News
In a landmark case for the FSA, high profile US hedge fund manager David Einhorn and his firm Greenlight Capital have been fined a total of £7.2m for market abuse in trading ahead of an equity fundraising by Punch Taverns in 2009. The FSA claim that Einhorn was informed by Punch's broker and management that a planned equity issue was imminent with Einhorn immediately reducing his position ahead of the highly likely subsequent fall in Punch's share price. In the event, it fell 29% saving Greenlight £5.8m following its offload of 11,656,000 Punch shares - 13.3% to 8.89%.
However, Einhorn insisted that he was not party to insider information and speaking to Greenlight investors stated: "Nothing was imminent. I was told no decision had been made and Punch was simply exploring strategic alternatives to raise funds". He also claimed that the FSA was looking to "score a win against a high profile American hedge fund."
The FSA for its part says: "On 9 June 2009, Einhorn was a party to a telephone conference in which it was disclosed to him by a corporate broker acting on behalf of Punch Taverns Plc that Punch was at an advanced stage of the process towards a significant equity fundraising. This was inside information and Einhorn should have appreciated this...The FSA accepted that Einhorn’s trading was not deliberate because he did not believe that it was inside information. However, this was not a reasonable belief..this was a serious case of market abuse by Einhorn and fell below the standards the FSA expects".
This is a highly revealing case that illustrates the FSA's determination to clamp down hard on market abuse. It is likely to have reverberations around the world for all investors in UK securities as the FSA appears to be interpreting market abuse more tightly. In his defence, Einhorn states that he specifically asked not to be brought over the wall and did not consider himself to be party to insider information. The case reflects the difference in regulatory approach between the UK and US - Einhorn's explanation would most likely have exonerated him in the US where a broader sense of what constitutes market abuse and appears acceptable. The case also raises questions over the likelihood of tightening conversations with shareholders in future. In general, the Society supports the current regulatory regime and tough stance being taken by the FSA to prosecute market abusers but clearly investors will now be more cautious about conversations with issuers and it is likely that advisors will need to be very clear if they wish to make an investor an insider.
Published: 26 January, 2012