Wednesday, January 25, 2012

Liar Liar Pants on Fire

Oh please.  Surely, David Einhorn cannot have actually used THAT as his defense. And the FSA, like The Revenue in the Vodafone and Goldman Tax cases, and who remains in apparent awe of corporate celebrity, has seemingly bought at least some of it, judging by their willingness to accept his representations at face value.  By comparison with former GLG Chief Spec Philippe Jabre's torpedoing of Sumitomo Bank shares with thermonuclear ordnance in front of their imminent CB issue while still on the bat-phone to GS's "Philby", Einhorn's corporal caning by the FSA was a step in the right direction.  However, despite Mr Einhorn's attempt to nuance his rather implausible defense, I really see little difference in spirit between IMCL's Waksman, Martha Stewart, Raj-Raj or other examples of law-breaking financial malfeasance.

The thing is, Mr Einhorn paints himself to be, well, errrr ummm like David, representing Truth, Honesty, Goodwill Towards Men (OK maybe not the latter) and the Light of Virtue versus the evil dishonest greedy Goliath-like titans of Allied, MBIA and the gorgon's of Lehman. So today's ruling by the FSA, even if not what it should have been since few of his peers or practitioners would doubt that he knows very well what constitutes material non-public information, knew this approach was material non-public information, and yet brazenly acted upon it for parochial advantage, thereby representing yet one more "another one bites the dust" moment for what previously passed for integrity. He has been found out to be a cheat, playing his preferred game with marked cards.

And so it is a sad day for anti-cheats.  And I too am a bit forlorn because Mr Einhorn has been right  about a number of the well-researched cases he's made, and seemed somehow different to others-who-shall-not-be-named. ***Sigh*** But now, investors, stringers, financial journalists and even his acolytes, will need to scrutinize him, and his public proclamations  carefully - far more carefully than before. Because cheats are often liars, and the line between a cheat and a liar, and a sociopath who will talk his own book and harvest from his neighbors' Victory Gardens for parochial advantage, irrespective of collateral damage, is very thin indeed.

Kudos for his lawyers (they must have earned their fees)...shame (again) on the FSA.


Sleeper said...

I've done the CFA ethics courses ad nauseam, and I've been the IR director of a NASDAQ listed company. Looking through the FSA judgement, it seems to me that Greenlight strenuously avoided being brought over the wall.
They don't give a full transcript of the Punch call, but they do allude to the fact that Einhorn asked if he was being given inside information, and he got a negative response. He specifically asked if an equity issuance was planned, and was told no. Of course the fact of the call, and the offer of an NDA should have acted as a red flag, and any adherent of the Mosaic theory would have put two and two together, and sold just in case, but I don't see the call as conferring on Einhorn any responsibility to denote himself an insider. If compliance at either the company or the broker felt that he had been brought over the wall, they should have informed him of that.
Frankly, this looks to me like a stitch up job by the FSA, which has had a pretty poor record. What happened to the Moore Capital trader that they deprived of a livelihood over two years ago? That case hasn't been brought to trial, so I guess they are hoping people have forgotten about it.

If I were advising Einhorn, I would tell him to appeal this in court. This smacks to me of a lame duck agency trying to score a win like the SEC did with Galleon. But the evidence in this case is nothing like as convincing.

"Cassandra" said...

Thanks for the detailed and articulate comment. I do not believe the onus is on the broker to make the legal distinction as to what fits the technical definition of inside information. That is for Mr Einhorn to know and, act judiciously. Since he was nearly all the volume in the stock over the next three days, but only one of a significant number of large shareholders, one would presume the others with materially-similar information exercised judicious self-control and kept their d*cks in their pants. You could call it cultural differences in respect of "what's cricket" (read Joseph O'Neill's 'Netherland' for a full understanding of the phrase). Or you could call it cheating with mal-intent, or you could call it different cultural understandings of what constitutes cheating.

Couple more things. If you were a Punch shareholder sitting across the table from Mr Einhorn on this one, you might be forgiven for drawing your gun and shouting Cheat! Your excuse for Mr Einhorn on grey technicalities do not alter the spirit of the law. He was given material non-public information that upon receiving obliged him NOT to act on that information for parochial benefit. It's like he saw a marked deck of cards, checked it out, and then played and won while the marked set was used. You seem to be saying that since Einhorn didn't mark the cards himself with his hand , he should be given a pass, and I think this is wildly the wrong spirit. I do not think this is a stitch-up job. I think Mr Einhorn stitched himself up, got caught and is using weasel-words to diminish the consequences.

I think he did a rapid and simple cost v. benefit, maybe even ran it by his counsel, and came up with a matrix that said whatever I do I am risking $1 to make $3 (or in this case not lose $3). In the best case I save lots and don't get busted. In the worst case, I appear sincere, forfeit what I would have lost anyway, and pay a fine, limited by the grey letter of the law, my counsels advice, and a bit of remorse. What he did was rational - it just wasn't "cricket" and it will have negative externalities (reputationally and business-wise) going forward in excess of the penalty fine, something he perhaps he didn't consider in his initial cost-benefit.

Or then again, maybe his posse don't give a F.F.

Anonymous said...

Back in '87, a former boss of mine attended a meeting that he was told would not have any inside information disclosed. The management disclosed inside information anyway. He recognized the nature of the information immediately. He followed the firm as an analyst and knew what was what.

After a discussion with counsel, he was restricted from saying anything about the firm until the information became irrelevant. It took three months for them to announce the deal that they discussed at the meeting. This was one of the most important companies that he followed. He was pissed off (and probably still is to this day) but he knew that he possessed material, non-public information and what he had to do.
If he understood that in 1987, Einhorn should have understood that in 2009.

"Cassandra" said...

Agreed. His refusal to accept culpability is most troublesome - though not entirely unexpected (See Tis a Shame There is No More Shame

vbounded said...
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vbounded said...
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"Cassandra" said...

While, as was told to me time and again as a child, that two wrongs don't make a right, I believe you slander and mischaracterize my opinions.

While we may agree or disagree about the relative misguidedness of their actions, I am unashamed in my belief that both Geithner and particularly Bernanke are reasonably well intentioned and focused upon what they believe to be the public good. They are, in my opinion, classical Weberian bureaucrats (at least in relation to the average Senator or House Rep.), understanding that no one is perfect, and interaction with elites cannot help but leave a residual influence upon opinions, while warts, do not make the men. This is far from making them heroes, in my eyes. The intention of whether what you may term (at sub 50%) grey-area actions are believed to be the for public good or in Mr Einhorn's cash parochial gain is important. The former remains sympathetic with the spirit of the law to foster the public good within said mandates and powers granted, the latter cynically violates the spirit of his expected behaviour, stripping away the BS.

vbounded said...
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