Greenlight Capital Fined by FSA – David Einhorn’s Insider Tips
David Einhorn’s Greenlight Capital has run into trouble in the UK for insider trading.
Reuters is reporting that Britain’s Financial Services Authority (FSA) said on Wednesday it had fined Einhorn 3.64 million pounds ($5.67 million) and his Greenlight Capital 3.65 million pounds for market abuse.
Greenlight rose to prominence in credit crunch for shorting Lehman Brothers bank.
The story goes that Einhorn (a prolific poker player) learned from a telephone conversation, held with a broker in 2009, that British pub company Punch Taverns was on the verge of a significant equity fundraising, prompting Einhorn to sell down his holdings before an expected fall in the shares, the FSA said in a statement.
This decision allowed Einhorn (who wrote a book called Fooling Some of the People All of the Time, A Long Short Story) to avoid losses of around 5.8 million pounds, the FSA said. “The FSA accepted that Einhorn’s trading was not deliberate because he did not believe that it was inside information. However, this was not a reasonable belief,” the FSA said. “This was a serious case of market abuse by Einhorn and fell below the standards the FSA expects, particularly due to Einhorn’s prominent position as President of Greenlight and given his experience in the market.”
According to the Wall St. Journal, Mr. Einhorn stated, “We believe that this action is unjust and inconsistent with the law and with prior FSA enforcement precedent. However, rather than continue an arduous fight, we have decided to put this matter behind us and concentrate on managing our business.”
Mr. Einhorn continued, “We have always strived to set an example of good conduct and ethics, and we take compliance very seriously. We didn’t believe in 2009, and we don’t believe now, that there was 
anything wrong with our conduct and our actions. The fine is for trading in advance of a decision that had not been made, and the FSA concedes we did not believe we had any inside information. We did not enter into any confidentiality agreement, we explicitly requested that we not be given confidential information, and we do not believe we were given any such information. Further, all the witness testimony supports our view.”
Reportedly, ts he FSA said Einhorn gave instructions to sell all of Greenlight’s holdings in Punch a “matter of minutes” after the telephone call, on June 9 2009. At the time these instructions were given Greenlight held 13.3 percent of Punch’s issued equity, and over the next four days Greenlight sold 11,656,000 Punch shares, thereby reducing its holding in Punch to 8.89 percent.
Punch announced a fundraising of 375 million pounds on June 15 2009. Following the announcement the price of Punch shares fell by 29.9 percent, the FSA said. While the regulator said the trading infraction was inadvertent and not deliberate, the fine may put some tarnish on 
43-year-old Einhorn, a stalwart of the hedge fund community who is known for public crusades against abuses by public companies. Einhorn has targeted Green Mountain Coffee Roasters, claiming the company’s accounting practices and long-term earnings power are questionable.
Here is a video calling his views about Green Mountain Coffee into question:
While the average U.S. hedge fund lost about 5 percent in 2011, last year Einhorn’s flagship fund rose 2.9 percent. However, the hedge fund manager lost out on a high-profile bet last year when his effort to buy a significant minority stake in the New York Mets broke down over the summer. He is a life-long fan of the baseball team.
Einhorn isn’t the first fund manager to be fined in the UK for insider trading. In 2006 the FSA fined former GLG fund manager Philippe Jabre a then-record 750,000 pounds after he was found guilty of insider trading on a convertible bond sale for Japan’s Sumitomo Mitsui Financial Group. ($1 = 0.6416 British pounds)
Here are some videos of Einhorn talking about his investing style and views:
Understanding a hedge fund’s compliance procedures and the way in which it deals with and may be exposed to material non-public information is an important part of the operational due diligence process.
Operational Risk Consulting Focus at New Orlean’s Alternative Investment Conference Panel
It has been announced that Jason Scharfman,Managing Partner at Corgentum Consulting will moderate the alternative investments
panel session at the upcoming Opal Investment Education Symposium. The conference is being organized in conjunction with the Louisiana Trustee Education Council (LATEC).
At the panel sessions, it is anticipated that Mr. Scharfman will focus the discussion on upcoming trends in operational risk in alternative investments including hedge funds and private equity funds. Other topics which are anticipated to be discussed include the role of operational due diligence consultants such as Corgentum in designing a comprehensive operational due diligence solution, and operational due diligence challenges institutional investors can expect in 2012.
The panel Mr. Scharfman will moderate will be entitled, “Investing in Alternatives” and will take place on Wednesday February 15, 2012 at the Astor Crowne Plaza in New Orleans, LA.
To register for the event here, please visit the conference website.
Operational due diligence focus – Corgentum to present on hedge fund opportunities at Opal 2012 Investment Consultants Forum
Operational due diligence is coming into focus in 2012. It has been announced that Corgentum Consulting Managing Partner, Jason Scharfman will moderate the hedge funds panel at the upcoming Opal 2012 Investment Consultants Forum.
The panel will be entitled, “Hedge Fund Opportunities” will take place on Friday March 2, 2012 at the Crowne Plaza Times Square in New York, NY.
It is anticipated that Mr. Scharfman will discuss evolving trends in hedge fund operational due diligence for 2012, the benefit to investors towards working with operational due diligence consultants such as Corgentum, and the benefits of incorporating risk considerations into the hedge fund portfolio construction process.
To register for the event here, please click here.
