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Manulife clashes with short seller Muddy Waters over lawsuit outcome

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Manulife clashes with short seller Muddy Waters over lawsuit outcome

Manulife Financial Corp. rejected a short seller's statements that the company could lose billions of dollars if it loses a lawsuit concerning a universal life policy issued in the 1990s.

Hedge fund Mosten Investment LP sued Manulife, claiming that it should be able to deposit as much capital as it can with the Canadian insurer and reap at least 4% in annual interest due to an insurance contract signed in 1997, Bloomberg News reported.

Muddy Waters Capital LLC disclosed a short position in Manulife and said in a report that the insurer is facing billions in losses, Bloomberg reported. Muddy Waters founder Carson Block expects a verdict in 2018.

Holders of the policies were allowed to invest in side accounts with guaranteed rates of up to 4%, according to Canada's Financial Post. The policies were issued at a time of high interest rates and could be profitable for firms amid a low rate environment.

Manulife said the report is a "short seller's attempt to profit at the expense of our shareholders." The insurer added that Mosten's position is "legally unfounded."

"We firmly believe that the consumers purchasing universal life policies, and the insurers issuing these policies, never intended to have the policies function as deposit or securities contracts," the Canadian insurer said in a statement.

Manulife does not expect the matter to affect its operations or its ability to fulfill its obligations to customers, vendors and other stakeholders.