Punch Taverns

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 »

  • 25 Jan 2012 at 4:12 PM

David Einhorn: “I Have Quite A Lot To Say”

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 »

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 »