February performance. Read more »
Here’s a sort of touching monologue from David Einhorn’s call with Punch:
If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done — signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the — you know what’s going on here. And — and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you.
You could sort of see why the FSA read that to mean that he was insider trading. Like …
(1) You have told me something with signalling value. Sorry – “a lot of signalling value.”
(2) I will now act on that signal.
(3) Don’t be mad.
“Signalling value” sure sounds like it means “material nonpublic information,” doesn’t it? Read more »
Remember how David Einhorn got in trouble in England for insider trading on Punch Taverns stock and he was all “what?” and we were all “what?“? Well, you can judge it for yourself because now the entire disputed call with Punch is available online (at the back of this). So go read it, or read the highlights here. The FSA still thinks it’s insider trading, but the count of people confused by the whole thing is rising, and now includes the Merrill banker on the call. There’s lots of insider traderiness on this side of the pond today too so we should talk about that in a bit.
For now, though, two other things. One is quick – no one can resist one part of the call and I can’t either so here it is:
DAVID EINHORN: Hi, I’m sorry I didn’t get to see you when you were in New York.
PUNCH CEO: No, no, we — well, we’ve — we’ve only had the chance to speak once, although we have seen [reference to Greenlight Analyst] a few times since then.
DAVID EINHORN: Oh, you’re — you’re — you’re getting more than — than I could help with anyway. So, this is good.
PUNCH CEO: Okay. That’s fair enough. Well, one day we’ll get you around on a pub crawl around some English pubs.
DAVID EINHORN: Oh, that sounds fun.
PUNCH CEO: It is. You’re right.
English readers: Is it? I just assumed that Punch Taverns are rather grim places, like TGI Friday’s but with more … punching? … but maybe I’m totally off base here. Also, here is a hypothesis: vice investments do well because, for the same level of profitability, they get more analyst/investor coverage and enthusiasm. Wouldn’t you rather go on a pub crawl instead of like a tour of an auto parts factory in Queens? Would that influence your stock recommendations / money allocations? Someone should do a study. 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.
…about all this. For starters:
- “This is as much like insider trading as soccer is like football”
- “The FSA has spent the last two years forcing square pegs into round holes”
- “This is like a traffic cop with a quota at the end of the month, with a miscalibrated radar gun”
- Greenlight has a recording of the call in question, which contains no evidence of insider trading Read more »
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 »