Muddy WatersAs always, they're in for a fast buck before reality sets in and they go away. GLTA
Fairfax Financial Holdings Ltd. (FFH-T) was lower in response to short seller Muddy Waters placing bets against its shares, alleging manipulation in asset values.
Property and casualty insurers like Fairfax have until recently struggled since 2017 when they recorded huge losses due to billions of dollars in payouts on catastrophes.
“This underperformance pressured Fairfax into becoming aggressive in pulling accounting levers starting in 2018,” Muddy Waters said in a research note.
“We find that Fairfax has consistently manipulated asset values and income by engaging in often value destructive transactions to produce accounting gains.”
Fairfax could not be immediately reached for a comment. Short sellers make money by betting that the price of a security (such as a stock) will decrease.
Muddy Waters also alleged that Fairfax carried several of its investments at “unrealistic” carrying values. According to the hedge fund, the market value of its shares in Indian outsourcing provider Quess Corp was $477.2-million, while Fairfax continued to carry it at about $1-billion.
In 2019, Fairfax raised its stake in Quess to over 32 per cent after acquiring over 256,000 shares. As of Sept. 30, Fairfax carries the Indian company at a 87-per-cent premium to its market value, Muddy Waters said.
Last year, the hedge fund bet against the credit of the Luxembourg-based commercial landlord CPI Property Group in November and Blackstone’s real estate investment trust in December.