British regulators punished one of the world's most influential hedge-fund managers for alleged insider trading in shares of a large U.K. pub owner, illustrating that stricter insider-trading enforcement has spread outside the U.S.
The Financial Services Authority said Wednesday that it fined David Einhorn and his firm Greenlight Capital Inc. a combined $11.2 million for trading on information Mr. Einhorn received in a 2009 conference call about a stock offering by U.K.-based Punch Taverns PLC. The trades allowed Greenlight to avoid about $9 million in losses, the FSA said.
The FSA ruling represents a rare instance when a hedge-fund manager is personally held responsible for allegedly improper trading. Mr. Einhorn—who disputed the ruling but will pay half the fine himself—is one the most public faces in an industry known for secrecy. He often seeks publicity for large bearish bets against companies, including Lehman Brothers, whose accounting he attacked in the months before it collapsed in 2008.
Mr. Einhorn grabbed headlines when he negotiated last year to buy a minority stake in the New York Mets baseball team before pulling out. He has played in the World Series of Poker's main event in Las Vegas, winning thousands, and written a book called "Fooling Some of the People All of the Time" that criticized Congress, auditors, boards of directors and investigative reporters.
The FSA, Britain's equivalent of the U.S. Securities and Exchange Commission, has attempted in recent years to get tougher on white-collar crime, staging raids and seizing the computers of those it suspects of wrongdoing.
For years, critics have faulted the FSA for being too soft in white-collar cases. Private Eye, a U.K. satirical magazine, once dubbed the agency the "Fundamentally Supine Authority."
The SEC isn't investigating the Greenlight matter, according to people familiar with the matter.
In a letter to investors Wednesday, Mr. Einhorn, 43 years old, said he didn't believe "we had any inside information. I didn't believe in 2009, and I don't believe now, that there was anything wrong with our conduct and our actions."
Later Wednesday, Mr. Einhorn held a conference call in which he lambasted the FSA for its ruling, comparing the regulator to a traffic cop with a "miscalibrated" radar gun.
Greenlight, which has $8 billion in assets, in a statement noted that the FSA said its actions weren't deliberate or reckless.
An investor on the Greenlight conference call asked Mr. Einhorn whether he would make an audio recording or transcript of the 2009 call with Punch executives available so investors could hear the conversation themselves.
"I don't believe we're going to be able to do that," Mr. Einhorn said. Asked for a reason, he said the firm would choose not to.
Mr. Einhorn noted in the letter that Greenlight is offering its investors "a one-time opportunity" to redeem on March 31, provided they notify the fund by March 1. He said he will open the fund, which has been closed for years, to existing and new investors in an attempt to replace any capital lost due to redemptions.
The FSA action came in the form of a "decision notice" to Mr. Einhorn in which it detailed the alleged actions that led to the fine. Mr. Einhorn has agreed to pay the fine, not fight it, a person close to the situation said. In the U.S., regulators typically file a civil lawsuit or a civil administrative proceeding before any fine is assessed or agreed to.
The ruling highlights how a focus on insider-trading cases in the U.S. has spread to regulators overseas. In the U.K., insider trading became a crime only in 1980; in the U.S., it has been illegal since the 1930s. The FSA action was a civil penalty rather than a criminal charge.
In the U.S., federal prosecutors have won 56 convictions or guilty pleas in 63 insider-trading cases they have brought since 2009, including Galleon Group founder Raj Rajaratnam, who was convicted of insider trading last year and is serving an 11 year prison sentence. Last week, Manhattan prosecutors charged several other fund traders and analysts with insider trading.
The FSA said the action by Mr. Einhorn was a "serious breach of the expected standards of market conduct," according to Tracey McDermott, the FSA's enforcement director. An FSA spokesman said other investigations relating to the case are continuing.
The case revolves around a stock offering on June 15, 2009, by Punch—a step that drove down the price of the pub company's shares by nearly 30% when it was announced, according to the FSA ruling.
Punch Taverns, a chain of 5,000 U.K. pubs, and its rivals were hit hard in the financial crisis in 2008 and the ensuing economic downturn. The 2009 offering was a "rights issue," in which existing investors are offered shares at a discount, to help pay down debt.
A spokesman for Punch Taverns had no comment Wednesday.
Mr. Einhorn was told of the stock plan on June 8, 2009, in a conference call, according to the FSA ruling. The call—which included Mr. Einhorn, Punch management and others—was arranged by Bank of America Merrill Lynch broker, Andrew Osborne, according to people familiar with the matter; the FSA is investigating Mr. Osborne's activities in the matter, according to these people.
Mr. Osborne left Bank of America last year. A bank spokesman declined to comment and Mr. Osborne couldn't be reached for comment.
During the 2009 conference call, Mr. Einhorn learned that Punch was "at an advanced stage" in its plan to issue a "significant amount of new equity, probably within a timescale of around a week," according to the FSA ruling.
"Immediately following the [call], Mr. Einhorn directed that Greenlight traders sell the Greenlight Funds' entire shareholding in Punch. The decision to sell was solely Mr. Einhorn's," the ruling alleges.
Greenlight quickly sold 11.7 million Punch shares, reducing its holding in Punch to 8.89% from more than 13%, the ruling said.
Following the call, Punch shares declined by nearly a third, the filing says.
The sale by Mr. Einhorn of his Punch shares allowed the fund to avoid losses of $9.05 million, the ruling said.
The fine, which at $11.2 million fine is the second-largest ever imposed on an individual by the U.K. regulator in a market-abuse case, is significant because it suggests regulators believe market participants should be responsible for knowing whether they are violating market rules.
"It raises the issue of an experienced investor needing to know these types of things are inside information," said Ruth Gevers, a former FSA market-abuse official at the FSA who is now a director at Promontory Financial Group LLC.
read more: Olympus Wealth Management
No comments:
Post a Comment