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November 16, 2006

Leading Hedge Fund SAC Capital Charged With Wire Fraud

posted by MR WAVETHEORY at 11/16/2006 04:09:00 AM
Hedge funds are all the rage and the king of hedge funds, or at least a prince among them, is SAC Capital which runs $10 billion. SAC has generated such high returns that it charges 50% carry. Clearly, their success has caught up with them.

Fairfax Financial Holdings Limited (USA) (NYSE FFH) is suing SAC Capital Management and a number of other hedge funds for supposedly running a smear campaign to drive the company's stock down and profit by short selling. Though SAC Capital and the other funds vigorously deny the allegations, Fairfax claims the funds used Spyro Contogouris and Max Bernstein as "operatives" to fabricate research reports and make harassing phone calls.

Now federal prosecutors have charged Contogouris with wire fraud and stealing $5 million from former employers.

According to the U.S. District Attorney's office, Contogouris continued to steal money from his employer even after he was fired. He allegedly used some of the money to purchase residences for himself and his family.

Contogouris was released Tuesday on a $200,000 bond. If convicted, he could face up to 20 years in prison and fines of more than $10 million.

The charges are unrelated to the Fairfax case, but add another level of complication to the already messy short selling controversy.

The Federal Bureau of Investigations has gotten involved in the matter, and agent B.J. Kang provided testimony against Contogouris. Kang has also provided testimony against another short selling figure, Michael Lair.

Last week, Lair was charged in a separate short selling matter also involving SAC Capital. Lair allegedly went to the attorneys of Biovail Pharmaceuticals, another company suing SAC for improper short selling, and offered to provide them with evidence against the fund. The lawyers provided him with $6,000 in travel-related expenses, but he never produced any evidence.

Lair later went to the lawyers of SAC and offered to sell them information against Biovail for $50,000. SAC's lawyers reported the matter to the FBI and Lair was subsequently arrested.

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