David Einhorn photo


UPDATED: In further news which could help defend Einhorn there was a conference call on the 9th and he actually sold four days later as detailed here.

In very shocking news, the Financial Securities Authority (FSA) of the UK, is investigating and fining David Einhorn over the sale of shares in Punch Taverns in 2009, three days before it announced plans to raise £350m from investors.

Einhorn reduced Greenlight’s stake in Punch Taverns from 13.1% on 1 June 2009 to 8.98%t on 15 June. Einhorn maintains that he was never privy to inside information about the deal.

While insider trading is a very common feature in private equity, hedge funds etc. This news is particularly shocking.

Except for Congress where it is legal, one must first realize that there are many grey lines with insider trading. If an analyst meets with management, and they disclose information that seems to violate fair disclosure rules. Yet this practice happens thousands of times a day.


Although Einhorn is known to be a man of intergrity by many who know him very well (source: myself), this does look highly suspicious. The transaction was material in the fact that the shares took a huge dive on news of dilution, as the above chart shows.

Furthermore the United Kingdom seems to have much stricter laws about insider trading than those that exist in the US:

It is  illegal to fail to trade based on inside information (if the trade would not have taken place without the inside information). The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known. No relationship to the issuer of the security is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information.

However in Einhorn’s defense (besides his previous ethical record) since he reduced his stake by over 1% he was required to report the issue to authorities. That might make the case harder to prove since shareholders knew that David Einhorn sold a huge chunk of shares even if they did not know the reason.

Furthermore, Einhorn is not super concentrated. He changes positions not frequently, but not infrequently. With the hundreds (or thousands) of trades that Einhorn’s Greenlight conducted over the past 15 years, it is very possible that it was just a coincidence.

Only time will tell, but for now we believe the case can be made to defend Einhorn, despite the UK’s stricter insider trading rules rules.