Hedge Funds Deny Secret Scheming Over CSX

May 23 2008 | 2:00am ET

A pair of hedge funds parried accusations of negotiating in bad faith with leaders of U.S. railroad CSX Corp. in court yesterday, as the judge in the case expressed skepticism about both sides’ claims.

Christopher Hohn of The Children’s Investment Fund and Alexandre Behring of 3G Capital Partners told a judge they had discussions early last year, but did not go into strategy or disclose the sizes of their stakes. Later that year, the two officially formed a group, which now holds a 12.3% stake in CSX and is seeking to elect five directors to the company’s board.

In their countersuit against CSX, the hedge funds called the railroad’s lawsuit, accusing them of securities law violations, the latest in “a long series of scorched-earth tactical maneuvers” by CSX.

While Judge Lewis Kaplan appeared to accept, at least in part, CSX’s complaint about how the hedge funds built their stake, calling it “opaque to the broader market,” he complained that “neither side has had very much to say on the question of what relief would be appropriate in this case, and why, in the event I find violations.”

CSX has asked Judge Kaplan to block the hedge funds’ slate of board candidates, block them from voting some of their shares and force them to sell part of their stake.

The judge is expected to rule before CSX’s June 25 annual meeting.


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