UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

SHANE JOHNSON, Individually And No. On Behalf of All Others Similarly Situated,

Plaintiff, CLASS ACTION COMPLAINT v. FOR VIOLATIONS OF FEDERAL SECURITIES LAWS FAIRFAX FINANCIAL HOLDINGS LIMITED, V. PREM WATSA, GREG TAYLOR, TREVOR AMBRIDGE and M. JANE WILLIAMSON, JURY TRIAL DEMANDED

Defendants.

This is a federal class action on behalf of purchasers of the common stock of Fairfax

Financial Holdings Limited (“Fairfax” or the “Company”) between March 24, 2004 and March

22, 2006, inclusive (the “Class Period”), seeking to pursue remedies under the Securities

Exchange Act of 1934 (the “Exchange Act”). As alleged herein, defendants published a series of materially false and misleading statements that defendants knew and/or recklessly disregarded were materially false and misleading at the time of such publication, and that omitted to reveal material information necessary to make defendants’ statements, in light of such material omissions, not materially false and misleading.

NATURE OF ACTION

1. Throughout the Class Period, Fairfax engaged in property and casualty insurance and reinsurance, conducted on a direct basis principally in Canada, the United States, and the United

Kingdom. The Company provided claims adjusting, appraisal, and loss management services.

Fairfax also operated in continental Europe, the Far East, Latin America, and the Middle East. The

Company was incorporated in 1951, and was formerly known as Markel Service of Canada Limited. It subsequently changed its name to Markel Financial Holdings Limited, and then, in 1987, to

Fairfax Financial Holdings Limited. Fairfax is listed on the Toronto Stock Exchange under the symbol FFH.SV and on the New York Stock Exchange under the symbol FFH.

2. Throughout the Class Period, defendants presented Fairfax as a company that managed its insurance and reinsurance businesses on a cost effective basis, and repeatedly stated that Fairfax maintained systems, procedures and controls that gave it a competitive advantage and enabled the Company to provide such services while producing strong profits for Fairfax and its investors. Defendants also stated that they had complied with the stringent reporting requirements of United States Generally Accepted Accounting Principles (“U.S. GAAP”), and voluntarily complied with the relevant reporting provisions of the Sarbanes-Oxley act.

3. The representations concerning the Company’s finances as well as its systems and controls were either untrue or they were providing defendants with information that they knew or recklessly disregarded was in stark contrast to defendants’ positive statements concerning the

Company’s strength and profitability. Throughout the Class Period, the Company was suffering from a host of undisclosed adverse factors that were negatively impacting its business and that would cause Fairfax to report declining financial results, materially less than the market expectations defendants had caused and cultivated.

4. Unbeknownst to investors, at all times during the Class Period, the true but undisclosed facts about the Company were that:

* Defendants had manipulated Fairfax’s accounting for purchases and sales of certain “finite risk” reinsurance to and from the Company’s captive subsidiaries,and/or allowed such manipulation to occur.

* Defendants allowed and/or authorized the Company to enter into bogus reinsurance contracts with Odyssey Reinsurance Holdings Ltd. (“Odyssey Re”) and Northbridge Financial Corp. (“Northbridge”). These transactions were nothing more than accounting machinations that artificially inflated the Company’s reported financial performance.

* Defendants did not maintain adequate systems of internal operational or financial controls within Fairfax, such that the officers and directors of the Company could assure that its reported financial statements were true, accurate or reliable.

* As a result of the acts or omissions of defendants, the Company’s financial statements and reports were not prepared in accordance with GAAP and SECrules.

* As a result of the above, defendants lacked any reasonable basis to claim thatFairfax was operating according to guidance sponsored and/or endorsed bydefendants, or that the Company could achieve such guidance.

5. It was only at the end of the Class Period that investors learned that the Company had engaged in inappropriate “finite risk” insurance transactions with its captive subsidiaries, including Odyssey Re and Northbridge. Defendants then revealed that V. Prem Watsa and others related to the Company had received subpoenas from U.S. market regulators concerning

Fairfax’s finite risk insurance business. Market regulators are now investigating these finite risk insurance transactions to determine if they were improperly used to artificially inflate the

Company’s earnings and profits.

6. These sudden and shocking disclosures had an immediate impact on the price of

Fairfax stock; shares of the Company declined almost 30% in the days following these belated disclosures.

7. Defendants were motivated to and did conceal the true operational and financial condition of Fairfax, and materially misrepresented and failed to disclose the conditions that were adversely affecting the Company throughout the Class Period, because: (i) it enabled defendants to artificially inflate the price of Fairfax securities by deceiving the investing public regarding Fairfax’s business, operations, management; (ii) it enabled defendants to sell over $600 million in securities and over $150 million in Company debt; and (iii) it enabled defendants

to reap substantial payments of unearned bonuses and salaries, and also afforded them the opportunity to liquidate their personally held Fairfax shares while in possession of material adverse, non-public information about the Company.

JURISDICTION AND VENUE

8. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by

the United States Securities and Exchange Commission (“SEC”) [17 C.F.R. § 240.10b-5].

9. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Fairfax

common stock is listed on the New York Stock Exchange and trades within the United States and

the Company regularly filed quarterly and year-end financial reports with the U.S. Securities &

Exchange Commission, as well as with the Canadian regulatory authorities.

10. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and

28 U.S.C. § 1391(d). Fairfax is a foreign or “alien” corporation that does significant business in

this District, and may properly be sued in any district of the United States, including the

Southern District of New York.

11. In connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications and the facilities of the national

securities markets. PARTIES

12. Plaintiff Shane Johnson, as set forth in the accompanying certification, incorporated by reference herein, purchased the common stock of Fairfax at artificially inflated

prices during the Class Period and has been damaged thereby.

13. Defendant Fairfax Financial Holdings Limited is a corporation organized under

the laws of the nation of Canada. Its principal place of business is located at 95 Wellington Street

West, Toronto, Ontario, Canada. According to the Company’s profile, Fairfax engages in

property and casualty insurance and reinsurance, conducted on a direct basis principally in

Canada, the United States, and the United Kingdom. The Company also provides claims

adjusting, appraisal, and loss management services.

14. Defendant V. Prem Watsa (“Watsa”) was, during the relevant period, Chairman

and Chief Executive Officer of the Company.

15. Defendant Greg Taylor (“Taylor”) was, during the relevant period, Vice President

and Chief Financial Officer of the Company and, prior to that, served as CFO of the Company’s

Northbridge subsidiary since its formation.

16. Defendant Trevor Ambridge (“Ambridge”) was, during the relevant period, Vice

President and Chief Financial Officer of the Company from 1998 until 2005.

17. Defendant M. Jane Williamson (“Williamson”) was, during the relevant period,

Vice President in charge of Financial Reporting for the Company.

18. Defendants Watsa, Taylor, Ambridge and Williamson are collectively referred to

herein as the “Individual Defendants.”

19. Because of the Individual Defendants’ positions with the Company, they had

5 access to the adverse undisclosed information about its business, operations, products operational trends, financial statements, markets and present and future business prospects via access to internal corporate documents (including the Company’s operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to them in connection therewith.

20. It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the false, misleading and incomplete information conveyed in the

Company’s public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above. Each of the above officers of Fairfax, by virtue of their high-level positions with the Company, directly participated in the management of the Company, was directly involved in the day-to-day operations of the Company at the highest levels and was privy to confidential proprietary information concerning the Company and its business, operations, products, growth, financial statements, and financial condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware, or recklessly disregarded, that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.

21. As officers and controlling persons of a publicly-held company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on the

6 New York Stock Exchange (the “NYSE”), and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate promptly, accurate and truthful information with respect to the Company’s financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings and present and future business prospects, and to correct any previously-issued statements that had become materially misleading or untrue, so that the market price of the Company’s publicly-traded common stock would be based upon truthful and accurate information. The Individual

Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations.

22. The Individual Defendants participated in the drafting, preparation, and/or approval of the various public and shareholder and investor reports and other communications complained of herein and were aware of, or recklessly disregarded, the misstatements contained therein and omissions therefrom, and were aware of their materially false and misleading nature.

Because of their Board membership and/or executive and managerial positions with Fairfax, each of the Individual Defendants had access to the adverse undisclosed information about

Fairfax’s business prospects and financial condition and performance as particularized herein and knew (or recklessly disregarded) that these adverse facts rendered the positive representations made by or about Fairfax and its business issued or adopted by the Company materially false and misleading.

23. The Individual Defendants, because of their positions of control and authority as officers and/or directors of the Company, were able to and did control the content of the various

SEC filings, press releases and other public statements pertaining to the Company during the

7 Class Period. Each Individual Defendant was provided with copies of the documents alleged herein to be misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of the

Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.

24. Each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Fairfax common stock by disseminating materially false and misleading statements and/or concealing material adverse facts. The scheme: (i) deceived the investing public regarding Fairfax’s business, operations, management and the intrinsic value of Fairfax common stock; (ii) enabled defendants to sell over

$600 million in securities and over $150 million in Company debt; (iii) allowed defendants to reap substantial payments of unearned bonuses and salaries, and also afforded them the opportunity to liquidate their personally held Fairfax shares while in possession of material adverse, non-public information about the Company; and (v) caused plaintiff and other members of the Class to purchase Fairfax common stock at artificially inflated prices.

PLAINTIFF’S CLASS ACTION ALLEGATIONS

25. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired the common stock of Fairfax between March 24, 2004 and March 22, 2006, inclusive (the “Class”), and who were damaged thereby. Excluded from the Class are defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in

8 which defendants have or had a controlling interest.

26. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Fairfax common shares were actively traded on the

NYSE. The Company currently has approximately 17.89 million shares of common stock issued and outstanding in the United States. While the exact number of Class members is unknown to

Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Fairfax or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.

