Einhorn slapped with £7.2m insider trading fine

The Greenlight Capital founder has been fined over a Punch Taverns trade he made in 2009.

by Emma Haslett
Last Updated: 08 Feb 2013
Described by the FT as a ‘youthful-looking, t-shirt wearing poker player’, superstar hedge fund manager David Einhorn is no stranger to risk. But it on this occasion, it seems he overstepped the mark: Einhorn and his fund, Greenlight Capital, have been slapped with a £7.2m fine by the Financial Services Authority for allegedly divesting itself of shares in pub company Punch Taverns after a phonecall in which he received insider information about the company.

Einhorn, who’s best known for a series of high-profile bets against Lehman Brothers in the run-up to its collapse, will have to pay £3.6m of the fine out of his own pocket, making his the second-largest fine ever to be issued by the FSA to an individual for market abuse.

On June 9 2009, Einhorn was told during a phone conference with Punch’s Bank of America Merrill Lynch broker and its management that the company was close to a rights issue – a move which almost always drives down share prices. Over the following four days, Einhorn took Greenlight’s share in the company from 13.3% to just under 9%, selling off 11.65 million shares in the process. When Punch did issue the new equity a few days later, shares fell by 29% - meaning Greenlight avoided a loss of £5.8m.

On the surface of it, that might sound like the sort of mistake even the greenest investor would know to avoid – but the FSA was keen to point out that it didn’t think Einhorn’s actions were ‘deliberate or reckless’. Although it did concede that it was a ‘serious failure to act in accordance with the standards reasonably expected of market participants’.

Of course, this does give the FSA the opportunity to clear its name: the authority has been accused by some of being lax when it comes to insider trading, compared with its US counterpart. Indeed: research has found that in 2009, there were suspicious trading patterns before 30% of takeovers in the UK. Although it is worth pointing out that, had this taken place in the US, Einhorn probably wouldn’t have been charged because he told Punch’s broker that he didn’t want to be ‘wall crossed’ – given information that could make his trades contentious – before he was told about the rights issue. In the UK, though, we’ve got a much broader definition of what constitutes market abuse.

Einhorn, of course, is appalled at the fine: ‘we believe that this action is unjust and inconsistent with the law,’ he spluttered. In fact, he’s even gone as far as to offer investors a get-out clause earlier than usual. ‘We want every partner to be comfortable and excited to be invested with us,’ he said.

In the grand scheme of things, though, to a company like Greenlight, £7.2m is a drop in the ocean. We’re sure they’ll survive.

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