Jim Chanos, SAC Saw Nonpublic Fairfax Research, Unsealed Court Papers Show

[ASusilovic]

Feb. 12 (Bloomberg) -- Jim Chanos’s Kynikos Associates Ltd., a short seller of Fairfax Financial Holdings Ltd., learned of negative analyst research on that company before it was published, according to unsealed court documents.

Chanos, Steven Cohen’s SAC Capital Advisors LLC and other hedge-fund managers were accused in 2006 by Fairfax of cooperating to drive down the firm’s shares through short sales, according to a complaint by Fairfax seeking $6 billion in damages. Toronto-based Fairfax owns U.S. and Canadian insurers.

Chanos forwarded an e-mail about research by John Gwynn, an analyst with brokerage Morgan Keegan & Co., to rival SAC Capital, the documents show. Morgan Keegan fired Gwynn for telling clients before publication that he planned a negative report. Morgan Keegan and Gwynn were also sued. All defendants denied Fairfax’s claims. Fairfax filed that e-mail and others provided by the defendants with a New Jersey state court to support its claims.

“Last night John Gwinn at Morgan Keegan faxed over to me an outline detailing the issues at FFH, basically those he will be publishing,” Mark Heiman, then an analyst at Kynikos, wrote in a Dec. 21, 2002, e-mail to Chanos that was filed in the case.

FFH is Fairfax’s stock ticker. Gwynn’s name is misspelled in the e-mails, unsealed at the request of Bloomberg News.

Gwynn’s first report on Fairfax was dated Jan. 16, 2003, and released the next day.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ai9xJ42wz7fk&refer=home

Short selling de luxe...

 

[rolextrader]

Now that's a real edge.

 

[patchie]

What is amusing is that Chanos sends this report to a rival and yet, when Chanos meets with the SEC and Congress he whines about proprietary trade strategies. Chanos has fought all transparencies in this area calling such disclosure dangerous. Chanos likewise argues that the information he gathers is proprietary. That he spends significant capital researching these companies and his research should not be handed to the public for free.

I wonder, does Goldman Sachs contact Merrill Lynch and discuss trade strategies or is this limited to hedge funds looking for that edge? I hope both find that 8 X 8 cell they have long deserved.