27. Plaintiff’s claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants’ wrongful conduct in violation of federal law that is complained of herein.

28. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained counsel competent and experienced in class and securities litigation.

29. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by defendants’ acts as alleged herein;

(b) whether statements made by defendants to the investing public during the

Class Period misrepresented material facts about the business, operations and management of

9 Fairfax; and

(c) to what extent the members of the Class have sustained damages and the proper measure of damages.

30. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.

SUBSTANTIVE ALLEGATIONS

Defendants’ Materially False and Misleading Statements During the Class Period

31. The Exchange Offers: On March 23, 2004, Fairfax announced over the Business

Wire that it intended to offer to exchange up to U.S.$275.0 million principal amount of its existing 7.375% Senior Notes due 2006 and up to U.S.$170.0 million principal amount of its existing 6.875% Senior Notes due 2008 (collectively the "Existing Notes") for a combination of cash and new notes.

32. Commenting on the purpose of the exchange, the Company stated:

The purpose of the contemplated exchange offer is to refinance and reduce a portion of the Company's outstanding debt and to diversify its debt maturity profile as part of the Company's deleveraging plan, which is intended to strengthen its debt ratings to investment grade. Consistent with this plan, the Company intends to reduce its financial leverage through the reduction of its outstanding debt and continued growth in its shareholders' equity.

33. On March 29, 2004, the Company issued a press release over Business Wire

10 concerning the exchange offer of public debt and other debt registered pursuant to 144(A):

Concurrent with the exchange offer described above, the Company is also making an offer to exchange up to U.S.$275.0 million principal amount of its existing 7.375% Senior Notes due 2006 (the "2006 Notes") and up to U.S.$170.0 million principal amount of its existing 6.875% Senior Notes due 2008 (the "2008 Notes") for a combination of cash and new notes with the same terms as the new notes offered hereby. A registration statement relating to the offer to exchange the 2006 Notes and 2008 Notes for cash and new notes has been filed with the Securities and Exchange Commission.

34. On March 29, 2004, the Company filed Amendment No. 1 to Form F-10

Registration Statement concerning the exchange offer. The Form F-10 stated:

The new notes will mature on April 26, 2012 and will bear interest from the settlement date at an annual rate of 7 ¾%. Interest will be payable semi-annually on each April 30 and October 31, commencing on November 1, 2004, being the first business day following October 31, 2004.

The new notes will be our direct, unsecured obligations and will rank equally and ratably with all of our other unsecured and unsubordinated indebtedness. All other terms of the new notes will be substantially identical to those of the old notes. The new notes will be issued under the same indenture and have the same covenants as the old notes. For a description of the terms of the new notes and the indenture pursuant to which the new notes will be issued, see “Description of the New Notes.”

35. The Form F-10 further detailed that the offering was part of a deleveraging plan, designed to return the Company’s credit rating to investment grade, instead of “junk” status:

Deleveraging Plan

We have established a deleveraging plan which is intended to strengthen our debt ratings to investment grade. As part of this plan, we intend to reduce our financial leverage through the reduction of our holding company debt by $73.6 million. Reduction of our holding company debt may be achieved through the redeployment of excess capital generated by our operating subsidiaries and cash generated by a range of financing activities which may be completed from time to time. While we can not be assured that we will achieve an upgrade of our debt ratings, we believe our deleveraging plan will increase our financial strength and enhance the financial strength ratings of our insurance companies.

11 36. The risk disclosures accompanying the Exchange offers spoke generally about the need to retain adequate reserves to cover estimated unpaid liabilities. The disclosures also contained language concerning the need to remain in a favorable position with rating agencies.

With respect to regulatory oversight, the Company stated generally that it operates in a scrutinized regulatory arena. The Company did not however disclose the specific risks associated with finite insurance arrangements or the legal and regulatory risks associated with writing non- traditional insurance agreements.

37. Watsa signed the document in his capacity as Chairman and CEO of the

Company.

38. On April 20, 2004, the Company filed a prospectus with the SEC. The prospectus was accompanied by a Registration Statement on Form F-10.

39. On April 30, 2004, the Company reported that first-quarter 2004 results declined by 61% due to increased interest expenses and losses at a U.S. subsidiary. According to reports published over several newswires, Fairfax, which reports in U.S. dollars, earned US$39.5- million (US$2.63 a share) during the quarter ended March 31. That compared with US$101.5- million ($6.97) in the year-earlier quarter. Revenue grew to US$1.48- billion from US $1.33- billion. The Company blamed the decrease in profits on lower realized gains, increased interest expense and losses at its Lindsey Morden Group subsidiary.

40. On July 30, 2004, the Company released is quarterly results for second quarter

2004. Following the earnings release, the Company hosted a conference call with analysts.

Commenting on the quarter’s results and the Company, Watsa emphasized the importance of

12 achieving an investment grade ranking:

Finally, I wanted to highlight the most important objective that we have for Fairfax; to be rated as investment grade again. We plan to accomplish this as I said last quarter in the old-fashioned way, by producing excellent results and reducing our leverage at the holding company. In this regard our objective is to significantly reduce if not eliminate all maturities in the next five years. We have exchanged 40 percent of the 540 million coming due in 2005 and 2008 for our bonds due in 2012. We are working on the rest of the maturities.

41. On August 24, 2004, numerous news sources reported and the Company confirmed that it was exposed to significant claims stemming from damage caused by Hurricane

Charley. This was followed on the heels of the Company trading as low as $181 per share on

Friday, August 20, 2004, a 14-month low. The exposure to this potential massive liability also cast a shadow over Watsa’s plan to raise the Company’s debt to investment grade.

42. Presented with the possibility that it would have to pay huge claims associated with Hurricane Charley, on August 25, 2004, Fairfax filed with the SEC a prospectus (the

“Prospectus”), dated August 24, 2004 offering $95 million aggregate principal amount of 7 ¾% senior notes due 2012 at an issue price of 97.25.

43. On August 31, 2004, a very public dispute erupted between Fairfax and Fitch

Ratings – a well respected credit rating agency. Specifically, Fitch Ratings, in a very pointed analysis published over the Business Wire stated:

[Fitch] placed the ratings of Fairfax Financial Holdings Limited (Fairfax) and its rated subsidiaries and affiliates on Ratings Watch Negative. See complete list below. The ratings previously had a Negative Outlook.

This action largely reflects Fitch's concerns as to increasing liquidity pressures at Fairfax, as well as a continued decline in transparency of management's public disclosures, which make it increasingly difficult for third parties to judge Fairfax's creditworthiness.

13 Fitch intends to resolve its Rating Watch within several weeks, following additional analysis of publicly available information. Barring an increase in our comfort level, Fitch expects to downgrade and/or withdraw Fairfax's ratings. A withdrawal will occur if Fitch determines that the company's disclosures do not allow for a reasonable assessment of the financial health of Fairfax as a whole. This would relate primarily to the myriad of evolving intercompany transactions and ownership relationships, both on and off-shore, as well as a lack of adequate disclosures regarding certain entities and transactions that could effect parent company liquidity.

While Fairfax's financial disclosures have become more voluminous over the years, Fitch has been concerned by an increasing lack of specific and readily available disclosures. Specifically, Fitch's heightened concern largely stems from: an inability to reconcile second quarter holding company cash based on public disclosures; the complex series of transactions related to the Kingsmead run-off syndicates that appears to have been the catalyst for movement of the Advent collateral to Odyssey Re as provider; and a number of ownership changes and preferred stock issuances among significant subsidiaries, the rationale of which is unclear.

Fitch believes that Fairfax may have averted a liquidity squeeze in the second quarter of 2004 resulting from its need to support the collateralization of the Kingsmead run-off. Per disclosures in its second quarter 2004 10-Q, it appears that majority-owned Odyssey Re provided US$200 million in collateral balances via an 'arm's length' fee-based transaction. If such an 'arm's length' transaction could not have been arranged, Fitch is concerned whether Fairfax's cash balances would have been largely depleted if it had to cover the $200 million funding requirement. Furthermore, given the potential magnitude of the collateral requirements on Fairfax's liquidity, Fitch is concerned that the possible need for such funding was not disclosed specifically by Fairfax other than through the SEC disclosure made by Odyssey Re.

Additionally, Fitch is concerned that such a potential cash squeeze occurred after Fairfax's operating subsidiaries had been experiencing their most favorable market conditions in years. Fitch believes that Fairfax requires a return to profitability and strong operating cash flows from its core operating subsidiaries to truly turn around its fortunes. However, many market observers have indicated a softening of rates has begun in Fairfax's key markets. Finally, Fitch also remains concerned by the adequacy of Fairfax's reserves for its growing runoff operations, uncertainty as to the true financial position of nSpire Re Limited and its abilities to perform on intercompany reinsurance transactions, the significant use of finite reinsurance within the organization, and Fairfax's highly leveraged balance sheet and low levels of tangible equity.

14 Fitch's ratings of Fairfax are based primarily on public information.

44. The Company quickly launched a public relations campaign to assure investors that Fitch was either incorrect in its analysis or was pushing a hidden agenda. On August 31,

2004, the Company issued a press release refuting Fitch and requesting that Fitch withdraw the opinion:

Fairfax Financial Holdings Limited (NYSE:FFH) (TSX:FFH) confirms that it maintains relationships with four major ratings agencies, in the course of which it meets with those agencies and provides them all information necessary or requested by them in order to permit them to perform their ratings functions. The information given by a company to ratings agencies necessarily involves a level of detail beyond its public disclosures which provide all material disclosure relating to the company's results and financial state.

As previously disclosed, Fairfax does not maintain a relationship with Fitch Ratings. Fairfax has not met with Fitch or provided information to Fitch since the spring of 2003 and since that time has requested Fitch to withdraw its ratings on Fairfax.

