Just when you thought the only embarrassing hedge fund dialogue would be coming out of the government’s lawsuit against Raj Rajaratnam, a lawsuit against Dan Loeb has just doubled the fun.As a primer: Loeb and other hedge fund managers are involved in a bitter five-year legal battle with Canadian insurer Fairfax Financial, which has accused Third Point and other hedge funds of an “organised a campaign to drive down the prices of Fairfax’s shares” because they were shorting the stock.
Jim Chanos, Steve Cohen and Adam Sender have all been accused in the lawsuit all “spread disinformation… to a number of business journalists.”
Anyway, back in June 2006, according to Reuters, Loeb “was having difficulty containing his very harsh feelings toward Fairfax… and its CEO, Prem Watsa.”
So he wrote to Adam Sender, of Exis Capital, to shoot the breeze: “Prem Watsa bend over the hedge funds have something special for you,” he said. Then on the same day, he wrote another email to a consultant who was doing research for a few of the firms who were shorting Fairfax, saying “die, Prem Die!”
Apparently Sender’s emails are even worse: in one he reportedly jokes about how Fairfax CEO Prem Watsa “would set a record for a certain sexual act involving swallowing if he ever went to jail.” Reuters didn’t reprint the email literally.
In a series of IM’s to another trader from 2003, Loeb compared Fairfax to “hitler himself” when the firm’s share price rebounded in the insurer’s share price. He also apparently wrote,
“the odds are much greater of being strung up by a canadian Jew than a canadian schwarze.” Loeb, who is Jewish, used “schwarze,” a derogatory Yiddish word for a black person, to describe Watsa, who is of Indian ancestry.
Fairfax filed suit in 2006, and want $6 billion in damages, alleging the hedge funds harassed the firm’s CEO, intimidated executives and sent out slanderous research reports to their investors, all of which “depressed [Fairfax] credit ratings, diminished its ability to make acquisitions, and reduced the amount it could raise in debt and equity offering,” according to Businessweek.
Loeb and the other hedge fund managers deny the allegations. But those denials are going to be hard to swallow if more of those old emails and some of “10 million pages of previously sealed documents” do end up being unsealed. There are no emails from Steve Cohen in the complaint (which isn’t surprising — he knows better than that), and only a few from Jim Chanos.
The disclosure of those emails in a recent 800-page court filing by Fairfax’s lawyers comes at an especially awkward time for Loeb, who emerged in 2010 as one of the $1.9 trillion hedge fund industry’s star performers… The emails, however, are a rude reminder of Loeb’s earlier days, when he was perhaps best known for sending caustic letters to the boards of companies his fund had taken a big stake in.
Loeb’s lawyer told Matthew Goldstein at Reuters: “It’s unfortunate that your readers are going to be viewing this entirely from plaintiff’s spin on snippets of dated personal emails of Daniel Loeb’s, without the context of actual documents in this case.” Adam Sender wrote: “seems beneath your organisation to write about something so trivial and meaningless.”