Elliott Management has dropped its motion to compel discovery against AR, two days before the financial magazine was to file its response to the hedge fund in New York State Supreme Court. Elliott was asking the court to make AR reveal the source of a news story based on the fund’s quarterly investor letter. The story appeared online on August 26 and is in the September edition of AR, which has been mailed to readers.
“The fact they filed this notice of voluntary discontinuance means they knew their motion was meritless and would not succeed. It’s clear that they totally ignored applicable precedent and privilege afforded under the New York shield law to reporters in New York,” said John Pelosi, partner with Pelosi Wolf Effron & Spates who is the attorney for AR magazine.
“This was a blatant attempt to bully us and it backfired. I hope this is a lesson for those who seek disclosure of confidential information from reporters,” said Michelle Celarier, editor of AR magazine. “While trying to intimidate us into not publishing the story, Elliott did a disservice to itself.” The petition, which was unprecedented, received widespread press coverage and, as a result, brought attention to the information Elliott sought to keep out of the public eye.
“Elliott has a reputation for using its vast resources to exert its power and influence over competitors, adversaries and now evidently financial journalism,” Celarier wrote in the affidavit that was to be filed
on September 2.
“Because hedge funds are private investment vehicles, little information about them is available to the public,” Celarier’s affidavit added. “New financial regulations passed in Congress this year will change that very little. At the same time, this industry controls close to $2 trillion in assets globally. Historically hedge funds were for the super wealthy, but now college endowments and corporate and public pensions are becoming their dominant investors. These investors have long clamored for more transparency, a call that became louder after the financial crisis of 2008 …Our economy, our educational institutions and our retirements are best served by a financial media that is independent of financial pressure or coercion.”
“Due to the secretive nature of hedge funds, financial journalists often rely on confidential sources,” Celarier concluded. “The protection of these sources’ identities is sacrosanct to our jobs as journalists.”
(The full unfiled affidavit is available here.)
“Elliott Management Corporation today withdrew its petition seeking discovery from Absolute Return+Alpha because developments since the application was filed made the discovery unnecessary,” wrote Scott Tagliarino in an email to AR.
“The only development is that AR went ahead and printed the story against Elliott’s wishes,” Celarier said.
Elliott filed a petition in the court on August 19 alleging that the disclosure of the fund’s positions and their performance—which are included in the letter and the story—would “cause significant harm to Elliott and negatively affect its competitive advantage in relation to other market participants.”
Elliott’s legal action was an unusual move even in the opaque world of hedge funds. Managers have lately taken steps to prevent their documents from being widely distributed, such as watermarking them or employing technology that does not allow users to print or forward them, but this is believed to be the first time a hedge fund manager has taken legal action against a publication in an attempt to uncover a source. The complaint has received a fair amount of news coverage, including a front-page story in the New York Post’s business section on August 21. AR has already published a story online about the investor letter, including information about some of its positions. Elliott, which manages $17 billion, was founded 33 years ago by Paul Singer.