45. This public dispute continued to generate significant press coverage because, on the one hand, a reputable ratings agency had called into question the core of the Company’s financial integrity and, on the other hand, the Company stated that Fitch was flatly wrong because Fitch was not privy to the types of inside information generally afforded to ratings agencies during the review process. The Company, however, did not contest the specific allegations raised by Fitch. Instead, it simply stated that they were inaccurate, Fitch was persona non grata, and the Company communicated with other rating agencies.

46. On September 3, 2004, in the wake of the dispute over the Company’s actual creditworthiness, it announced that it had completed the previously discussed debt offering. On

September 29, 2004, the Company issued a terse statement that losses stemming from Hurricanes

15 Ivan, Frances and Jeanne would be in the range of US$85 million. The losses would be recorded within Fairfax’s insurance and reinsurance companies, primarily Odyssey and Crum and Forster.

47. 3Q:04 Results. On October 28, 2004, Fairfax published a release announcing results for the third quarter ended September 30, 2004. This release stated, in part, the following:

THIRD QUARTER FINANCIAL RESULTS

Fairfax Financial Holdings Limited recorded $127.7 million of losses after tax and minority interests in the 2004 third quarter related to Hurricanes Charley, Frances, Ivan and Jeanne, while continuing to produce excellent underwriting performance excluding these losses. All of the hurricane losses were recorded within Fairfax’s insurance and reinsurance companies, primarily OdysseyRe and Crum & Forster. These losses have not adversely affected the capital adequacy of any of these companies and will not require the provision of any funds by the holding company.

The combined ratio of Fairfax’s insurance and reinsurance operations was 109.3% and 100.0% for the third quarter and first nine months respectively, but excluding the hurricane losses was 90.0% and 93.5% respectively, with every operating company producing a combined ratio excluding hurricane losses below 100%, compared to a combined ratio of those operations of 96.5% and 97.7% for the third quarter and first nine months respectively of 2003. At the end of the third quarter, Fairfax took another step towards simplifying its runoff structure when TIG agreed to commute a number of excess of loss reinsurance contracts aggregating $665 million of coverage. This commutation, which is subject to applicable regulatory approvals and is expected to be completed in the fourth quarter, resulted in a net after-tax loss taken in the third quarter of $57.9 million. [Emphasis added.]

Other 2004 third quarter highlights were as follows (comparisons are to the third quarter of 2003, except as otherwise indicated):

• Primarily as a result of the hurricane losses and the TIG commutation, which as noted above resulted in an aggregate loss after tax and minority interests of $185.6 million, the company produced a net loss of $108.9 million ($8.08 per basic and diluted share) in the third quarter of 2004, compared to a net loss of $10.7 million ($1.02 per basic and $1.07 per diluted share) in 2003. Excluding the hurricanes and the TIG commutation, net earnings in the 2004 third quarter would have been $76.7 million.

16 • The company’s insurance and reinsurance operations produced an underwriting loss of $99.0 million and an underwriting profit of $0.3 million in the third quarter and first nine months respectively, but an underwriting profit of $106.6 million and $205.9 million for those periods respectively, excluding the hurricane losses, compared to an underwriting profit of $34.1 million and $63.2 million in the third quarter and first nine months respectively of 2003.

• Aggregate cash flow from operations at OdysseyRe, Crum & Forster and Northbridge increased to $460.3 million and $789.8 million for the third quarter and first nine months respectively, from $319.8 million and $456.0 million for the third quarter and first nine months respectively of 2003.

• Net premiums written at the company’s insurance and reinsurance operations increased 3.3% to $1.15 billion.

• Interest and dividend income of the company’s insurance and reinsurance operations improved to $82.2 million from $53.3 million in 2003, due primarily to increased investment portfolios reflecting positive cash flow from operations, and to an increase in yield resulting from the reinvestment late in the first quarter of 2004 of a significant portion of cash and short term investments, primarily in U.S. treasury bonds. • Realized gains on investments totaled $94.4 million compared to $37.1 million in 2003.

48. 3Q:04 Interim Report. Later, defendants filed a copy of the Company’s interim financial report for the third quarter 2004 with market regulators. In addition to reiterating the same or substantially similar financial information about Fairfax, as had been published in the Company’s October 28, 2004 release, the 3Q:04 interim financial report stated, in part, the following:

1. Basis of Presentation

These consolidated financial statements should be read in conjunction with the company’s consolidated financial statements for the year ended December 31, 2003 as set out on pages 22 to 48 of the company’s 2003 Annual Report. These consolidated financial statements have been prepared in accordance with

17 Canadian generally accepted accounting principles using the same accounting policies as were used for the company’s consolidated financial statements for the year ended December 31, 2003, and although they do not include all disclosures required by Canadian GAAP for annual financial statements, in management’s opinion they include all disclosures necessary for the fair presentation of the company’s interim results…. [Emphasis added.]

49. The next day, October 29, 2004, defendants hosted a conference call for investors and analysts. During this call defendants commented on the then ongoing investigation by the

New York Attorney General into certain improper insurance industry practices. They denied that the Company was in any way involved or had in any way misrepresented its own insurance business, and stated, in part, the following:

Trevor Ambridge, CFO, Fairfax : The last point deals with the recent U.S. insurance industry developments. The senior management of each of our insurance and reinsurance subsidiaries has reviewed the complaint filed by the New York Attorney General against Marsh McLennan and companies and have advised us that to the best of their knowledge their respective companies have not engaged in the bid rigging and market manipulation conduct described in the complaint, and that they are conducting internal investigations to confirm that belief.

OdysseyRe, our reinsurance subsidiary does not pay any contingent commissions to brokers. Our primary insurance subsidiaries Crum & Forster and Northbridge each have contingent commission arrangement in place with brokers as is common in the insurance industry. The TIG insurance company has recently received subpoena from a New York Attorney General requesting documents related to the issue of whether insurance brokers link the use of the reinsurance services with the placement of primary insurance. At this point, we do not believe that TIG is the subject of this enquiry. To-date this is the only subpoena received by FairFax and its subsidiaries from the New York Attorney General or any insurance regulator respecting enquiries into the insurance industry. Although, given the numerous current investigations by various authorities, we may receive subpoenas in the future. We have a significant investment in Hub International Limited, an insurance broker and they have received subpoenas as they have disclosed. I'll turn the balance of the call over to Prem.

50. The statements contained in Fairfax’s October 28, 2004 release, its October 29,

18 2004 conference call, and those statements contained in the Company’s 3Q:04 interim financial report, referenced above, were each materially false and misleading when made, and were known by defendants to be materially false and misleading or were recklessly disregarded as such thereby, for the following reasons, among others:

(a) The Company was not achieving stable, consistent and controlled growth.

Rather, defendants had created the illusion of stable, consistent and controlled growth by manipulating Fairfax’s accounting for reinsurance and/or allowing such manipulation to occur;

(b) Defendants had allowed and/or authorized the Company to enter into bogus reinsurance contracts with Odyssey Re that were nothing more than accounting machinations that artificially inflated reported financial performance;

(c) Defendants did not maintain adequate systems of internal operational or financial controls within Fairfax, such that the officers and directors of the Company could assure that Odyssey Re’s reported financial statements were true, accurate or reliable;

(d) The Company’s financial statements and reports were not prepared in accordance with GAAP and SEC rules; and

(e) Defendants lacked any reasonable basis to claim that Odyssey Re was operating according to guidance sponsored and/or endorsed by defendants or that the Company could achieve such guidance.

51. Taking advantage of the artificial inflation in the price of Fairfax shares, caused in substantial part by the publication and dissemination of defendants’ materially false and misleading statements about the Company, on October 28, 2004, defendants sold more than $300 million in Fairfax equities to investors, while in possession of materially false and misleading

19 information about the Company and its subsidiaries. In connection therewith, defendants also published a release that stated, in part, the following:

US $300 MILLION EQUITY ISSUE

Fairfax Financial Holdings Limited has agreed to issue $300 million of subordinate voting shares (2,406,741 shares) to a number of institutional investors, including Markel Corporation ($100 million) and Southeastern Asset Management ($150 million), at today’s closing price of $124.65 per share.

Fairfax intends to use the proceeds of this issue to purchase or redeem outstanding indebtedness from time to time, based on market conditions, and for general corporate purposes. Closing of this share issuance is subject to approvals by requisite regulatory authorities, which are anticipated to be obtained before the end of 2004. Fairfax will file a supplement to its current shelf prospectus with applicable Canadian and U.S. securities regulatory authorities providing for the issuance of these additional shares.

Prem Watsa, CEO of Fairfax, commented: “Fairfax is raising significant equity at this time because of its high priority of improving its ratings and deleveraging significantly. A strong financial position with cash in excess of $600 million after this issue is the best way to handle uncertainty in our industry and in the economy generally. So when Steven Markel, Vice Chairman of Markel Corporation, with one of the best insurance company track records, and Mason Hawkins, founding partner of Southeastern Asset Management, one of our largest shareholders with one of the best investment track records, offered to buy shares, we took advantage of the opportunity. The significant flexibility that this equity issue provides the holding company, together with the disciplined underwriting operations that we have built, our runoff expertise and our investment acumen, will allow us to recoup the 5% dilution to book value quite easily.”

Steven Markel, Vice Chairman of Markel Corporation, stated: “We have known Prem Watsa for more than 19 years, and we have the utmost confidence in Prem and his management team. We are delighted to participate in this capital raising, as we believe Fairfax is well on its way to increased profitability. This is among the largest equity investments that our company has ever made, and we expect that this transaction will produce the classic “win-win” for Markel and Fairfax.”

Mason Hawkins, founding partner of Southeastern Asset Management, added: “We welcome the opportunity to increase our investment in Fairfax and are delighted to be investing alongside Markel Corporation. In our many years of

20 investing, we haven't found or invested in any insurance company we respect more than Markel, both in terms of underwriting excellence and integrity at the top. A premier underwriter such as Markel making such a large investment in Fairfax is the ultimate statement about Fairfax's business, management, balance sheet, and future opportunity. This investment increases Fairfax's financial flexibility and will allow the company to maximize the growth in its intrinsic value per share over the next decade.”

