David Einhorn

To get a sense of how old and long-drawn-out the SEC’s insider trading lawsuit against Mark Cuban is, consider this: the company in which he allegedly insider traded was Mamma.com. The .com was right there in the name. Future generations – hell, present generations – will indiscriminately add “.com” to the end of words to create an old-timey feel, the way we doeth with “-eth.”1

Actually it happened in 2004, and I don’t even need the “allegedly”: there’s no dispute that Cuban insider traded. Everyone agrees that:

  • Mamma.com was planning to sell some stock in a PIPE offering which would, inevitably, drive down its stock price;
  • Mamma.com’s CEO called Cuban and told him about the planned PIPE offering in advance, hoping to get Cuban to buy more stock;
  • Cuban instead sold the stock he already had, prior to the public announcement of the PIPE deal; and
  • Then the PIPE was announced and the stock dropped.

So he had material nonpublic information, and he traded on it, and he avoided losses by doing so. INSIDER TRADING. The only debate is whether he insider traded illegally, which, as I often find myself reminding people, is a separate question. The SEC’s lawsuit2 turns not on the facts above, but on whether Cuban agreed not to trade before learning the inside information. Here the evidence is less clear, but there’s enough evidence that he did for the SEC to survive summary judgment today and take the case to trial. Here is that evidence:3 Read more »

So David Einhorn won his lawsuit against Apple today, which means that Apple will be forced by a court order to issue $236 billion of “iPref” 4% perpetual preferred stock next week, which I currently see bid at 4.06% in the gray market for $10 million lots.

Hahaha no of course it doesn’t mean that. It means nothing! Except that everyone is kind of peeved. There are some things you could say against Calpers corporate-governance guru Anne Simpson’s position on Apple/Einhorn, but she’s not wrong about this:

“I came off the call deeply puzzled,” Anne Simpson, the pension fund’s director of global governance, told DealBook in an interview after [yesterday's Einhorn] call [pitching iPrefs]. “He finished off by saying you should vote against Proposal 2 to send a message, but he’s in court trying to prevent Proposal 2 from going ahead.”

Right? Read more »

I used to work on sort of a cats-and-dogs capital markets desk, which occasionally meant that spivvy companies without great access to the equity and bond markets, or industry bankers who were a bit too clever for their own good, came to me and asked “hey, what if we issued preferred stock?”1 I cannot recall that ever working out well. “Preferred stock” is a thing that exists in corporate finance textbooks, and occasionally solves for quirky corporate finance equations (“can we structure this investment as debt only it isn’t debt …”), but its practical uses tend to be limited to:

  • private companies, private investments in public companies, joint ventures, VC investments, and other non-publicly-traded things;
  • convertible preferred stock, which is not really the same thing at all;
  • convertible preferred’s weird Warren-Buffett-and-TARP cousin, “preferred stock with warrants”; and
  • a couple of sectors that are really into leverage, capital-structure engineering, and retail financing – meaning mostly banks, insurance companies and REITs.

So David Einhorn’s too-clever-for-his-own-good “iPrefs” deck brought back fond memories: why not convince a tech company that the next level of financial-engineering innovation is to issue preferred stock? And, since the phrase “preferred stock” does still kind of conjure up turn-of-the-last-century financial markets and/or cheesy cologne, why not rebrand it as “iPrefs”? There is something … something very investment-banker-y about taking an absolutely standard financial product, giving it a different name, and calling it an innovation. Of course I love it.

The only thing I love more than the name is the ambition. Read more »

David Einhorn Sees A Lot Of His Nana In Apple

“It is kind of like my grandma Roz. She wanted to hoard money. She would not leave me a message on my answering machine because she did not want to be charged for a phone call. It is really hard to convince somebody with that mindset to change what they’re doing. We have come up with what we think is a win-win situation for Apple where Apple gets to keep its war chest, they get to keep the money, they get to have it for bad times, for growth, for acquisitions.”[Bloomberg TV, earlier]

David Einhorn is suing Apple to make them give shareholders a separate vote over whether shareholders should have a vote over whether Apple can issue preferred stock. I guess that requires some unpacking. Let’s start at the end, with the preferred stock. Here is Einhorn’s plan:

For example, Apple could initially distribute to existing shareholders $50 billion of perpetual preferred stock, with a 4% annual cash dividend paid quarterly at preferential tax rates. … Assuming Apple retains its price to earnings multiple of 10x and the preferred stock yields 4%, our calculations show that every $50 billion of perpetual preferred stock that Apple distributes would unlock about $30 billion, or $32 per share in value. Greenlight believes that Apple has the capacity to ultimately distribute several hundred billion dollars of preferred, which would unlock hundreds of dollars of value per share. Further, Greenlight believes additional value may be realized when Apple’s price to earnings multiple expands, as the market appreciates a more shareholder friendly capital allocation policy.

What do you think? I vote yes. (I mean, I think it’s a good idea. The voting is more complicated.) My math is here and ties closely to Einhorn’s:


The math is super straightforward though it can and should boggle you conceptually if you think about it. Read more »


Greenlight Capital Fourth Quarter Letter [ValueWalk]

David Einhorn, Greenlight Capital: “Cranberry sauce — not from the can, just cranberries and sugar.” Julian Robertson, Tiger Management: “Wild rice.” Gary Cohn, Goldman Sachs: “Oysters — not shucked by me.” Glenn Dubin, Highbridge Capital Management: “I love turkey. I would love to eat turkey all year round, because I’m a chicken person.” David Hasselhoff, actor: “I miss the dish my mother used to make: it was green beans, with a layer of marshmallows, and corn flakes on top.” [Bloomberg via LaurenTaraLaCapra, RELATED]