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The Financial Services Authority (FSA) has fined US-hedge fund Greenlight Captial and its owner David Einhorn £7.2 million for engaging in market abuse in relation to an anticipated significant equity fundraising by Punch Taverns in June 2009.
As a result of Einhorn’s actions Punch shares fell by 29.9% and Greenlight’s trading avoided losses of approximately £5.8 million for the funds under Greenlight’s management.
On 9 June 2009 Einhorn was given inside information from a corporate broker acting on the behalf of Punch Taverns that it was in an advanced stage of the process towards a significant equity fundraising.
Greenlight, under Einhorn’s instruction, sold 11,656,000 Punch shares within four days, reducing its holding in Punch from 13.3% to 8.89% of Punch’s issued equity.
Punch announced a fundraising of £375 million on 15 June 2009.
Following the announcement the price of Punch shares fell by 29.9%. Greenlight’s trading had thereby avoided losses of approximately £5.8 million for the funds under Greenlight’s management.
Einhorn’s fine is £3.6 million including disgorgement of financial benefit and Greenlight’s fine is £3.7 million also including disgorgement of financial benefit.
The FSA said it accepted that Einhorn’s trading was not deliberate because he did not believe that it was inside information he had acted on but that this was not a reasonable belief.
It said investment professionals were expected to handle inside information carefully regardless of whether they have been formally ‘wall-crossed’.
Tracey McDermott (pictured), FSA acting director of enforcement and financial crime, said: 'Einhorn is an experienced professional with a high profile in the industry. We expect someone in his position to be able to identify inside information when he receives it and to act appropriately. His failure to do so is a serious breach of the expected standards of market conduct.'
'It is highly damaging to market confidence when privileged shareholders commit market abuse, and the high penalty reflects the seriousness of his breach.'
Comments (3)
Nothing new in this type of story.
16:50 on 25 January 2012
Hedge funds and private equity funds have been abusing their investors for years. After these businesses have taken their cut, the investor has been left with as little as less than if they had stayed in cash or bought a plain vanilla investment without the gaudy trappings used as bait.
Such actions are typical of the poor model of capitalism we have now, where high ranking workers and their ilk rip off those who put up the risk capital for a business to operate. Deal with this, and watch world economies rebound northwards far faster than will happen with additional bureaucracy, laws and taxes, which is the present likelihood.
16:55 on 25 January 2012
Serious question:
Insider trading is illegal and this type of market abuse is (apparently) subject to an FSA fine... if this is the case, how, when their actions can and usually do result in significant price movements, do short sellers escape FSA scrutiny?
Surely, short selling distorts morkets and should be outlawed?
16:57 on 25 January 2012
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