Consistent with common practice, Fairfax will be filing an amendment to its current base shelf prospectus to restore the amount of securities which may be offered thereunder to $750 million. [Emphasis added.]

52. On November 8, 2004, defendants hosted an annual presentation for investors, analysts and institutions, in New York City, New York, during which defendants presented their plan, “focused on building long-term shareholders’ value.” During this presentation defendants stated, in part, the following:

Prem Watsa, Chairman, CEO: Our highlights very simply is to focus in this presentation -- in my section, I was going to highlight for you the fact that we are focused on building shareholder value… * * * The first, very simply is that we're focused on making a return for shareholders. That's our objective. I think the objective of any public company is to make a return to shareholders. Ours is over time to make a 15 percent return on shareholders' equity -- over time and not in any single year…. And in our annual report, we provide complete disclosure to you -- particularly the negatives of our company. And we've done that for a long period of time. And we have felt that any of our shareholders and investors can read our annual report and get a sense of the company, because we believe in full and complete disclosure. * * * Andy Barnard, President Odyssey Re Holdings: Odyssey has a diversified portfolio. And that is by design. That's part of our strategy. But we also take a very opportunistic approach to our underwriting. Underwriting discipline is critical within the company. We're exclusively focused on generating underwriting profits. * * * We combine the underwriting profitability with the long-term, value-oriented investment approach that Prem has spoken of before, which provides a very powerful combination, allowing us to achieve superior return on equity. Our target over the long-term is 15 percent. As I will show you a little bit later on, Odyssey

21 has achieved over 20 percent return on equity measured on a total return basis, meaning underwriting profit, interest and dividends, and realized capital gains, over the last 2 years.

53. On December 1, 2004, defendants announced the sale of an additional $150 million of Fairfax 7¾% Senior Notes due 2012. According to defendants, the closing of this debt financing was conditional upon the closing of its $300 million equity financing announced

October 28, 2004, and the closing of its debt tender offer announced on November 18, 2004. At that time, defendants stated that Fairfax would use the net proceeds from this offering to purchase debt pursuant to its tender offer announced on November 18, 2004, and to the extent that there are net proceeds remaining, Fairfax intended to purchase its outstanding debt from time to time.

54. 4Q & FY:2004 Results. On February 10, 2005, Fairfax published a release announcing results for the fourth quarter and full year ended December 31, 2004. This release stated, in part, as follows:

FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2004

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces that it had net earnings of $5.6 million in the fourth quarter of 2004 and a net loss of $17.8 million for the 2004 year, and that it ended the year with a very strong financial position. Operating highlights for 2004 were as follows:

• Earnings from operations before income taxes were $139.1 million in 2004 (2003 - $527.5 million), after $252.7 million of losses from the third quarter hurricanes and $104.1 million of non-trading realized losses (described below).

• The combined ratio of the company’s continuing insurance and reinsurance operations improved to 90.6% in the fourth quarter of 2004 from 97.4% in 2003, and to 97.5% for the full year from 97.6% in 2003. The 97.5% combined ratio in 2004 included 5.1 combined ratio points arising from the third quarter hurricanes.

22 • In the fourth quarter, following an independent ground-up study, Crum & Forster increased its asbestos reserves by $100 million, all of which was covered by aggregate stop loss reinsurance, and the runoff group strengthened its construction defect reserves by $50 million. Crum & Forster’s full-year net cost related to development of prior years’ loss reserves, including redundancies and the fourth quarter $100 million increase of asbestos reserves, was $25 million.

• Net premiums written at the company’s continuing insurance and reinsurance operations increased 7.1% in 2004 to $4.4 billion.

• Underwriting profit at the company’s continuing insurance and reinsurance operations increased to $108.4 million in 2004 from $87.7 million in 2003.

• Cash flow from operations at Northbridge, Crum & Forster and OdysseyRe remained strong at $948.4 million in 2004 compared to $1,099.2 million in 2003.

• Total interest and dividends increased to $366.7 million in 2004 from $330.1 million in 2003, due primarily to an increase in yield resulting from the reinvestment of a significant portion of the cash and short term investments, primarily in U.S. treasury bonds, and to increased investment portfolios reflecting positive cash flow from continuing operations.

• Realized gains on investments in 2004 totalled $288.3 million, after $104.1 million of non-trading losses, compared to $845.9 million in 2003. The $104.1 million of losses consisted of $77.1 of mark to market changes in fair value, recorded as realized losses, primarily relating to the economic hedges put in place by the company against a decline in the equity markets, and $27.0 of costs, recorded as realized losses, in connection with the company’s repurchase of outstanding debt at a premium to par.

55. The next day, February 11, 2005, defendants hosted a conference call for investors and analysts. During this call defendants stated, in part, the following:

Prem Watsa: I will remind you that we have a very rigorous reserve review process that takes place annually which, even in these days of Sarbanes-Oxley, results in an annual certification of our reserves by our auditors.

* * * So then to sum up our priorities in 2005, our objectives in 2005 continue to be

23 one, to achieve our targeted return on equity of 15 percent, and two, maintaining a strong financial position. In terms of the first objective to achieve our targeted return on equity of 15 percent we plan to do that, we haven't mentioned to you in the past by focusing on underwriting profitability at all our insurance and reinsurance operations, by reducing our losses in runoff and offering our services to others, and finally by achieving good returns on our investment portfolios by taking advantage of opportunity.

In terms of maintaining a strong financial position, we have as we have said in the past, a significant cash buffer at the holding company and we plan on reducing our financial leverage in the next few years. The combination of profitability and our strong financial position should result in our ratings improving which is a very important focus for Fairfax. So in summary we are very excited about the prospects for our company in 2005 with excellent underwriting and investment capability that should serve our shareholders well over the long term.

56. On March 4, 2005, Fairfax published a release announcing that defendants had issued a “Clean Report” on the internal controls then in place at the Company:

FAIRFAX ISSUES CLEAN REPORT ON INTERNAL CONTROL

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces that its 2004 Annual Report, released today, includes a report by management concluding that the company’s internal control over financial reporting was effective as of December 31, 2004, and an opinion by Fairfax’s independent auditors to the same effect. Neither management’s report nor the auditors’ opinion identified any material weaknesses in internal controls over financial reporting.

As a non-U.S. company, Fairfax is not currently required under the Sarbanes- Oxley Act to undertake an assessment of the effectiveness of its internal control over financial reporting or to obtain its independent auditors’ opinion thereon. Fairfax voluntarily elected to do so, two years ahead of its compliance deadline, in order to assess for itself the integrity and quality of its internal control over financial reporting and to provide its shareholders and debtholders with the greatest assurance of the effectiveness of its internal control over financial reporting. [Emphasis added.]

57. Year End 2004 Letter to Shareholders. The same day, March 4, 2005, defendants filed with market regulators a copy of the Company’s Year End 2004 Letter to

Shareholders. The FY:2004 Letter to Shareholders stated, in part, the following:

24 To Our Shareholders:

2004 was the second year in our 19-year history that we lost money, due to unprecedented hurricane activity, reduced investment income as a result of our very conservative investment position, and runoff losses. We lost 1.0% on average shareholders’ equity in 2004 (compared to a return on equity of about 15.5% for the S&P 500 and 12.7% for the S&P/TSX). We had a loss of $17.8 million (all dollar amounts in this letter are in U.S. dollars unless stated otherwise) or $2.16 per share in 2004 compared to a profit of $271.1 million or $18.55 per share in 2003. For the second time in our history, book value per share decreased, by 4.1% to $184.86 per share, due to the loss in 2004 and a share issue below book value, while our share price dropped 3.4% to $168.50 from $174.51 at year end 2003. Intrinsic value, however, increased significantly in 2004 because of the excellent performance of our ongoing insurance and reinsurance companies. In spite of 2004, over the past 19 years, we have compounded book value by 28.7% from $1.52 per share to $184.86 per share and stock prices have followed from $2.38 to $168.50, a compound rate of 25.1% per year.

While our returns left much to be desired in 2004, we made significant progress in achieving the second and third objectives in our guiding principles that we have reproduced in Appendix A. As you will see later, our financial position was significantly strengthened during 2004 and we have taken a big step forward to make it easier for you to understand our company by disclosing segmented balance sheets as well as income statements. * * * How are each of the operations doing? Shown below for 2004 is the net income from each of our operations and the ROE of our ongoing operations.

Northbridge U.S. Fairfax OdysseyRe Ongoing Runoff LMG Corporate Consolidated Insurance Asia Operations and Other

Net income 124.3 49.5 4.1 160.1 338.0 (123.4) (20.6) (211.8) (17.8) after taxes

ROE 19.3% 4.4% 4.5% 11.7% 10.5% (average equity)

58. The statements made by defendants and contained in the Company’s February

10, 2005 and March 4, 2005 press releases, those statements made during the Company’s

February 11, 2005 conference call, and those statements contained in Fairfax’s FY:2004 Annual

Report were materially false and misleading when made and were known by defendants to be

25 false at that time, or were recklessly disregarded as such, for the reasons stated herein in ¶ 50, supra.

59. 1Q:05 Results. On April 28, 2005, Fairfax published a release announcing results for the first quarter ended March 31, 2005. This release stated, in part, the following:

FIRST QUARTER FINANCIAL RESULTS

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces that it had net earnings of $35.2 million in the first quarter of 2005 while it maintained a very strong financial position. Highlights for the 2005 first quarter were as follows (comparisons are to the first quarter of 2004, except as otherwise indicated):

• Earnings from operations before income taxes increased to $104.3 million in 2005 from $81.9 million in 2004.

