David Einhorn, the founder of Greenlight Capital, used derivatives to bypass the disclosure requirements while raising his stake in Marvell Technology Group Ltd. (NASDAQ:MRVL), according to the Form 3 filing with the Securities and Exchange Commission on April 8. Bloomberg reports that David Einhorn increased his holding in the semiconductor company to 12.4 percent in January from 9.7 percent by entering into return swaps on 11.9 million shares.
Greenlight Capital had no other option but to disclose the swaps as Marvell Technology Group Ltd. (NASDAQ:MRVL) became more aggressive on its stock buyback program in December and January, which reduced the total number of outstanding shares. By late December, Marvell Technology Group Ltd. (NASDAQ:MRVL) shares had fallen 48 percent to $8 per share, mostly because the company had to pay Carnegie Mellon University $1.17 billion for infringing the university’s patents on integrated circuit technology.
Blue Mountain Credit Fund still in the red YTD; here are their biggest holdings
Blue Mountain Credit Alternatives Fund was up 0.36% for November, although the fund remains well into the red for the year. For the first 11 months, the fund was down 24.85% gross. Q3 2020 hedge fund letters, conferences and more Blue Mountain's fundamental credit strategy was up 0.63% for November, including a 1.09% gain for Read More
With the help of swaps, David Einhorn could buy at much cheaper prices and reap the benefits of a 32 percent increase in Marvell Technology Group Ltd. (NASDAQ:MRVL)’s stock prices this year. All this without increasing his stake above 10 percent, which would have required him to disclose any subsequent trades in the company.
Experts say that using derivatives to bypass disclosure requirements is a direct threat to the integrity and transparency of securities markets. Derivatives allow aggressive investors to affect a stock and influence the company. 44-year old Einhorn’s Greenlight Capital has given an average annual return of 19 percent since its inception in 1996.
When Marvell Technology Group Ltd. (NASDAQ:MRVL) shares plunged in 2012, David Einhorn called it the biggest loser in his portfolio, but he decided to purchase even more Marvell Technology Group Ltd. (NASDAQ:MRVL) stock because he liked the opportunity. According to the regulatory filing, under the swaps, Greenlight Capital would receive a cash payment equaling the increase in prices of 11.9 million shares above $7.93 each. As of yesterday, the swaps earned Greenlight Capital $19.2 million.
Greenlight Capital owned 51.8 million shares of the Hamilton, Bermuda-based semiconductor company by the end of December 2012, which equaled 9.7 percent stake in the company.
Marvell Technology Group Ltd. (NASDAQ:MRVL) shares were up 1.26 percent to $9.68 at 11:39 AM EST.