The Financial Services Authority (FSA) has decided to fine David Einhorn, owner of the prominent US hedge fund Greenlight Capital Inc (Greenlight), and his fund £7.2 million for engaging in market abuse in relation to an anticipated significant equity fundraising by Punch Taverns Plc (Punch) in June 2009.
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.
Tracey McDermott, acting director of enforcement and financial crime, said:
“Einhorn is an experienced professional with a high profile in the industry. 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 of the expected standards of market conduct."
Yet again the FSA has failed to prosecute a financial insider and seek a custodial sentence. This is now he expected and typical response from this most spineless of regulators, who feel that it is better to seek these pathetic financial penalties, than really go to the trouble of taking these financial spivs to the Old Bailey!
Here was a market professional who learned that shares he owned were about to become impacted by the news that the company was seeking an equity fundraising issue, thus diluting the value of his stockholding.
He immediately gave instructions to sell the entire holding, and in the end, made a saving of £5.8 million for the funds his firm managed.
Whatever you want to call it, this was a gross misuse of privileged information, and Mr Einhorn should have felt the complete weight of the force of the law against insider trading to fall on his head. He should have been prosecuted to within an inch of his well-shod feet, and if convicted, he should have been sentenced to a term of imprisonment. A couple of years at Her Majesty's Pleasure sharing a cell with a steroid-crazed body-builder with an IQ smaller than his hat size would have been a learning curve.
But what happened?
The FSA accepted a plea from him, and accepted that '...his trading was not deliberate because he did not believe that it was inside information...'!
Excuse me, que passa? What did he think it was then, a polite chat with an ever-so-friendly market broker passing the time of day? Who is kidding whom here?
The FSA then fined this uber-rich trader who made millions shorting Lehmann Brothers, the derisory sum of £7.2 million. To a man like Einhorn, this is chump change, he won't even feel the pinch. I'll bet that such a penalty will definitely teach him not to do such a thing again!
What this pathetic exercise ignores is that whether or not the FSA finally decided to prosecute for Insider Dealing, the profits Einhorn made from the deal were the proceeds of crime, whether you call it market abuse or insider dealing, they are still crimes at the time they were committed, and their proceeds can be laundered. As soon as Einhorn realised the proceeds from the sales, he was laundering the money, and any institution handling the deal should have made an immediate SAR if they had suspected the transaction.
Has the FSA investigated to see whether any SAR was reported? Bet not!
This kind of derisory action on the part of the Regulator brings them into disrepute yet again. If they have evidence that individuals have committed crimes, they must and should be prosecuting them, otherwise, what message does this send. Some way must be found to insist that evidence of criminality leads directly to the dock.
London is already the place where the ultra-rich come to lord it in non-dom tax-haven luxury. Where bankers whose publicly-owned businesses have made no profits can pay themselves obscene, million pound bonuses, because no-one has the bottle to get up and say 'No' very loudly and mean it! Where men who through arrogance and incompetence have taken once-great financial names to the brink of extinction, get knighted and given pensions of a size beyond the dreams of avarice! Where 98 of the FTSE top 100 companies can pay no tax to the Revenue. Where we welcome oligarchs who have raped and looted their former State assets, and then come to launder their ill-gotten gains through their ownership of British properties.
What in God's name has happened to us? Where once, we had a name for fair dealing, and integrity, we now have replaced it with greed, sleaze and double-standards. The best thing to do is to put the sign 'Casino' in flashing lights over every immigration desk in every point of entry in Britain. At least then we would be making some pretence at telling the truth of what this country's financial sector offers!