NYT: Fairfax/ORH tax transaction proxied by BofA

[omagh]

Much more balanced coverage where the proponent is clearly identified through their affiliation with a hedge fund shorting Fairfax.  It may be the start of a new short campaign heading into hurricane season.  Keep your powder dry...

 

http://www.nytimes.com/2009/05/31/business/31gret.html

 

Still, Mr. Willens argues that the way Bank of America structured the deal — borrowing shares from other investors and transferring them temporarily to Fairfax — made it more of a “synthetic” than genuine consolidation for Fairfax.

 

“If the I.R.S. countenances this strategy, which involves the use of borrowed stock to achieve affiliation, a fertile new area of tax avoidance will become available,” Mr. Willens wrote, “and tax advisers can be expected to enthusiastically recommend it to their clients.”

 

Courts considering whether a stake has indeed been transferred from one party to another look at many factors. They include these: who has the risk of loss, who has the right to share in any gains and who can vote the stock. Fairfax notes that it, indeed, faced the risks of loss on the shares.

 

But the most important attribute, Mr. Willens says, is who has the right to sell the stake. And in the Fairfax-Odyssey deal, he says, Bank of America’s affiliate held on to that right.

 

For this and other reasons, Mr. Willens said, he believes Fairfax never secured true ownership of the Odyssey stock and the consolidation existed in appearance only.

 

A Bank of America spokesman, Lawrence Di Rita, declined to comment about the transaction. A person briefed on the bank’s work for Fairfax, who requested anonymity because of concerns about litigation, said that Fairfax designed the transaction and that it was the only time the bank had crafted such a structure.

 

Seth Faison, a spokesman for Fairfax, confirmed that the insurer had designed the transaction. He also said that Mr. Willens’s analysis is flawed — including its interpretation of the right to sell. “The transaction in question fully complied with the United States tax laws, and the closing of the 2003 and 2004 tax years by the I.R.S. confirms this conclusion,” he said.

 

Mr. Faison and Fairfax also contend that Mr. Willens can’t be objective about the transaction because he originally examined it for a hedge fund client that is in a legal dispute with Fairfax. The hedge fund, ICP, filed a whistleblower application with the I.R.S., citing Mr. Willens’s analysis of the Fairfax tax structure.

[ubuy2wron]

Gretchen has written many articles that have had negative slant re Fairfax. As has been well documented by the Deep capture blog she is part of a cabal of reporters and journalists who regularly report stories that further the interests of the short selling community

[alertmeipp]

I will be happy to if Fairfax get a short attack; Fairfax is sitting on lots of resources to fight this time.

They will probably welcome the short and enjoy the buy back in a lower price. Book value will yet increase because of it.

 

 

[Uccmal]

This is beyond the absurd.  I cant even imagine what these guys - ICP - hope to get out of this other than more legal fees.  The IRS closed the files on the years of concern, after a restatement, and extensive review. 

 

It strikes me as about a one in a thousand chance that the IRS has any intention of opening such a case back up given the hundreds to bigger fish they have to fry at the moment.  As for a short campaign, I cant imagine that anyone would try to take out Fairfax at this point when they can attack about 500 other stock exchange listed companies on a daily basis. 

 

This comes right out of Cale Darnegie's "How to lose money and alienate people".

[Zorrofan]

Does anyone else think that this smacks of desperation on the part of the shorts? Its so absurd that I can't think of any other explanation....

 

 

cheers

Zorro

 

 

[FFHWatcher]

What shorts?  No one is still shorting FFH.  250k shares is as close to zero as can be. 

Who stands to benefit? 

Perhaps we need to keep an eye on the May 15th to June 1st short interest change?  The average change in short interest has only been +/- 20k-50k shares every couple of weeks.  It would be interesting if this number was significantly larger between May 15 and June 1st. 

 

Of course, this subject has been done to death.  I wish I had $1. for every post that claimed the share price was going to skyrocket whenever these multi-million share shorts covered.  Shorts covered, FFH earned $2B on CDS's and the stock didn't skyrocket (but there was a big move plus short covering between Sept. 15 and Oct. 1, 2008.  500k shares covered and price went up from $220 to $320 but then 500k shares were covered the following 2 weeks and the sp went down and then another 500k shares were covered the following 2 weeks and the sp went down again, almost all the way back down to $220 but not quite.).  Therefore, following this stuff is pretty close to a waste of time, no?

