September 14, 2011 / 5:00 PM / 6 years ago

Cohen's SAC Capital scores legal win over Fairfax

* NJ judge dismisses five-year-old suit against fund

* Judge finds no wrongful trading by SAC Capital

* Fairfax to appeal ruling

NEW YORK, Sept 14 (Reuters) - Hedge fund titan Steven Cohen scored a legal victory when a New Jersey judge tossed out a long-running civil lawsuit filed against his SAC Capital Advisors by insurer Fairfax Financial Holdings (FFH.TO).

In court order signed on Sept. 12, New Jersey Superior Court Judge Stephan Hansbury dismissed Fairfax’s claims that SAC Capital had conspired with other hedge funds to spread negative information about the Canadian company in a bid to drive down its stock.

The judge has yet to rule on motions filed by other hedge fund defendants, including Daniel Loeb’s Third Point Financial and Jim Chanos’ Kynikos Associates, to dismiss the five-year-old lawsuit.

“After five years of litigation, the court’s ruling affirms, as we have always maintained, that this vexatious proceeding against us was entirely baseless and without merit,” said SAC Capital’s general counsel, Peter Nussbaum.

A spokesman for Fairfax said the insurer will appeal the ruling, “which it believes is incorrect.”

Reuters, along with Bloomberg News, are intervenors in the civil lawsuit, seeking access to millions of pages of documents and depositions that have been sealed in the case. Reuters, for instance, is opposing a motion to keep sealed portions of Cohen’s lengthy deposition in the dispute.

In the lawsuit, Fairfax alleges the hedge funds worked together with industry consultants to persuade financial reporters to write negative stories about Fairfax from 2003 to 2006 in an attempt to “crush” the company’s stock. The insurer claims the hedge fund defendants were shorting, or betting against, Fairfax’s stock and hoped to profit from a decline in the share price.

    SAC Capital, throughout the litigation, has argued that it traders rarely shorted Fairfax and had little communication with the other hedge funds. The judge, in ruling for SAC Capital, clearly accepted the hedge fund’s argument.

    “Plaintiffs pointed to no direct evidence which establishes a conspiracy of which SAC was part of,” said Judge Hansbury. “Most tellingly, is SAC’s trading reports in Fairfax securities. The fact that at no time did SAC trade similarly to its alleged Enterprise Members is baffling, and without explanation by plaintiffs.”

    The dismissal is the latest in a series of legal victories for Cohen and his $12 billion Connecticut-based hedge fund.

    In November 2010, Valeant Pharmaceuticals (VRX.TO) paid $10 million to settle a lawsuit in which SAC Capital charged a company acquired by Valeant had engaged in “vexatious” litigation. SAC Capital had filed the lawsuit against Biovail, a small Canadian biotech that was subsequently acquired by Valeant.

    The hedge fund sued Biovail in February 2010 shortly after a New Jersey federal court judge dismissed a similar hedge fund conspiracy lawsuit against SAC Capital. In that litigation, Biovail also alleged that SAC Capital conspired with other hedge funds to drive down its stock price.

    Biovail and Fairfax were both represented by the same New York law firm Kasowitz Benson Torres & Friedman. The law firm declined to comment. (Reported by Matthew Goldstein; Editing by Steve Orlofsky)

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