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Short seller Jim Chanos’s firm Kynikos saw negative research on Fairfax Financial (NYSE: FFH) before it was published, according to a Bloomberg article referencing unsealed court documents. Kynikos apparently forwarded at least one such report by email to Steve Cohen’s SAC Capital, another defendant in Fairfax's ongoing lawsuit against short sellers.

It is conventional wisdom on Wall Street that companies suing short sellers are bad companies and that they deserve to be shorted. Even if one agrees with this view generally, one has to acknowledge that the Fairfax case is different. Fairfax is a real company with real assets and real businesses.

Fairfax is run by Prem Watsa, one of the most respected investors and corporate managers in Canada. Watsa’s integrity has remained unquestioned by almost everyone except the shorts themselves. And while many other financial services firms have been crippled or gone bust recently, Fairfax has prospered due to Watsa’s conservatism and investment acumen.

The only thing the shorts got right in the Fairfax situation is that they went after a company that depends on the perception its customers have of the company’s soundness. Shorting a company of this kind while spreading vicious rumors can become a self-fulfilling prophecy as customers get scared and take their business elsewhere.

The shorts almost succeeded in their attack against Fairfax, and if they had, billions of dollars of value would have been destroyed. The shorts were not simply making a bet in the stock market. They attempted to destroy someone else’s property. They should have to pay for this.

Disclosure: No position in FFH.

Source: More Evidence Against Fairfax's Short Sellers