Fairfax Financial Holdings (FFH) has been accused of “abusive accounting” by research firm and activist short seller Muddy Waters, which revealed Thursday morning it has taken a short position in the group.
Muddy Waters, led by CIO Carson Block, this morning alleged that FFH has manipulated asset values and income by “engaging in value destructive transactions aimed at generating accounting gains”.
In a research report shared with Insurance Business, Muddy Waters claimed that Fairfax’s book value, which Muddy Waters pegged at $4.6 billion, “should be” around 18% lower than reported.
Up to 60% of Fairfax Financial’s book value increase from 2017 onwards relates to “abusive” accounting stemming in cases from “value-destructive, non-substantive transactions”, Muddy Waters alleged.
Fairfax Financial was further accused of “badly missing” its long-term target of compounding book value at 15%.
In its report, activist short seller Muddy Waters labelled Fairfax Financial “more GE than Berkshire Hathaway”.
Allegations included that Fairfax post-IFRS 17 financial impacts are “too good to be true”. Muddy Waters further alleged that 2021 Odyssey and Brit share issuances were tantamount to “disguised financing transactions” that resulted in “highly dubious” $544.5 million accounting gains.
Muddy Waters’ short position means it is effectively betting against the group.
Fairfax Financial was not immediately available for comment on Thursday morning.
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