TORONTO (Bloomberg) ? Shares of Fairfax Financial Holdings Ltd., which sued a group of hedge funds that questioned the Canadian insurer?s accounting, fell as much as 6.4 percent after the Toronto-based company said it will restate earnings.

Fairfax declined C$4.08, or 3.3 percent, to C$121.50 at 12:42 p.m. in trading on the Toronto Stock Exchange. They?ve fallen 28 percent this year.

The company said yesterday that because of accounting errors mostly before 2002, financial statements since then ?should not be relied upon.? Fairfax said the restatement isn?t connected to a complaint filed earlier this week that accused hedge funds of conspiring to drive down Fairfax?s stock by spreading false information.

?There?s many errors, a couple of dozen errors,? within the financial statements, chief financial officer Greg Taylor said yesterday during a conference call with investors. The largest accounting mistake ranged from C$30 million to C$35 million, Taylor said.

The restatement, which is expected to be completed at the end of August, might decrease shareholder equity by as much as $190 million, Fairfax said. The company previously reported equity of $2.86 billion as of March 31.

Standard & Poor?s Ratings Services placed some Fairfax obligations on CreditWatch yesterday, saying they might be downgraded. A downgrade could make it more costly for Fairfax to borrow money.

?The timing of the filing of the lawsuit was based on entirely different considerations,? said Marc Kasowitz, a lawyer for Fairfax with Kasowitz Benson Torres & Friedman LLP, in an interview today with Bloomberg Television. ?The restatement relates to some technical matters going back a few years that have nothing at all to do with the lawsuit.?

Fairfax said on July 26 it was suing a group of hedge funds that included SAC Capital Advisors LLC, Lone Pine LLC and Exis Capital Management because they allegedly tried to profit from the company?s stock-price drop after writing false and negative research reports about Fairfax?s accounting and business practices. The suit seeks $6 billion in damages.

?It is our fiduciary responsibility to act upon what we have learned in the course of our investigation,? Chief Executive Officer Prem Watsa said today on the conference call. Watsa said this is only the second lawsuit Fairfax has filed in its 21-year history.

SAC spokesman Jonathan Gasthalter and Exis official Adam Sender have said the lawsuit has no merit.

The insurer said second-quarter net income climbed to $223.6 million from $5 million a year earlier, and revenue rose 29 percent to $1.93 billion from $1.5 billion. Fairfax said only limited earnings information was released because of the restatement.

Fairfax, which sells property, casualty and accident insurance under brands including Crum & Forster and Fairmont Insurance, gets more than half its revenue from the U.S.

The lawsuit is one of several accusing hedge funds of spreading disinformation about companies and profiting when their shares fell.

Similar lawsuits accused SAC of targeting Biovail Corp., Canada?s largest publicly traded drugmaker, and Rocker Partners LP of campaigning against Overstock.com Inc., an online seller of excess inventory. The disputes have prompted calls for more federal regulation of hedge funds.