[Viking]

For the benefit of new board members, attached is the press release from FFH that communicates the IRS' final assessment of the trasaction that lead to the 80% consolidation of ORH within the FFH tax group for 2003 & 2004:

- www.fairfax.ca/Assets/Downloads/Press/fpr2008-07-30.pdf

 

I remember Prem also had some choice words on the Q2 conference call regarding the short allegations at the time on this topic...

[ubuy2wron]

At the end of Feb FFH was the only financial that I am aware of that was trading at a yearly high in fact it was trading at a multi year high valuation. Some of the rise could be contributed to reported CDS profits etc some could be attributed to a massive reduction in the short position. I suspect that the massively positive relative performance of FFH in the medium term has to be as result of short covering. Clearly not a factor that one would want to ignore or is immaterial. ICP the party identified in Gretchen's  mild hatchet job is likely to have positions in CDS's not the stock but I am only guessing.

 

 

 

What shorts?  No one is still shorting FFH.  250k shares is as close to zero as can be. 

Who stands to benefit? 

Perhaps we need to keep an eye on the May 15th to June 1st short interest change?  The average change in short interest has only been +/- 20k-50k shares every couple of weeks.  It would be interesting if this number was significantly larger between May 15 and June 1st. 

 

Of course, this subject has been done to death.  I wish I had $1. for every post that claimed the share price was going to skyrocket whenever these multi-million share shorts covered.  Shorts covered, FFH earned $2B on CDS's and the stock didn't skyrocket (but there was a big move plus short covering between Sept. 15 and Oct. 1, 2008.  500k shares covered and price went up from $220 to $320 but then 500k shares were covered the following 2 weeks and the sp went down and then another 500k shares were covered the following 2 weeks and the sp went down again, almost all the way back down to $220 but not quite.).  Therefore, following this stuff is pretty close to a waste of time, no?

[omagh]

Hi FFHwatcher,

 

Turn over the other rock...look at ORH rather than FFH.  Short interest is still 1M+ on ORH and rising since March09.

 

-O

What shorts?  No one is still shorting FFH.  250k shares is as close to zero as can be. 

Who stands to benefit? 

Perhaps we need to keep an eye on the May 15th to June 1st short interest change?  The average change in short interest has only been +/- 20k-50k shares every couple of weeks.  It would be interesting if this number was significantly larger between May 15 and June 1st. 

[ubuy2wron]

Well since a large part of the FFh short a few years ago was an arranged short for FFh and its counterparty perhaps there is something similar going on with ORH.  I certainly have zero knowledge re the players anyone who is short a stock as thin as ORH is REALLY playing with fire imo. I think it is interesting how Gretchen has clearly picked sides re FFH I think some in the financial press are as corrupt as heck I do not know Gretchen personally however I find nothing balanced in her coverage.

[Zorrofan]

What shorts?  No one is still shorting FFH.  250k shares is as close to zero as can be. 

Who stands to benefit? 

Perhaps we need to keep an eye on the May 15th to June 1st short interest change?  The average change in short interest has only been +/- 20k-50k shares every couple of weeks.  It would be interesting if this number was significantly larger between May 15 and June 1st. 

 

Of course, this subject has been done to death.  I wish I had $1. for every post that claimed the share price was going to skyrocket whenever these multi-million share shorts covered.  Shorts covered, FFH earned $2B on CDS's and the stock didn't skyrocket (but there was a big move plus short covering between Sept. 15 and Oct. 1, 2008.  500k shares covered and price went up from $220 to $320 but then 500k shares were covered the following 2 weeks and the sp went down and then another 500k shares were covered the following 2 weeks and the sp went down again, almost all the way back down to $220 but not quite.).  Therefore, following this stuff is pretty close to a waste of time, no?

 

I am thinking more along the lines that it has become personal for "the shorts" FFH is suing rather than a fresh short attack

 

cheers

Zorro