Greenlight Capital Fined $11 Million for Insider Trading
Britain’s Financial Services Authority announced this week that it was levying an $11 million fine on Greenlight Capital, a hedge fund run by noted manager David Einhorn. In handing down the fine, the FSA charged Einhorn and Greenlight Capital with using insider information to trade shares of Punch Taverns, a United Kingdom chain of pubs. The hedge fund allegedly saved itself several million dollars in losses through the transaction.
In a conference call with investors, Einhorn steadfastly denied that any impropriety had occurred. He said that all conversations with Punch Taverns were made under the explicit understanding that the company would not disclose to Greenlight any confidential information. Therefore, he did not appreciate that any information gained from one such meeting may have contained insider knowledge. Einhorn went on to rebuke the regulator for broad and misguided policies. The agreement to pay the fine, he stressed, stemmed out of a desire to avoid a protracted court battle.
The case stems from a June 2009 conference call between Einhorn and the managers of Punch Taverns, the latter in which Greenlight Capital owned a significant stake. During the call, Einhorn was told that Punch Taverns was planning to issue new shares of its stock, a move that would likely reduce its stock price. Greenlight then sold a considerable percentage of its shares in Punch after the call, a move that regulators stress was clearly based upon insider information.
Greenlight Capital is based in New York and manages around $8 billion worth of assets. The company generated news and a large following when it short-sold on Lehman Brothers stock in 2008, just months before the bank collapsed. Since then, Greenlight and Einhorn have amassed considerable money and influence by betting on equities and corporate debt.
While the $11 million fine is certainly not an insignificant one for Einhorn and Greenlight, the fund has years of grow and high-profile gains to carry it through. The real question is whether the fine will take a hit to Einhorn’s reputation. By paying and avoiding a court date, he certainly hopes to insure that it does not.