Point: “The latest urban legend to spread on trading desks and through the executive suites on Wall Street goes something like this: coming this fall, as President Obama makes his final push for a second term, his Justice Department will finally give the public what it wants in the form of an arrest of a major Wall Street figure for his role in the financial crisis. The men at the top of this “October Surprise” list are two of the more infamous figures in the banking business: former Lehman Brothers chief executive Dick Fuld and current Goldman Sachs chief executive Lloyd Blankfein. Using the Justice Department for political purposes is, of course, pretty sleazy.”
Counterpoint: “…But after speaking to my law enforcement sources — and you can throw people who work at the Securities and Exchange Commission and the Justice Department in this category — I give low probability for this urban legend coming to fruition.”
Regardless: Read more »
And for this he should do time? Read more »
What is your model of what the FSA is thinking in its insider-trading crackdown? Here is this Decision Notice against JPMorgan global ECM chairman and general mining-industry macher Ian Hannam, shown here being unspeakably awesome in Afghanistan*, and he got in quite a bit of trouble for some pretty minor badness. Basically he was advising Heritage Oil and its CEO, Tony Buckingham, on a bunch of things including (1) being acquired by another company which is unnamed but let’s just call it Acme and (2) selling a stake in itself to “Mr A, a representative of an organisation with interests in Kurdistan (Organisation C),” which, there is a part of me that thinks that the organization was actually named “Organisation C” and that the guy would call Hannam and be like “Ian? Mr. A here.” No? I refer you again to that picture.
Anyway as things got serious with Acme in September ’08, Hannam sent an email to Mr. A saying:
“I thought I would update you on discussions that have been going on with a potential acquirer of Tony Buckingham’s business. Tony, advised by myself, has deferred engaging with the client until Thursday of next week although we know they are very excited about the recent drilling results of Heritage Oil … I believe that the offer will come in in the current difficult market conditions at £3.50-£4.00 per share. I am not trying to force your hand, just wanted to make you aware of what is happening.”
Later, he sent another email to Mr. A ending “PS – Tony has just found oil and it is looking good,” and bcc’ed Mr. B, “a businessman with interests in Kurdistan,” about whom we get no further information though I’m guessing pretty much everyone named or pseudonymed here could have someone killed on 24 hours’ notice if it came to that. Read more »
Pop quiz: you’re an insider trader looking to score some fresh intel. You’ve exhausted all of your sources and what’s more, you’re sick of just hitting them up for tips– you want to make obtaining material non-public information fun again. You figure the best way to go about that is to identify a target with obvious vulnerabilities that can be exploited for profit (always a good time). Do you a) go with the Danielle Chiesi move (i.e. requesting info post or, better yet, mid-coitus) b) get ordained as a Catholic priest and press penitents for potential market moving news during confession or c) go for broke: start attending AA meetings, become someone’s sponsor and then, when he/she’s confiding in you that the stress of his/her job at a certain company has been driving him/her to down a bottle of vodka every night, move in for the kill? If you’re Timothy J. McGee, C just feels so right. 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 »
As you may have heard, not too long ago, the government decided to crank up the heat on alleged insider traders, devoting considerable resources to nailing these guys and girls to the wall. Phone lines have been tapped, friendships destroyed. Last year, anyone who’d ever glanced in the direction of a person who’d had a 5 minute conversation with hedge fund manger Raj Rajaratnam went down, as U.S. Attorney for the Southern District of New York Preet Bharara sent the message that while you all may have been used to an era of loosey-goosey, he runs a much tighter ship. To that end, those committing non-violent crimes have been sent to jail for really, really long time, even if a unique constellation of ailments ravaging their bodies meant time behind bars would most certainly kill them. And with Bharara and Co showing no signs of easing up on their targets, some of you might be worried a stay in the big house may be in your future, having wittingly or unwittingly gotten on his bad side. But you need’t be! While Raj might tell you otherwise, according to at least one guy doing time, prison is not actually so bad. In fact, you might actually enjoy it. 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.
Here is an alternative view: Read more »
Remember how insider trading is trading on material nonpublic information? Only how it’s not? Apparently it is in England! Someone found that out today.
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 »