• Despite some softening in insurance markets, which was anticipated, the combined ratio of the company’s ongoing insurance and reinsurance operations remained excellent at 96.9% (compared to 95.7% in 2004), with Northbridge, Crum & Forster and OdysseyRe producing combined ratios of 91.4%, 95.5% and 99.8% respectively (7.1 points of OdysseyRe’s combined ratio resulted from catastrophe losses for current and prior period storms).

• Net premiums written at the company’s ongoing insurance and reinsurance operations increased 5.9% in 2005 to $1,104.6 million from $1,042.6 million in 2004.

• Underwriting profit at the company’s ongoing insurance and reinsurance operations was $33.5 million in 2005 compared to $44.4 million in 2004.

• Cash flow from operations at Northbridge, Crum & Forster and OdysseyRe increased significantly to $232.3 million in 2005 from $115.7 million in 2004.

• Total interest and dividends increased to $107.1 million in 2005 from $92.4 million in 2004.

• Realized gains on investments in 2005 totaled $131.4 million in 2005 compared to $72.6 million in 2004.

26 60. The following day, April 29, 2005, defendants also hosted a conference call for investors and analysts. During this conference call defendants stated, in part, the following:

Prem Watsa, Chairman CEO, Fairfax: First quarter results were impacted by a continuation of the trends that we discussed in our annual report and annual meeting. We had continued underwriting discipline from all our insurance/ reinsurance operations, less than optimal investment income, due to our very conservative investment position, and an opportunistic commutation in our runoff operations. Overall, we had pre-tax profits of CAN $104.1 million in the first quarter of 2005, compared to CAN $81.9 million in the first quarter of 2004. This was after CAN $40 million in capital losses in cat losses from current and prior period storms at Odyssey Re and CAN $36 million in unusual one-off losses.

* * * PREM WATSA: Coming up then, our priorities in 2005 continue to be, one, to achieve our long-term return on equity goal of 15% by focusing on underwriting profitability in all our insurance and reinsurance operations, reducing our losses in run-off and offering our services to others, as we discussed in our annual meeting, and achieving good returns on our investment portfolios by taking advantage of opportunity.

Our second priority continues to be maintaining a strong financial position by having a significant cash [proper] at the holding company. And at the same time, we're focused on reducing our financial leverage over time.

The combination of the first two priorities, we feel, should result in an improvement in our ratings, which continues to be our focus.

So then in summary, we continue to be excited about the prospects of our company in 2005, with excellent underwriting and investment capability that should serve our shareholders well over the long-term. Now we are happy to answer your questions. Please give us your name, your company name, and limit your questions to only one so that it is fair to all of the call. So Carol, we are ready for questions.

61. When asked by analyst Tom McKinnon of Scotia Capital, specifically about the

Company’s finite risk insurance, defendant Watsa responded, in part, as follows:

Tom McKinnon, Analyst, Scotia Capital: Yes, Scotia Capital. Question, really, on - - there's a lot of finance reinsurance in the news, and just what, in your opinion,

27 would make investors believe the [inaudible] contracts that you have - - that's primarily with SwissRe cover and [inaudible] and a few others, what, in your opinion, would make investors believe that these should stand up to regulatory scrutiny as being legitimate transfers of risk?

Prem Watsa: Oh, OK, these - - yeah, we, in our annual meeting, Tom, these covers, which we've talked - - we talked about these aggregate stop-loss covers, and we made the point, and these covers can, you know, ``finite'' has got so many different connotations these days, we just said we consider these to be aggregate stop-loss treaties. We've made the point that for these treaties, the way we've considered them to be legitimate, is the fact that one, they've had risk transfer, risk transfer that our auditors have looked at, risk transfer that the regulators have looked at, and many, many different parties have looked at. They've been fully disclosed in our annual reports over time, so you and other analysts can look at it, anyone who deals with that can look at it. And finally, the- an important point that has come out more recently, is there's no side agreements. So those are three key requirements that, from our standpoint, make any aggregate stop-loss reinsurance treaty legitimate, in your language, and so we feel comfortable with what we have. We look back on our big one, Tom, the CAN $1 billion reinsurance protection that we had, balance sheet protection that we bought, and we bought it in 1999 and we continue to-- and I said at the annual meeting that-- and in the annual report that now, with hindsight, we are happy that we bought it, because remember, we're trying to protect our balance sheet in '99, and I don't know how we could have protected it other than buying this cover that we did, welldisclosed, the reinsurance stop-loss treaty that we did, with [inaudible] CAN $1 billion that covered all our reserves for '98 and prior, recognizing that the future was unpredictable. And so we bought the cover for reserve development as well as reinsurance recoverable bad debt. And so when we look at that, Tom, we feel quite comfortable in all of those treaties that we've acquired. They've met the test of risk transfer, they've met the test of being fully disclosed, and there's no side agreements.

62. 1Q:05 Interim Report. Later, the Company also filed with market regulators, a copy of Fairfax’s interim financial report for the first quarter 2005. In addition to reiterating the same, or substantially similar, financial information about the Company as had been published in

Fairfax’s April 28, 2005 release, the 1Q:05 interim financial report stated, in part, the following:

1. Basis of Presentation

These consolidated financial statements should be read in conjunction with the

28 company’s consolidated financial statements for the year ended December 31, 2004 as set out on pages 20 to 44 of the company’s 2004 Annual Report. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’) using the same accounting policies as were used for the company’s consolidated financial statements for the year ended December 31, 2004, except as noted below, and although they do not include all disclosures required by Canadian GAAP for annual financial statements, in management’s opinion they include all disclosures necessary for the fair presentation of the company’s interim results. [Emphasis added.]

63. The statements made by defendants and contained in the Company’s April 28,

2005 release, its April 29, 2005 conference call, and contained in its 1Q:05 interim financial report were materially false and misleading and were known by defendants to be false at that time or were recklessly disregarded as such, for the reasons stated herein in ¶ 50, supra.

64. On June 24, 2005, defendants announced that the Company had received a request from the U.S. Securities Exchange Commission to provide documentation on certain non- traditional insurance product transactions with Gen Re Corporation, or certain affiliates thereof.

That day defendants published a release that stated, in substantial part, the following:

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces that its subsidiary, Fairmont Specialty Group, has received a subpoena from the Securities and Exchange Commission requesting documents regarding any non-traditional insurance product transactions entered into by Fairmont with General Re Corporation or affiliates thereof. Fairmont is cooperating with that request…. [Emphasis added.]

65. 2Q:05 Results Announced. On July 28, 2005, Fairfax published a release announcing results for the second quarter ended June 30, 2005. This release also stated, in part, the following:

SECOND QUARTER FINANCIAL RESULTS

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces that

29 second quarter operating income (before net realized gains, interest expense, runoff, Lindsey Morden and corporate costs) increased by 29.6% to $165.4 million from $127.6 million in 2004, primarily on the strength of improved underwriting results and increased interest and dividend income. Underwriting profit achieved by the company’s ongoing insurance and reinsurance operations increased by 19.7% during the quarter to $65.7 million from $54.9 million in 2004. The combined ratio on a consolidated basis of the company’s ongoing insurance and reinsurance operations for the second quarter improved to 94.1% from 94.9% in 2004. Interest and dividend income earned on the investment portfolios of the ongoing operations increased by 37.1% to $99.7 million from $72.7 million due to materially increased investment assets and to increased yields. Inclusive of $99.9 million in net realized gains as well as interest expense, runoff and corporate costs incurred during the second quarter but excluding the $103.1 million pre-tax impact of the non-cash charge arising from the commutation of an adverse development cover of a runoff subsidiary, earnings from ongoing and runoff operations before income taxes and non-controlling interests increased by 28.9% to $171.4 million from $133.0 million in 2004. After giving effect to the $103.1 million pre-tax non-cash commutation charge described below, Fairfax had net earnings of $5.0 million in the second quarter of 2005, while maintaining a strong financial position and continuing to produce excellent results at its ongoing insurance and reinsurance operations.

During the second quarter, in pursuance of its goal of simplifying its runoff structure and in recognition of the strength and stability achieved by its TIG subsidiary (U.S. runoff) since the commencement of TIG’s runoff in December 2002, TIG commuted the adverse development cover provided by Chubb Re ($300 million) and nSpire Re (European runoff). When that cover was put in place at the beginning of TIG’s runoff, it was prudent for TIG and responsive to insurance regulators’ concerns, but it had become unnecessary with the demonstrated success of TIG’s runoff and the increase in TIG’s statutory surplus from about $500 million at the end of 2002 to over $740 million at the end of 2004. While this commutation creates additional future tax sharing payments and other collateral cash benefits to Fairfax, it resulted in a $103.1 million pre-tax non-cash charge in the second quarter.

Highlights for the 2005 second quarter were as follows (comparisons are to the second quarter of 2004, except as otherwise indicated):

• Despite some softening in insurance markets, which was anticipated, the combined ratio of the company’s ongoing insurance and reinsurance operations remained excellent at 94.1% (compared to 94.9% in 2004), with Northbridge, Crum & Forster and OdysseyRe producing combined ratios of 88.3%, 96.2% and 95.6% respectively.

30 • Net premiums written at the company’s ongoing insurance and reinsurance operations declined slightly in 2005 to $1,085.4 million from $1,089.9 million in 2004.

• Underwriting profit at the company’s ongoing insurance and reinsurance operations increased to $65.7 million in 2005 from $54.9 million in 2004.

• Cash flow from operations at Northbridge, Crum & Forster and OdysseyRe increased to $204.4 million in 2005 from $177.0 million in 2004.

