David Einhorn was charged by the Financial Services Authority today with insider trading allegations. We posted three articles on the topic, which can be found here, here and here. The last article is the most important one. We were one of the first sites to post on the topic, but as the day progressed more and more information has come out. David Einhorn’s Greenlight Capital announced that there would be a conference call on the issue at 4PM EST. We listened into the call and posted a transcript.
David Einhron opens the call which will mean he will be talking really quickly.
Disagree with the FSA’s market abuse, even the FSA admits the market abuse was deliberate.
Seth Klarman Tells His Investors: Central Banks Are Treating Investors Like “Foolish Children”
"Surreal doesn't even begin to describe this moment," Seth Klarman noted in his second-quarter letter to the Baupost Group investors. Commenting on the market developments over the past six months, the value investor stated that events, which would typically occur over an extended time frame, had been compressed into just a few months. He noted Read More
There was nothing remotely about insider trading here. Greenlight was not seeking inside information. They recorded calls where inside information, which was supposedly was shared. The call was voluntarily handed over to the FSA.
Einhorn did not expect the FSA to ignore facts, and fit “their foregone conclusions”. Einhorn believes he acted with utmost integrity and the FSA agrees with this.
Einhorn stresses integrity of firm. Einhorn states how he talks about he has called for more aggressive regulation in speeches and books.
Punch wanted Greenlight to sign an NDA, where information cannot be disclosed.
Greenlight was the second largest shareholder.
Greenlight was not interested in signing NDA, despite Punch’s insistence.
Greenlight had open call with Punch, with two secret listeners. Punch was a company that would be fine if they made some changes. The market was betting on death. Punch had $4 billion of long term debt, the company was selling pubs to pay off debt.
The CEO stated that he just sold 11 pubs and wanted to raise equity. Einhorn suggested that raising capital was terrible idea, because it would remove confidence from the company.
Punch’s CEO stated that the company was faily priced, which is absolutely uncommon of CEOs. This made Einhorn pessimistic about the company.
Einhorn did not sign NDA but got information, which is usually only provided to NDAs. Einhorn asked about equity raise, and i-banker suggested $350million. Einhorn thought that this was a huge amount.
Einhorn stated that Punch’s CEO again tried to ask Einhorn to sign an NDA. Einhorn stated that he would think about it.
Punch’s CEO stated that the company thought about equity raise and did detailed analysis on one, but did not decide on anything. After the call, Greenlight’s trader sold the stock on Greenlight’s orders.
FSA started from the end and went towards the beginning.
Greenlight sold 1/3rd of its stake. Two minutes after the call with company, the FSA decided that Greenlight committed market abuse, for not seeking legal advice before selling.
Greenlight compares FSA to hidden cam on Holdem Poker (Einhorn is renowned as a great Texas Holdem player).
When FSA heard call, they already knew that stock had falllen dramatically.
FSA claimed that the story began in 2008, when Punch decided on raising equity.
However these facts were not disclosed to Einhorn.
Einhorn agrees that FSA should have investigated it because it did look suspicious. However the evidence did not support it.
Greenlight held half the shares to block equity raise. Greenlight lowered stake to approve of an equity raise. This trading should alone have given FSA reason to doubt Einhorn’s guilt.
Einhorn “Case is without precedent in the UK.”
Einhorn thought that the i-bankers were pushing equity raise just to make money.
Einhorn had no idea capital raise would be so soon.
Einhorn stated that if anyone had reason to believe inside information was disclosed they had to report it. Therefore Punch’s CEO and anyone on the call should be charged if the FSA is correct.
Einhorn asked Punches’ CEO straight out if there was a capital raised definitively planned. The CEO answered no.
This case would never qualify on insider information in the US. The material in US would be fine because no one breached their duty, and Einhorn never agreed to not trade. If management decided to provide information it would have to file an SD.
Even though Einhorn thinks that Greenlight it is entirely right they doubt they would get a fair hearing. Plus they would not be able to discuss the details. The costs would also be prohibitive against a politically charged foreign Government.
Einhorn when asked about the implications: A lot of uncertainty comes from it and a lot of market participants will have to think about this as a result.
Call with Punche can it be released? Einhorn answers no because it is very long conversation and our summary has been provided.
Einhorn says Greenlight’s chief compliance officer will now become global compliance officer.
Einhorn says he will have to rethink investments in UK due to this matter. With regards to the opening of the fund, this is not related to the call.