IN November 2005, a parcel arrived at St Paul’s Anglican church in Toronto addressed to the pastor, Rev Barry Park, claiming to be from a “P Fate” at New York’s St Patrick’s cathedral.

Inside the parcel, Park found a 30-page letter questioning why St Paul’s had allowed Prem Watsa, chief executive of Canada’s Fairfax insurance group, to remain on the church’s investment committee.

Watsa, the letter said, had a striking physical similarity to a convicted fraudster who had stolen huge amounts of money from the Vatican and was involved in sado-masochistic orgies.

The letter spared no detail, according to court documents filed by Fairfax. It was, it is alleged, part of a systematic campaign by some of the biggest Wall Street hedge funds to undermine Toronto-based Fairfax Financial Holdings, one of the world’s largest insurance firms.

Days after the letter was received at St Paul’s, a courier arrived at Fairfax’s Toronto offices with a package containing the same 30-page letter — this time addressed to Watsa. As he was delivering it, the courier took out a camera and began photographing the inside of the building.

Seven months later, as Fairfax was reeling from rumours of financial ill-health, the company said there was another strange incident — this time in London.

Someone purporting to be a journalist arrived at the London offices of Fairfax’s European subsidiary, Riverstone. He told the security guards he was doing a survey of large financial companies and needed some figures.

Once inside, however, he allegedly handed out cards that identified him as a “special situations research consultant” with “MI4 Reconnaissance”, based in New York. Allegedly, the phone number on the card was that of the Exis hedge fund and the address was that of Spyro Contogouris, a former analyst turned business consultant.

The so-called journalist began telling the staff at the London office that Fairfax had sold Riverstone, and he tried to get information from them. When staff challenged him, he told them he was calling an analyst in New York to check his facts, but was told to leave the building before he could finish his story.

Fairfax is now launching a $5 billion (£2.5 billion) lawsuit against some of the biggest hedge-fund managers on Wall Street, claiming they hired Contogouris and a Manhattan-based associate, Max Bernstein, to harass and intimidate executives.

The harassment is alleged to have included stalking and threats of imprisonment right down to adolescent pranks, such as jamming the answering machines of Watsa and the company’s financial officer with audio clips from Harry Potter movies and President Bush’s speeches.

It was allegedly part of a conspiracy by a group of hedge-fund mangers, known as “The Enterprise”, to drag down Fairfax’s share price and buy up the undervalued shares on the options market. Fairfax claims they set up misleading websites, wrote fictitious blogs, leaked false information to the media and encouraged analysts to write false financial reports.

Apart from Contogouris and Bernstein, the defendants include SAC founder Steven Cohen; Rocker Partners founder David Rocker; Exis Capital Management and its chief executive, Andrew Heller. They deny any wrongdoing. They say Fairfax, which posted $227.5m after-tax profits in 2006, is masking its own financial problems. They also deny that minutes of meetings obtained by Fairfax show a pattern of discussions designed to bring down the company.

Whoever is to blame, something strange was happening in London last year, according to Fairfax. The day after the journalist’s visit, a courier delivered a letter to former Fairfax finance chief Trevor Ambridge at Advent, another Fairfax subsidiary.

The envelope contained a letter with a “MI4 Reconnaissance” heading. Its tone was both formal and alarmist. “No doubt you are aware that these are very critical times for your former employer, Fairfax Financial Holdings,” it read. “I am available to meet with you in London at your earliest convenience. I would like to lay out a series of maps, flowcharts and related exhibits which I have put together that I feel are missing some critical pieces.”

Urging Ambridge to “look to the lessons of Enron”, the sender offered to introduce him to a “former high-ranking investigator for the US government” who could act as a confidential liaison with American and British regulators. The letter, it is claimed, was signed “Spyro”, with a contact e-mail of Spyromi4@aim.com, an account allegedly controlled by Spyro Contogouris.

After seeking advice from Fairfax’s lawyers and security officers, Ambridge agreed to meet this mysterious source. It is alleged that Contogouris was the mysterious contact, and that he offered to put Ambridge in touch with a “former special agent of the secret service and FBI”.

Despite claiming to be working with the US government, Contogouris allegedly switched to the name “Martin Gardener” in subsequent correspondence.

“I do not stay in hotels under any Christian name when meeting insiders at companies,” he is said to have written in one e-mail. “Clearly it leaves my options open in telling my story in the event I am ever subpoenaed. Capisce [understand]?”

Fairfax claims Contogouris warned Ambridge to “just think what I could do with all your e-mails” and said he would regret it if Contogouris went public.

When he didn’t reply, Contogouris allegedly sent an e-mail to Ambridge’s work account saying: “RUN, RABBIT, RUN” and telling him to get in contact.

In the same month that the bizarre letter arrived at Watsa’s church in Toronto, an interview with Catherine Regan, Riverstone’s Brighton-based lawyer, appeared on the legal website, Lawyer.com. The article, by journalist Helen Morris, included a photograph of Regan leaning against the nose of a giant statue.

Months later, in 2006, according to the court documents, Regan received an e-mail from Spyromi4@aim.com. “I am reading about you in Lawyer News and am stunned by the fact that you are posing next to the largest nose I have ever seen,” read the e-mail. “Being so close to such a nose, one would think the sense of smell would rub off on you. In particular, can you smell the very serious negative issues that are facing runoff for Fairfax? Issues which you seem to have glossed over when meeting with Miss Helen Morris for your article.”

Fairfax said the e-mail ended with the “ominous” line: “I will be seeing you soon.”

To Fairfax’s delight, Contogouris was charged with wire fraud last month in an unrelated case in Manhattan. Fairfax said its lawsuit was not designed asa distraction while its share price was slipping but was to stop the forces that were causing it to drop. It said the case was just the latest in a series that showed how hedge-fund managers conspired to bring down perfectly legitimate companies.

“They have vilified [our] company for no other reason than to make a profit,” said Fairfax. “After all this negative talk, the truth is finally coming out.”

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