For most of us, the thought of getting hit with an $11 million fine is as unthinkable as it would be ruinous. But for David Einhorn and his hedge fund Greenlight Capital --who just paid such a penalty to market regulators in the UK-- it is little more than a blip on an otherwise sterling resume.
The case I am referring to dates back to June 2009, roughly a year after Einhorn rose to fame by cashing in on an enormously successful bet against Lehman Brothers. Despite ample domestic opportunities and a nascent stock rally at home, Einhorn built up a substantial 13% stake in a British pub operator called Punch Taverns PLC.
Britian's Financial Services Authority (FSA) alleges Einhorn used inside information when he quickly scaled back his stock holdings in Punch. Regulators believe he used non-public information from a company conference call to ignite his decision to sell.
Einhorn says the actions were "inadvertent," but regulators ruled details off the conference call lead to illegal action.
What is undisputed is that the timing is suspicious. Shortly after that call, Einhorn began to sell his shares, reducing his stake in Punch by about 25% over the next four days. On the fifth day, the company announced plans that it needed to raise capital and the stock fell nearly 30%, at which point Einhorn says it was no longer worth selling, so he stopped.
Just as the FSA and David Einhorn dispute the exclusivity of the information discussed on that phone call, Macke and I attempt to hammer out an acceptable standard for what actually constitutes insider trading, and whether a clarified standard should be applied globally.
The answer, as debated in the attached video, is far from black and white. But Macke and I basically agree that the standards are vague, randomly enforced, and ripe for improvement when it comes to determining what is illegal versus what is legal insider or non-public information.
Is David Einhorn guilty as charged, or are British regulators cracking down too hard? We'd like to know what you think! Give us your feedback in the comment section below or follow us on Twitter or visit us on Facebook.
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