66. The following day, July 29, 2005, defendants hosted a conference call for investors and analysts. In addition to reiterating the same or substantially similar financial information about the Company as had been published in the Company’s July 28, 2005 release, during this conference call defendants -- including new CFO, Greg Taylor -- stated, in part, the following:

The second quarter's results were impacted by a continuation of the trends that we discussed in our first quarter call. We had continued underwriting discipline from all lines, insurance, reinsurance operations; less than optimal income due to our very conservative investment position; and another significant commutation in our runoff operations. Overall, we are very pleased with our second quarter results. The combined ratio of all lines, insurance/reinsurance operation, was 94.1% in the second quarter and 95.5% in the first half.

Underwriting profits for the quarter were $65.7 million, up approximately 20% from last year. Interest and dividend income on [inaudible] portfolios from ongoing operations was up 37% to $99.7 million overall, including our runoff operations, but prior to the Chubb Re commutation we have pretax profits of $171.4 million, up 29% from $131 million in 2004. Including the Chubb Re commutation loss of $103.1 million -- and I'm going to say a few words on that later -- and after taxes and minority interests, Fairfax had a small $5 million profit in the second quarter, approximately $0.17 per share. * * * In summary then, we continue to be excited about the prospects for our Company in 2005 and beyond, with excellent underwriting and investment capability that should serve our shareholders well over the long term.

67. 2Q:05 Interim Report. Later, the Company also filed with market regulators, a

31 copy of Fairfax’s interim financial report for the second quarter 2005. In addition to reiterating the same or substantially similar financial information about the Company as had been published in its July 28, 2005 release, the 2Q:05 interim financial report stated, in part, the following:

1. Basis of Presentation

These consolidated financial statements should be read in conjunction with the company’s consolidated financial statements for the year ended December 31, 2004 as set out on pages 20 to 44 of the company’s 2004 Annual Report. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’) using the same accounting policies as were used for the company’s consolidated financial statements for the year ended December 31, 2004, except as noted below, and although they do not include all disclosures required by Canadian GAAP for annual financial statements, in management’s opinion they include all disclosures necessary for the fair presentation of the company’s interim results. [Emphasis added.]

68. The statements made by defendants and contained in the Company’s July 28,

2005 release, during its July 29, 2005 conference call and during its 2Q:05 interim financial report were materially false and misleading and were known by defendants to be false at that time or were recklessly disregarded as such, for the reasons stated herein in ¶ 50, supra.

69. On September 7, 2005, defendants announced that Fairfax had received a subpoena from the U.S. Securities and Exchange Commission requesting documents regarding any non-traditional insurance/reinsurance product transactions entered into by its subsidiaries in that group and any non-traditional insurance/reinsurance products offered by its subsidiaries.

According to defendants, Fairfax was cooperating fully with that request.

70. On September 26, 2005, defendants announced that the Company had received another document request as part of the SEC’s “loss mitigation products investigation”:

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces

32 that the Fairfax group has received a further subpoena from the Securities and Exchange Commission as part of its investigation into certain loss mitigation products, requesting documents regarding any transactions in securities of Fairfax Financial, the compensation for such transactions and the trading volume or share price of such securities. Fairfax is cooperating with that request. [Emphasis added.]

71. On September 26, 2005, defendants hosted an annual presentation for investors, analysts and institutions, in New York City, New York, during which defendants again reiterated their goal of 15% long-term growth. During this presentation defendants stated, in part, the following:

Prem Watsa: So why would Fairfax achieve 15% over the long term? We have got well-established operating companies. Our investment team has a proven track record. We have got a track record of creating wealth for shareholders but always I have said to you, our shareholders and people we deal with, the last two are the most important, we have got a track record of treating people fairly and not compromising our integrity and we have got a commitment to build the company over the long term.

* * * You can understand why we think of Northbridge as our model. It demonstrates what Fairfax has been able to do with terrific management, excellent management, tremendous underwriting profit but strong reserving….

72. Again, when asked specifically about the Company’s finite reinsurance business by Ian McDonald, an analyst for the Wall Street Journal, defendant Watsa again responded that the investigation was simply an “industry investigation,” and that Fairfax was not involved in any illegal or improper conduct. This exchange was as follows:

IAN MCDONALD, ANALYST, WALL STREET JOURNAL: Ian McDonald from Wall Street Journal. This is off topic (indiscernible) -- just a question for you, Prem. Does the Company have any update or comment on the SEC's probe into internal and external reinsurance transactions (inaudible)?

PREM WATSA: We got the subpoena. It's, as you pointed out in your article, it's an industry investigation. We got the subpoena. Any time we get a subpoena we

33 put it out. And the information we've said publicly we will provide all of the information that the SEC needs as far as any nontraditional or finite reinsurance is concerned. So there's about 30 companies, as you know, who got a subpoena from the SEC. We happen to be among the last who got it. And we are fully cooperating with the SEC in terms of information.

73. In late August 2005, shares of the Company traded to over $172.25 per share on the NYSE. Taking advantage of the artificial inflation in the price of Fairfax shares caused as a result of defendants’ publication of material false and misleading information about the

Company, on September 27, 2005, defendants announced that Fairfax had agreed to issue an additional $300 million of subordinate voting shares (1,843,318 shares) to a number of institutional investors. In connection with this offering, Fairfax filed a supplement to its current shelf prospectus with applicable Canadian and U.S. securities regulatory authorities providing for the issuance of these additional shares. At that time, defendants also published a release, quoting defendant Watsa, as follows:

Prem Watsa, CEO of Fairfax, commented: “Fairfax is raising significant equity at this time with a view to bulletproofing its balance sheet and achieving the financial flexibility that has been its hallmark in the past. With the huge projected hurricane Katrina losses for the industry, we believe the industry dynamics may well be good again. We believe raising this significant equity should continue to improve our ratings and delever our balance sheet. We continue to be focused on building shareholder value for our shareholders over the long term.” [Emphasis added.]

According to defendants, this transaction closed on October 5, 2005, after $300 million of subordinate voting shares were sold to a number of institutional investors.

74. On October 10 and 11, 2005, defendants issued another series of press releases regarding the investigation into the Company’s finite risk insurance products. These releases stated, in part, the following:

34 October 10, 2005 U.S. ATTORNEY’S OFFICE

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) confirms, in response to various inquiries, that it has not received a subpoena or other information request from the U.S. Attorney’s Office.

* * *

October 11, 2005 U.S. ATTORNEY’S OFFICE – CLARIFICATION

In response to certain published information incorrectly reporting Fairfax’s release of October 10, 2005, Fairfax advises that it understands that the U.S. attorney’s office for the Southern District of New York will review information that Fairfax provides to the SEC in response to SEC subpoenas, but that Fairfax has not been advised that it is the target of an investigation by that office. Fairfax confirms its October 10, 2005 release that it has not received a subpoena or other information request from the U.S. attorney’s office. Fairfax continues to cooperate with the SEC’s investigation. [Emphasis added.]

75. On October 27, 2005, Fairfax published a release announcing results for the third quarter ended September 30, 2005. This release stated, in part, the following:

THIRD QUARTER FINANCIAL RESULTS

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) reported a net loss for the third quarter of $220.0 million, after recording $271.7 million of losses after tax and minority interests related to Hurricanes Katrina and Rita. Fairfax’s insurance and reinsurance operations continued to generate strong underwriting results during the quarter prior to giving effect to these losses. Absent the $271.7 million of net hurricane losses, Fairfax would have earned $51.7 million in the third quarter of 2005.

The strength of Fairfax’s underlying underwriting results, coupled with increased investment income earned during the quarter, allowed the company, despite the hurricane losses, to maintain its strong financial position, subsequently further improved by the $300 million equity issue completed in October 2005. The hurricane losses have not adversely affected the capital adequacy of any of Fairfax’s ongoing insurance and reinsurance companies.

Prem Watsa, Chairman and CEO, commented, “During the third quarter, the insurance industry experienced a number of significant natural catastrophes,

35 including Hurricane Katrina, which by itself produced the largest insured loss in history. While our results were, necessarily, hugely affected by these losses, our financial strength and the capital base of our insurance and reinsurance companies permitted us to absorb them. It is very encouraging to note that if the effect of the losses from Hurricanes Katrina and Rita were removed, we would have produced excellent combined ratios and good earnings in the third quarter. We anticipate that these natural disasters will create an improved environment for the industry, and we expect to be an active participant.”

The combined ratios of Fairfax’s ongoing insurance and reinsurance operations were 126.9% and 105.9% for the third quarter and first nine months of 2005, respectively, and prior to giving effect to the hurricane losses were 91.7% and 94.2%, respectively. Notwithstanding some general softening in the insurance and reinsurance markets, as anticipated for 2005, which caused combined ratios excluding hurricane losses to deteriorate modestly relative to combined ratios excluding hurricane losses achieved in 2004, each Fairfax operating company produced a combined ratio excluding hurricane losses below 100%. Other highlights for the 2005 third quarter were as follows (comparisons are to the third quarter of 2004, except as otherwise indicated):

• Net premiums written at the company’s ongoing insurance and reinsurance operations decreased modestly by 3.6% in 2005 to $1,105.8 million from $1,147.5 million in 2004, reflecting the general softening in market conditions thus far in 2005 relative to 2004.

• As a result of the third quarter hurricanes in 2005 and 2004, Fairfax recorded an underwriting loss at the company’s ongoing insurance and reinsurance operations of $291.9 million in 2005, compared to a loss of $99.0 million in 2004. Absent the hurricane losses, Fairfax would have reported an underwriting profit at those operations of $91.1 million in 2005 and $106.6 million in 2004.

• Significant cash flow from operations was generated at Northbridge, Crum & Forster and OdysseyRe, totaling $417.4 million in 2005, compared to $460.3 million in 2004.

• Total interest and dividends increased to $103.5 million in 2005 from $98.7 million in 2004.

• Net realized gains on investments totaled $154.7 million in 2005 (after being reduced by $92.5 million of non-trading losses resulting from markto- market valuation adjustments), compared to $94.4 million in 2004 (after being reduced by $7.6 million in non-trading losses).

