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Author Michael Lewis prevails in 'Big Short' libel appeal

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Author Michael Lewis prevails in 'Big Short' libel appeal

(Reuters) — The author Michael Lewis did not libel a money manager in his 2010 best-seller “The Big Short,” a divided federal appeals court ruled on Friday.

By a 2-1 vote, the 2nd U.S. Circuit Court of Appeals in New York rejected an appeal by Wing Chau and his firm Harding Advisory L.L.C. over 26 alleged defamatory statements.

Mr. Chau sued Lewis in 2011 over a chapter titled “Spider-Man at the Venetian,” which recounted a January 2007 dinner conversation at the Wynn Las Vegas hotel between Mr. Chau and hedge fund manager Steven Eisman, who was allegedly betting against collateralized debt obligations that Mr. Chau favored.

Many CDOs were backed by residential mortgages that soured as housing prices slid. Their unraveling was one cause of the 2008 global financial crisis.

In suing Mr. Lewis, Mr. Eisman and Mr. Lewis' publisher W.W. Norton & Co., Mr. Chau said the book portrayed him and other CDO managers as “crooks or morons,” and included made-up quotations suggesting he was incompetent or violated his duties to investors.

Writing for the 2nd Circuit majority, however, Circuit Judge Richard Wesley said that while Mr. Chau's pride may have been wounded, the defendants were not liable.

“Market events of 2008 and 2009 may undoubtedly influence one's perception as to whether going long on CDOs meant Mr. Chau was a fool, or Mr. Chau was a rube, or his motivations were avarice; but hindsight cannot give such opinions a defamatory meaning,” Judge Wesley wrote. “Chau's feelings may be hurt, but his claims were rightly dismissed.”

The 2nd Circuit upheld a March 2013 dismissal of Mr. Chau's lawsuit by U.S. District Judge George Daniels.

Circuit Judge Ralph Winter dissented, saying the challenged statements could have led a jury to find that Mr. Chau cheated investors or committed civil or criminal fraud.

Mr. Chau's lawyer Steven Molo did not respond to requests for comment.

Celia Goldwag Barenholtz, a lawyer for Mr. Lewis and W.W. Norton, said her clients are pleased with the decision. She also said Mr. Chau refused to talk with Mr. Lewis for the book.

Mr. Eisman's lawyer David Schulz said accepting Mr. Chau's arguments would have “chilled informed commentary” on public events.

“The Big Short” was a New York Times best-seller for 28 weeks.

Mr. Chau is awaiting a decision in a U.S. Securities and Exchange Commission proceeding on whether he defrauded investors in a CDO for which Harding Advisory was collateral manager.

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