The billionaire Steven A. Cohen must again face a lawsuit accusing him and his former firm SAC Capital Advisors LP of conspiring with other hedge funds to spread false rumors about Fairfax Financial Holdings Ltd (FFH.TO) to drive down its stock price.
A three-judge panel of a New Jersey state appeals court on Thursday revived conspiracy, disparagement and other claims that had been dismissed in 2011 and 2012 against several defendants in the Toronto-based insurer's US$8-billion lawsuit.
But it upheld the dismissal of claims against two prominent hedge fund firms, Jim Chanos' Kynikos Associates PC and Daniel Loeb's Third Point LLC, and racketeering claims against all defendants, including Cohen and SAC.
Fairfax claimed it was a victim of a four-year "bear raid" in which the hedge funds campaigned to manufacture bogus accounting claims and biased analyst research, and persuaded reporters to write negative stories.
It said this was designed to generate profits from short sales, and ultimately "crush" or "kill" the company.
In a 156-page decision likening the 11-year-old case and its millions of pages of documents to a "fearsome" lion, Judge Clarkson Fisher said the trial judge was too quick to find no evidence of wrongful intent by SAC, whose trading "gave it financial goals aligned with the alleged conspiracy."
He also said SAC's alleged trading strategy was "further illuminated" by the firm's 2013 guilty plea to criminal insider trading and payment of US$1.8 billion in related settlements.
Fairfax was also allowed to pursue some claims against hedge fund Exis Capital Management Inc and Morgan Keegan, a brokerage that issued research about the company and its New Jersey-based Crum & Forster commercial insurance unit.
But the New Jersey court said the racketeering claims must be dismissed because they would not be permitted in New York, where most of the alleged misconduct took place.
It also said it lacked personal jurisdiction over Kynikos, Chanos, Third Point and Loeb, which are all from New York.
After SAC pleaded guilty, Cohen converted the firm into a family office, Point72 Asset Management LP.
Fairfax and its law firm said they were reviewing the decision. Spokespeople for Cohen and Loeb and a lawyer for Exis did not immediately respond to requests for comment.
Raymond James Financial Inc, which bought Morgan Keegan from Regions Financial Corp In 2012, declined to comment.
Stewart Aaron, a lawyer for Kynikos and Chanos, said they were "gratified by the court's well-reasoned decision."
The case is Fairfax Financial Holdings Ltd et al v. SAC Capital Management LLC et al, Superior Court of New Jersey, Appellate Division, No. A-0963-12T1.