36 76. 3Q:05 Interim Financial Report. Later, the Company also filed with market regulators a copy of Fairfax’s interim financial report for the third quarter 2005. In addition to reiterating the same, or substantially similar, financial information about the Company as had been published in its October 27, 2005 release, the 3Q:05 interim financial report stated, in part, the following:

1. Basis of Presentation

These consolidated financial statements should be read in conjunction with the company’s consolidated financial statements for the year ended December 31, 2004 as set out on pages 20 to 44 of the company’s 2004 Annual Report. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’) using the same accounting policies as were used for the company’s consolidated financial statements for the year ended December 31, 2004, except as noted below, and although they do not include all disclosures required by Canadian GAAP for annual financial statements, in management’s opinion they include all disclosures necessary for the fair presentation of the company’s interim results.

77. The statements made by defendants and contained in the Company’s October 27,

2005 release and in its 3Q:05 interim financial report were materially false and misleading and were known by defendants to be materially false and misleading at that time or were recklessly disregarded as such, for the reasons stated herein in ¶ 50, supra.

78. 4Q and FY:2005 Results Announced. On February 9, 2006, Fairfax published a release announcing results for the fourth quarter and year end December 31, 2005. This release stated, in part, the following:

FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2005

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announces that it had a net loss of $318.1 million in the fourth quarter of 2005 and $497.9 million for the 2005 year, after absorbing losses from Hurricanes Katrina, Rita and Wilma

37 during the fourth quarter and the 2005 year of $249.5 million and $715.5 million, respectively, and after recording pre-tax charges resulting from actions taken in runoff during the fourth quarter and the 2005 year aggregating $249.9 million and $465.5 million, respectively.

Fairfax’s insurance and reinsurance operations continued to generate strong underwriting results prior to giving effect to these hurricane losses. The combined ratios of Fairfax’s ongoing insurance and reinsurance operations were 112.7% and 107.6% for the fourth quarter and full year of 2005, respectively, and prior to giving effect to the hurricane losses were 92.0% and 93.7%, respectively.

Notwithstanding some general softening in the insurance and reinsurance markets, as anticipated for 2005, which caused combined ratios excluding hurricane losses to deteriorate modestly relative to combined ratios excluding hurricane losses achieved in 2004, each Fairfax operating company produced a combined ratio excluding hurricane losses below (and in most cases well below) 100%. Fairfax’s ongoing insurance and reinsurance operations incurred an underwriting loss of $330.6 million in 2005, and prior to giving effect to the hurricane losses would have generated an underwriting profit of $279.3 million.

The strength of Fairfax’s underlying underwriting results, coupled with increased investment income and the company’s $300 million equity issue completed in October 2005, allowed Fairfax, despite the hurricane losses, to maintain its strong financial position. Holding company liquidity remained strong, as Fairfax ended 2005 with $559.0 million of cash and marketable securities, virtually unchanged from $566.8 million at the end of 2004. Holding company debt decreased slightly during the year, and Fairfax’s debt maturity profile remained unchanged, with no significant debt maturities until 2012.

Prem Watsa, Chairman and CEO, commented, “During 2005, the insurance industry experienced the largest catastrophe losses in its history, including from Hurricanes Katrina, Rita and Wilma. Our results were significantly affected by these losses, but our financial strength and the capital base of our insurance and reinsurance companies permitted us to absorb them. It is very encouraging to note that if the effect of the hurricane losses were removed, we would have produced excellent combined ratios in 2005. We enter 2006 with very sound operations at our ongoing insurance and reinsurance companies and with a good prospect of approaching breakeven at our runoff operation.”

Other highlights for 2005 were as follows:

• Net premiums written during 2005 at the company’s ongoing insurance and reinsurance operations remained stable relative to 2004 at $4.4 billion.

38 • Cash flow from operations at Northbridge, Crum & Forster and OdysseyRe, while adversely affected by the 2004 and 2005 hurricanes, remained strong at $752.4 million in 2005 compared to $948.4 million in 2004.

• Total interest and dividends increased to $466.1 million in 2005 from $366.7 million in 2004, due primarily to higher short term interest rates and increased investment portfolios reflecting positive cash flow from continuing operations.

• Realized gains on investments in 2005 totalled $352.1 million (after being reduced by $107.8 million of non-trading losses), compared to $288.3 million in 2004 (after being reduced by $77.1 million of non-trading losses). The $107.8 million of nontrading losses consisted of $53.1 of mark to market adjustments, recorded as realized losses, related to the economic hedges put in place by the company against a decline in the equity markets and $54.7 of mark to market adjustments, recorded as realized losses, arising from other derivatives in the company’s investment portfolio, primarily credit default swaps and put bond warrants.

• Cash and investments (net of $700.3 of liabilities for economic hedges against a decline in the equity markets) increased to $14.9 billion at December 31, 2005 from $13.5 billion at the end of 2004.

• The pre-tax unrealized gain on portfolio investments increased $108.9 million during 2005 to $537.2 million (subsequent to year-end, the company realized a pre-tax gain of $119.4 million upon the sale of its remaining shares of Zenith National Insurance Corp.).

• Total common shareholders’ equity decreased to $2.7 billion ($151.52 per basic share) at December 31, 2005 from $3.0 billion ($184.86 per basic share) at December 31, 2004, principally as a result of the losses arising from the 2005 hurricanes and the charges resulting from actions taken in runoff.

• Reinsurance recoverables decreased to $7.7 billion at December 31, 2005 from $8.1 billion at December 31, 2004, notwithstanding an increase in reinsurance recoverables in 2005 due to ceded losses from the 2005 hurricanes.

• At December 31, 2005, Crum & Forster’s two principal operating subsidiaries remained in a positive earned surplus position, with a dividend capacity in 2006 of approximately $119 million. [Emphasis

39 added.]

79. The statements made by defendants and contained in the Company’s February 9,

2006 release was materially false and misleading and were known by defendants to be false at that time or were recklessly disregarded as such, for the reasons stated herein in ¶ 50, supra.’

DISCLOSURES AT THE END OF THE CLASS PERIOD

80. On March 16, 2006, defendants surprised investors by announcing that they had delayed filing the Company’s year end financial report and postponed the Company’s annual meeting, as a result of issues related to its Odyssey Re Holdings Corp. subsidiary. This release stated, in part, the following:

DELAY OF ANNUAL REPORT AND ANNUAL MEETING

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) has been advised by its Odyssey Re Holdings Corp. subsidiary that it intends to file a notice with the Securities and Exchange Commission that it will delay the filing of its Annual Report on Form 10-K. In connection with Odyssey Re’s previously announced restatement of its financial results for the years 2001 through 2004, and the nine months ended September 30, 2005, Odyssey Re requires additional time to complete the year-end process. Odyssey Re expects to file its 2005 Annual Report on Form 10-K in the next 30 days. The filing and mailing to shareholders of Fairfax’s Annual Report will be delayed until the filing of Odyssey Re’s Annual Report on Form 10-K. As a result of this delay, the date of Fairfax’s annual general meeting of the shareholders will be moved to a date to be announced at the time of filing of Fairfax’s Annual Report. [Emphasis added.]

81. On March 22, 2006, defendants announced that defendant Watsa had received a subpoena from the U.S. Attorney General related to an investigation of Fairfax’s subsidiaries, including Odyssey Re and Fairmont. That day, defendants published a release stating, in part, the following:

40 SEC SUBPOENA UPDATE

Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) announced today that the following disclosure excerpt is intended to be included in Fairfax’s Annual Report but, due to the previously disclosed delay in filing of its Annual Report, it is being released in advance in order to coincide with the 10-K filing by Crum & Forster Holdings Corp. * * * The company and Prem Watsa, the company’s Chief Executive Officer, received subpoenas from the SEC in connection with the answer to a question on the February 10, 2006 investor conference call concerning the review of the company’s finite insurance contracts. In the fall of 2005, Fairfax and its subsidiaries prepared and provided to the SEC a list intended to identify certain finite contracts and contracts with other non-traditional features of all Fairfax group companies. As part of the 2005 year-end reporting and closing process, Fairfax and its subsidiaries internally reviewed all of the contracts on the list provided to the SEC and some additional contracts as deemed appropriate. That review led to the restatement by OdysseyRe. That review also led to some changes in accounting for certain contracts at nSpire Re which were immaterial at the consolidated Fairfax level. The company continues to respond to requests for information from the SEC and there can be no assurance that the SEC’s review of documents provided will not give rise to further adjustments.

The company understands that the SEC has issued subpoenas to various third parties involved in the matters which are the subject of the SEC subpoenas issued to the company, including the company’s independent auditors (which in Canada received a letter requesting cooperation and in the U.S. received a subpoena) and a shareholder (that has previously disclosed receipt of a subpoena). In addition, it is possible that other governmental and enforcement agencies will seek to review information related to these matters, or that the company, or other parties with whom it interacts, such as customers or shareholders, may become subject to direct requests for information or other inquiries by such agencies. [Emphasis added.]

82. Once defendants began to disclose the true scope and nature of the Government’s investigation of the Company and its subsidiaries, and once investors began to realize the potential magnitude of the problems arising from Fairfax’s participation in the illegal and improper business of selling “finite risk” insurance to its subsidiaries - - which, it now appears, did not actually transfer risk between the parties, but that were purchased and sold, instead, to

41 create the appearance of risk transference - - Fairfax stock plummeted. Specifically, shares of the

Company fell from a close of $138.89 per share on March 16, 2006, to a close of $132.00 the following day, and then from a close of $130.90 on March 21, 2006, to a low of $102.50 on

March 22, 2006.

83. On April 5, 2006, TheStreet.com reported on defendants’ recent disclosures, and reported Fitch Investor Service’s refusal to remove Fairfax from its negative credit watch. This report stated, in part, the following:

(FH125.94, -1.53, -1.2% ), no stranger to this column, zoomed 12.5% Tuesday – a day after Standard & Poor's and A.M. Best took the Canadian insurer off their watch lists.

