David Einhorn, President of Greenlight Capital, fined for insider dealing.
David Einhorn might not be so well known this side of the Atlantic, but the hedge fund he manages, Greenlight Capital, is one that has been held in high regard.
Mr Einhorn, who was interviewed by Fool US early last year, has been a vocal critic of Wall Street and the way passive investors like pension funds are disadvantaged. He is also the author of Fooling Some of the People All of the Time, which describes his encounters with Allied Capital and his criticism of the firm's accounting practices, and he was one of the first to suspect irregularities at Lehman Brothers.
But now, followers of Mr Einhorn will be shocked to learn that he has been fined for trading abuses, after Greenlight Capital dumped shares in Punch Taverns (LSE: PUB) after learning that the pub chain was about to raise capital by issuing new shares.
Such issues are usually made at a discount and have the effect of lowering the share price, and, in this case, Punch shares fell by 30% when the news was made public. By selling early, Greenlight managed to avoid a loss of around £5.8m.
Telephone tip-off
Selling shares based on publicly known information is, of course, fine. But in this case, the beans were spilled by a broker representing Punch, in a telephone conversation in June 2009. And that's just not on.
Mr Einhorn claimed that he hadn't realised his tip-off was considered insider information, as no actual decision had been made by Punch at the time, and is quoted as saying: "Nothing had been decided. Nothing was imminent. I was told no decision had been made and Punch was simply exploring strategic alternatives."
But while accepting that the action was not deliberately dishonest, the FSA said that, as Mr Einhorn is an experienced investment professional: "We expect someone in his position to be able to identify inside information when he receives it and to act appropriately. His failure to do so is a serious breach."
The Punch Taverns shares that were sold belonged to Greenlight Capital but, as Mr Einhorn would have benefited from fees charged on the management of the fund, the £7.2m fine was spilt two ways, with Mr Einhorn having to stump up £3.6m and Greenlight the rest.
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