defamatory statements.

Chau sued Lewis in 2011 over a chapter titled “Spider-Man at the Venetian,” which recounted a January 2007 dinner conversation at the Wynn Las Vegas hotel between Chau and hedge fund manager Steven Eisman, who was allegedly betting against collateralized debt obligations that Chau favored.

Many CDOs were backed by residential mortgages that soured as housing prices slid. Their unraveling was one cause of the 2008 global financial crisis.

In suing Lewis, Eisman and Lewis’ publisher W.W. Norton & Co, Chau said the book portrayed him and other CDO managers as “crooks or morons,” and included made-up quotations suggesting he was incompetent or violated his duties to investors.

Writing for the 2nd Circuit majority, however, Circuit Judge Richard Wesley said that while Chau’s pride may have been wounded, the defendants were not liable.

“Market events of 2008 and 2009 may undoubtedly influence one’s perception as to whether going long on CDOs meant Chau was a fool, or Chau was a rube, or his motivations were avarice; but hindsight cannot give such opinions a defamatory meaning,” Wesley wrote. “Chau’s feelings may be hurt but his claims were rightly dismissed.”

The 2nd Circuit upheld a March 2013 dismissal of Chau’s lawsuit by U.S. District Judge George Daniels.

Circuit Judge Ralph Winter dissented, saying the challenged statements could have led a jury to find that Chau cheated investors or committed civil or criminal fraud.

Chau’s lawyer Steven Molo did not respond to requests for comment.

Celia Goldwag Barenholtz, a lawyer for Lewis and W.W. Norton, said her clients are pleased with the decision. She also said Chau refused to talk with Lewis for the book.

Eisman’s lawyer David Schulz said accepting Chau’s arguments would have “chilled informed commentary” on public events.

“The Big Short” was a New York Times best-seller for 28 weeks.

Chau is awaiting a decision in a U.S. Securities and Exchange Commission proceeding on whether he defrauded investors in a CDO for which Harding was collateral manager. (Reporting by Jonathan Stempel in New York; Editing by Nick Zieminski)

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