Or, the UK’s FSA slaps a £7.2m fine on David Einhorn and Greenlight Capital over trading in Punch Taverns shares in 2009. First, the case from the FSA:
On 9 June 2009, Einhorn was a party to a telephone conference in which it was disclosed to him by a corporate broker acting on behalf of Punch Taverns Plc that Punch was at an advanced stage of the process towards a significant equity fundraising. This was inside information and Einhorn should have appreciated this.
A matter of minutes after the telephone conversation had concluded and on the basis of that inside information Einhorn gave instructions to sell all of Greenlight’s holding in Punch. At the time these instructions were given Greenlight held 13.3% of Punch’s issued equity.
Over the next four days Greenlight sold 11,656,000 Punch shares, thereby reducing its holding in Punch from 13.3% to 8.89%.
On 15 June 2009, Punch announced a fundraising of £375 million. Following the announcement the price of Punch shares fell by 29.9%. Greenlight’s trading had thereby avoided losses of approximately £5.8 million for the funds under Greenlight’s management.
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. Investment professionals are expected to handle inside information carefully regardless of whether they have been formally wall-crossed. 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…
David Einhorn’s fine is £3,638,000 including disgorgement of financial benefit and Greenlight’s fine is £3,650,795 including disgorgement of financial benefit. The Punch securities were held in underlying funds managed by Greenlight.
And the response from Einhorn himself:
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…
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.
One little bit of history here: Greenlight voted against that 2009 cash call.