Einhorn Gored by FSA for Insider Trading


New York, NY – Earlier this week, David Einhorn and his US hedge fund, Greenlight Capital Inc., was fined by the UK’s Financial Services Authority for alleged insider trading, indicating that regulatory concern about insider trading has traveled outside the US.

FSA Ruling

The FSA fined Einhorn and Greenlight a total of $11.2 mln for information that Mr. Einhorn received in a 2009 conference call with management of UK-based Punch Taverns, PLC.  The FSA alleged that the trades that Einhorn made as a result of the information obtained in this call enabled his fund to avoid $9 million in losses.

Although Einhorn claims his innocence in a letter to investors, he has agreed to pay the fine and not fight the FSA’s charges.

Details of the Case

According to the FSA, Mr. Einhorn learned of a plan to issue a significant amount of new equity by Punch Taverns’ company management during a conference call held on June 8th, 2009.  The call was arranged by a Bank of America Merrill Lynch broker, Andrew Osborne.

Immediately following the call, Einhorn directed traders at his firm to sell their holdings of the company.  The firm sold 11.7 million shares of Punch Taverns.  Apparently, the price of Punch shares dropped by a third after the call.

On June 15, 2009, Punch publically announced a “rights issue” where the company offered existing shareholders new shares at a discount.  The price of the company’s shares dropped further is response.

The FSA said that Mr. Einhorn’s actions were a “serious breach of the expected standards of market conduct.”  The FSA also admitted that additional investigations relating to the case are ongoing.

Issues Raised by the Case

The FSA’s fine of Einhorn and Greenlight Capital raise a few interesting issues for investors.  These include:

  • Einhorn was held personally responsible for the purported insider trading.  As a result, both he and the firm were fined.  This is a rare stance for the FSA.
  • The $11.2 mln fine is the second largest ever imposed by the FSA on an individual in a market abuse case.  We think this reflects the FSA’s desire to communicate how seriously they take insider trading.  Unlike the US, the FSA has not brought a large number of insider trading cases in the past few years.
  • Even though Einhorn received this information in a management conference call, he was held responsible for trading on the information about the “rights issue” as it was both nonpublic and material.
  • The lack of Regulation FD in the UK allowed Punch Tavern’s management to discuss their plans for the rights issue with investors without any concern of regulatory response.




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