It originally landed on the watch lists a week and a half ago, after Fairfax announced it was delaying its annual report.

As reported here, there was even concern from at least one analyst that subsidiary Odyssey Re could be put into runoff if S&P cut Odyssey Re's rating any further. It didn't, and the annual report has since been released, and disaster was averted. Still, Fitch Investor's Service isn't following the crowd and kept Fairfax on its watch list.

In doing so, Fitch said it saw increased risk that investigations by the SEC and a U.S attorney's office in New York "could bring about a civil action against the company." Fitch believes, it said, that any such action could negatively affect the companies' franchise, reputation and competitive position, "particularly for [subsidiary] Odyssey Re as a reinsurer, in addition to the financial implications of any fines and/or penalties levied." [Emphasis added.]

84. The market for Fairfax’s common stock was open, well-developed and efficient at all relevant times. As a result of these materially false and misleading statements and failures to disclose, Fairfax common stock traded at artificially inflated prices during the Class Period.

Plaintiff and other members of the Class purchased or otherwise acquired Fairfax common stock upon the integrity of the market price of Fairfax common stock and market information relating

42 to Fairfax, and have been damaged thereby.

85. During the Class Period, defendants materially misled the investing public, thereby inflating the price of Fairfax common stock by publicly issuing false and misleading statements and omitting material facts necessary to make defendants’ statements, as set forth herein, not false and misleading. Said statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about the Company, its business and operations, as alleged herein.

86. At all relevant times, the material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, defendants made or caused to be made a series of materially false or misleading statements about Fairfax’s business, prospects and operations. These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of Fairfax and its business, prospects and operations, thus causing the Company’s common stock to be overvalued and artificially inflated at all relevant times. Defendants’ materially false and misleading statements during the Class Period resulted in Plaintiff and other members of the Class purchasing the Company’s common stock at artificially inflated prices, thus causing the damages complained of herein.

CAUSATION AND ECONOMIC LOSS

87. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused the damages suffered by plaintiff and the Class.

88. During the Class Period, plaintiff and the Class purchased securities of Fairfax at

43 artificially inflated prices and were damaged thereby. The price of Fairfax common stock declined when the misrepresentations made to the market, and/or the information alleged herein to have been concealed from the market, and/or the effects thereof, were revealed, causing investors’ losses.

ADDITIONAL SCIENTER ALLEGATIONS

89. As alleged herein, defendants acted with scienter in that each defendant knew that the public documents and statements issued or disseminated in the name of the Company were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Fairfax, their control over, and/or receipt and/or modification of Fairfax’s allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning Fairfax, participated in the fraudulent scheme alleged herein.

90. Defendants were motivated to materially misrepresent to the SEC and investors the true financial condition of the Company because it: (i) enabled defendants to artificially inflate the price of Fairfax securities by deceiving the investing public regarding Fairfax’s business, operations, and management; (ii) enabled defendants to sell over $600 million in securities and over $150 million in Company debt; (iii) allowed defendants to reap substantial payments of unearned bonuses and salaries, and also afforded them the opportunity to liquidate their personally held Fairfax shares while in possession of material adverse, non-public

44 information about the Company; and (iv) caused plaintiff and other members of the Class to purchase Fairfax common stock, other securities and debt at artificially inflated prices.1

Applicability Of Presumption Of Reliance: Fraud-On-The-Market Doctrine

91. At all relevant times, the market for Fairfax’s common stock was an efficient market for the following reasons, among others:

(a) Fairfax’s stock met the requirements for listing, and was listed and actively traded on the NYSE national market exchange, a highly efficient and automated market;

(b) As a regulated issuer, Fairfax filed periodic public reports with the SEC and the NYSE;

(c) Fairfax regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; and

(d) Fairfax was followed by several securities analysts employed by major brokerage firm(s) who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firm(s). Each of these reports was publicly available and entered the public marketplace.

1As a result of deficiencies in the federal reporting requirements for companies that are based outside the United States, but listed and traded within the U.S. defendants Fairfax and the individual defendants are not required to report transactions by Company insiders, who may have exercised options and who may have sold material amounts of their personally held shares during the Class Period. Accordingly, only after appropriate discovery will Plaintiff be able to ascertain whether defendants also liquidated material amounts of their personally held, Fairfax shares while in possession of material adverse, non-public information.

45 92. As a result of the foregoing, the market for Fairfax securities promptly digested current information regarding Fairfax from all publicly available sources and reflected such information in Fairfax stock price. Under these circumstances, all purchasers of Fairfax common stock during the Class Period suffered similar injury through their purchase of Fairfax common stock at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

93. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this complaint.

Many of the specific statements pleaded herein were not identified as “forward-looking statements” when made. To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward- looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Fairfax who knew that those statements were false when made.

BASIS OF ALLEGATIONS

94. Plaintiff has alleged the following based upon the investigation of plaintiff’s counsel, which included a review of SEC filings by Fairfax, as well as regulatory filings and

46 reports, securities analysts’ reports and advisories about the Company, press releases and other public statements issued by the Company, and media reports about the Company, and plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.

FIRST CLAIM

Violation Of Section 10(b) Of The Exchange Act And Rule 10b-5 Promulgated Thereunder Against All Defendants

95. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein.

96. During the Class Period, defendants carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) enable defendants to artificially inflate the price of Fairfax securities by deceiving the investing public regarding

Fairfax’s business, operations, and management; (ii) enable defendants to sell over $600 million in securities and over $150 million in Company debt; (iii) allow defendants to reap substantial payments of unearned bonuses and salaries, and also afforded them the opportunity to liquidate their personally held Fairfax shares while in possession of material adverse, non-public information about the Company; and (iv) cause plaintiff and other members of the Class to purchase Fairfax common stock, other securities and debt at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, jointly and individually (and each of them) took the actions set forth herein.

97. Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or failed to state material facts necessary to make the

47 statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company’s common stock in an effort to maintain artificially high market prices for Fairfax’s common stock in violation of Section

10(b) of the Exchange Act and Rule 10b-5. All defendants are sued either as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.

98. Defendants, individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and future prospects of Fairfax as specified herein.

99. These defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of Fairfax’s value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and failing to state material facts necessary in order to make the statements made about Fairfax and its business operations and future prospects in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of Fairfax common stock during the Class Period.

100. Each of the Individual Defendants’ primary liability, and controlling person liability, arises from the following facts: (i) the Individual Defendants were high-level executives and/or directors at the Company during the Class Period and members of the Company’s

48 management team or had control thereof; (ii) each of these defendants, by virtue of his responsibilities and activities as a senior officer and/or director of the Company was privy to and participated in the creation, development and reporting of the Company’s internal budgets, plans, projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and familiarity with the other defendants and was advised of and had access to other members of the

Company’s management team, internal reports and other data and information about the

Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants was aware of the Company’s dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading.

101. The defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts. Such defendants’ material misrepresentations and/or omissions were done knowingly or recklessly for the purpose and effect of concealing Fairfax’s operating condition and future business prospects from the investing public and supporting the artificially inflated price of its common stock. As demonstrated by defendants’ overstatements and misstatements of the Company’s business, operations and earnings throughout the Class

Period, defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by recklessly refraining from taking those steps necessary to discover whether those statements were false or misleading.

102. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of Fairfax common stock was artificially inflated during the Class Period. In ignorance of the fact that market prices

49 of Fairfax’s publicly-traded common stock were artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by defendants but not disclosed in public statements by defendants during the Class Period, plaintiff and the other members of the Class acquired Fairfax common stock during the Class Period at artificially high prices and were damaged thereby.

103. At the time of said misrepresentations and omissions, plaintiff and other members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other members of the Class and the marketplace known the truth regarding the problems that

Fairfax was experiencing, which were not disclosed by defendants, plaintiff and other members of the Class would not have purchased or otherwise acquired their Fairfax common stock, or, if they had acquired such common stock during the Class Period, they would not have done so at the artificially inflated prices which they paid.

104. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder.

105. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their respective purchases and sales of the Company’s common stock during the Class Period.

SECOND CLAIM

Violation Of Section 20(a) Of The Exchange Act Against Individual Defendants

106. Plaintiff repeats and realleges each and every allegation contained above as if fully

50 set forth herein.

107. The Individual Defendants acted as controlling persons of Fairfax within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the

Company’s operations and/or intimate knowledge of the false financial statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Defendants had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements that plaintiff contends are false and misleading. The Individual Defendants were provided with or had unlimited access to copies of the Company’s reports, press releases, public filings and other statements alleged by plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

108. In particular, each of these defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same.

109. As set forth above, Fairfax and the Individual Defendants each violated Section

10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and other members of the Class suffered damages in connection with their purchases of the

51 Company’s common stock during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for relief and judgment, as follows:

A. Determining that this action is a proper class action, designating plaintiff as Lead Plaintiff and certifying plaintiff as a class representative under Rule 23 of the Federal

Rules of Civil Procedure and plaintiff’s counsel as Lead Counsel;

B. Awarding compensatory damages in favor of plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees;

D. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and the federal statutory provisions sued hereunder, pursuant to Rules 64 and 65 and any appropriate state law remedies to assure that the Class has an effective remedy; and

E. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: May 4, 2006 Respectfully submitted,

POMERANTZ HAUDEK BLOCK GROSSMAN & GROSS LLP

By______Patrick V. Dahlstrom One North La Salle Street #2225

52 Chicago, Illinois 60602 Telephone: (312) 377-1181 Facsimile: (312) 377-1184

GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy Michael Goldberg 1801 Avenue of the Stars, Suite 311 Los Angeles, California 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160

Attorneys for Plaintiff

53