January performance. Read more »
Finally someone’s listening to us, I guess:
While prominent hedge-fund manager David Einhorn was the focus of the latest alleged insider-trading case this week, a supporting actor in the drama belongs to a fraternity of London bankers that also is under increased scrutiny.
Andrew Osborne, until last month a so-called corporate broker in the sprawling London outpost of Bank of America Corp.’s Merrill Lynch investment-banking unit, is alleged to have passed sensitive information to Mr. Einhorn, according to people familiar with the matter.
The U.K.’s Financial Services Authority is planning to fine Mr. Osborne £350,000 pounds ($549,674) for his role in the matter, said these people on Thursday.
This is not to be confused with the other other fines in the Greenlight case, which include Greenlight’s poor London trader being fined because he should have known that his boss should have known that he was breaking the law, or something. This is the guy who told Einhorn, on a non-wall-crossed call with him and Punch Taverns management, that Punch was going to raise £350mm, which Einhorn may or may not have laughed off as fee-seeking banker bluster. It comes from this Wall Street Journal article about “corporate brokers” – basically, as far as I can tell, ECM banker types who, um, do a lot of calling of investors and saying “how would you feel about a £350mm capital raise at Punch, hypothetically of course?” – and about how the UK is cracking down on insider trading. Just like the US is. Sort of: Read more »
On further inspection Greenlight Capital’s unfortunate relations with Punch Taverns went down more or less as I had thought: they had an un-wall-crossed conversation with management that David Einhorn took to be a sign to sell, and sold without ever agreeing to keep any information confidential. One key and sort of amusing difference – if you believe Greenlight’s explanation – is that, contrary to what I and the FSA thought, the sell signal in Einhorn’s mind wasn’t “Punch is going to raise equity.” It was “the CEO of this company thinks it’s a piece of crap.” Which I guess is also material nonpublic information.
Anyway here is something Einhorn said on his call yesterday:
The Decision Notice … doesn’t seem object to my having sold the stock. The problem is that I didn’t get permission first. “It was a serious error of judgement on Mr Einhorn’s part to make the decision after the Punch Call to sell Greenlight’s shares in Punch without first seeking any compliance or legal advice despite the ready availability of such resources within Greenlight.” It was already obvious to me that I was clear to trade. I have no idea why a compliance officer would have reached a different conclusion. It is highly unlikely that asking would have led to a decision to restrict ourselves.
It May Surprise You To Learn That Reasons For Greenlight’s “Punch” Fine Are Not Entirely Clear To Me EitherBy Matt Levine
I know, I’m soft on insider trading but hear me out. This is actually kind of screwed up.
First, a story. I used to work in a business that raised money for companies. Often when companies needed to raise money it was to do things like stave off rapidly impending doom, and the company would come to its bankers and ask “so, um, how’s that story going to play in the market?” And you’d answer something like “I don’t know but probably shitty?” And a way to make everyone feel better was a wall-crossed deal, in which the bank calls a few big potential buyers and says “would you buy this thing? at what price?” with the goal being to get the deal mostly done without freaking out the market – or, if that failed, to cancel the deal and move on to plan B also without freaking out the market.
Now in order to do this you needed to “wall cross” the potential investors by getting them to agree not to talk about the offering, or trade in the company’s stock, until the offering became public or was abandoned. Why? Two reasons:
(1) A thing called Regulation FD makes it illegal for companies to tell some investors material things unless they either disclose it to everyone or get the investors to agree to keep it confidential and not trade on it.
(2) Also important! You did this whole wall-cross to avoid announcing your deal and freaking everybody out so they sell your stock. If you don’t get investors to agree not to trade, then they’ll probably sell your stock, so you’ve accomplished nothing except breaking the law a bit.
Now getting them to agree not to trade has a certain chicken-and-egg quality because getting a call from a bank saying “we need to lock you up on company X” is never a good sign (maybe rare exceptions). So the call would go like this: Read more »
According to the FSA, which imposed the £7.2 million fine for “inadvertently engaging in market abuse in connection with trading of Punch Taverns…the market abuse was not deliberate or reckless. Mr. Einhorn did not believe that the information that he had received was inside information and he did not intend to commit market abuse.” Sayeth Einhorn: Read more »
So hard for it, honey. (So you better treat him right, 2012.) Read more »
Bloomberg reported today that, back in July, David Einhorn and some other people decided that (1) betting against European sovereign debt was, and would remain, a good idea, but (2) doing it in CDS form was kind of dumb, so (3) they’d switch to doing it in physical form, by borrowing and shorting the debt. Here’s what Einhorn had to say in his July investor letter:
The letter touched on two risks tied to credit swaps on European sovereign debt, including regulators’ attempts to fashion a Greek bailout in a way that prevented the contracts from paying out. The second risk was the possibility that banks that wrote billions of dollars in credit swaps on sovereign debt might not be able to make good on their obligations should a country such as Greece actually default.
Let’s talk about that first reason for a minute because I think it’s sort of illuminating. The problem is that Europe was in July, and is now, and wow that’s depressing, trying to cobble together a “voluntary” debt exchange where holders of Greek debt happily hand it in to Greece and get back a thing with a 50% face value haircut that is also a piece of crap. If you’re a European bank who owns Greek bonds and CDS to hedge them, and you feel pressured to accept that deal, then you feel like the “insurance” you bought on your bonds should “pay out,” I suppose, though that’s all fairly hypothetical. If on the other hand you’re David Einhorn and you bought CDS and then Greece haircuts its debt, you feel like your bet against Greek debt has been vindicated so it should pay out. But it doesn’t, says ISDA, because the exchange was voluntary and there was no “credit event” under the rules governing your CDS. Read more »