Is Daniel Loeb Really A Liar?

Daniel Loeb’s Third Point, Steve Cohen’s SAC Capital Advisors LP, Jim Chanos’ Kynikos Associates Ltd. and Exis Capital Management Inc was shorting Fairfax Financial Holdings, believing that it has significant accounting irregularities and that it might be a fraud.

what is a hedge fund

Daniel Loeb wrote in a letter to his clients that Fairfax is one of the most thoroughly researched investments in Third Point’s history.

Fairfax sued short sellers in 2006, seeking more than $8 Billion in damages. According to Bloomberg News, Fairfax’s lawyers later asked for the “research documents” during the discovery phase but Third Point didn’t produce any research documents. Dan Loeb also had to admit in his deposition that he didn’t know what finite reinsurance was, despite the fact that he cited this as one of the bases for believing Fairfax was a fraud.

Does this make Dan Loeb a liar?

First, Fairfax had to restate its financial results one day after they filed suit against Loeb, Cohen, and Chanos. This is what Third Point said: “Third Point’s research regarding Fairfax was borne out when the company was forced to restate its financial statements, erasing over $235 million of shareholder equity just one day after this lawsuit was launched in 2006.”

Second, Dan Loeb doesn’t need to know what finite reinsurance is on order to short sell an insurance company. His analysts or partners can do the research. If they didn’t do the research themselves, it’s still OK. Maybe one of the other short sellers did the research and they relied on that. Jim Chanos has a reputation to short sell companies that have accounting irregularities. If we get a tip from Chanos that there’s something fishy going on at Company A, we may short sell that company too. There aren’t a lot of hedge fund managers who are as credible as Jim Chanos is.

If Chanos didn’t do the research himself and had been using outside consultants, that is still fine. What’s important is whether the claims were accurate or not. Fairfax had to restate its numbers and this gives a lot of credibility to the short sellers.

Short selling isn’t easy and short sellers do a necessary service for the financial markets by assuming enormous risks. When they are wrong, they get killed in the market. Whitney Tilson lost a bundle on his Netflix short for instance. When they are right, all they can get is 100% return. Short sellers aren’t the villians in the financial markets; they’re the underdogs.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!