Hedge Funds Want Courtroom Adversary To Get New Lawyer

Jul 22 2011 | 12:15pm ET

Three hedge funds want a law firm tossed off a five-year-old lawsuit against them, accusing Kasowitz Benson Torres & Friedman of dirty tricks in building its case.

Kynikos Associates, SAC Capital Advisors and Third Point joined an earlier motion made by Morgan Keegan & Co., to have Kasowitz disqualified from the case. The hedge funds and the investment bank have been accused of conspiring to drive down the share price of Canadian insurer Fairfax Financial Holdings, which is represented by Kasowitz.

According to the hedge funds' motion, investigators hired by Kasowitz's investigative unit met with the Morgan Keegan analyst who was accused of tipping the hedge funds in advance of a negative research report on Fairfax, under false pretenses.  The two men, Jeffrey Kaplan and Kenneth Cain, met with the analyst, the late John Gwynn, just a month before Kasowitz filed the Fairfax suit, claiming to represent a fake hedge fund, Blackwood Group Capital Partners, Morgan Keegan alleged.

The two men "continued trying to set up a meeting with Gwynn despite knowing he was represented by counsel and despite an express request not to communicate with him" after the lawsuit was filed, the hedge funds claim. Kaplan and Cain were seeking "admissions damaging to Gwynn and Morgan Keegan outside the presence of counsel."

"This meritless motion misrepresents the facts and the law," Kasowitz's Mitchell Schrage said. "It is nothing but an effort to distract attention from the fact that defendants have no valid defense to Fairfax's [racketeering] and other claims or the enormous damages flowing from those claims." Fairfax is seeking $8 billion.

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