Canada’s Fairfax denies Muddy Waters’ short report in expanded rebuttal

By Thomson Reuters Feb 12, 2024 | 9:12 AM

(Reuters) – Fairfax Financial on Monday denied allegations by Muddy Waters Research that the Canadian insurer was manipulating asset values, saying the short-seller’s report was “false and misleading”.

The detailed counter comes days after the company’s brief initial response to the report in which Muddy Waters had accused Fairfax of often engaging in “value destructive transactions” to produce accounting gains.

Fairfax said Muddy Waters neither called it nor wrote to it, and instead released the report during its quiet period with its “one-sided, ill-informed allegations and insinuations in a transparent attempt to profit by short selling our stock”.

Publicly traded companies are typically subjected to a quiet period of a few weeks prior to reporting their quarterly results. They are prohibited from discussing material financial information during this period.

Toronto-based Fairfax is set to report its fourth-quarter results on Thursday.

“They have woefully misjudged the strength of Fairfax’s financials and prospects and we are confident the marketplace will reflect our strong fundamentals,” Fairfax said.

Short sellers make money by betting that the price of a stock will decrease. Shares of Fairfax slipped 11.9% after the report was released last Thursday, but recouped some of their losses a day later.

“We look forward to a substantive response from Fairfax that actually addresses our findings,” Muddy Waters said in an emailed statement to Reuters.

Founded in 1985 by Canadian-Indian billionaire Prem Watsa, who is known as “Canada’s Warren Buffett”, Fairfax is engaged in property and casualty insurance and reinsurance, through its subsidiaries.

Muddy Waters had said in its report last week Fairfax “was far more akin to GE than to Berkshire Hathaway”.

“We are neither Berkshire Hathaway, nor GE, as Muddy Waters suggests. We are Fairfax, a strong and enduring company built over 38 years,” Watsa said in a statement on Monday.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shilpi Majumdar)