February 16, 2012 7:20 pm

FSA reveals full Einhorn transcript

The Financial Services Authority wanted to make a point when it took the unusual step on Thursday of releasing the full transcript of the now infamous telephone call between David Einhorn, the hedge fund manager, management at Punch Taverns and bankers at Bank of America Merrill Lynch ahead of a £375m cash call by the UK pubs group in June 2009.

The FSA clashed very publicly with Mr Einhorn last month over whether he received “inside” information ahead of that capital raising during the call. It fined the hedge fund manager and his company, Greenlight Capital, £7.2m for market abuse.


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With the transcript now available, the FSA appears willing to let the market be the judge of its decision, in one of the highest-profile enforcement cases in its history.

“We think the transcript will serve as a valuable tool for participants in this area,” said one person familiar with the investigation.

The essential fact pattern is not contested. Mr Einhorn instructed his traders to sell down the group’s stake in Punch, which at the time was desperately in need of funds to pay down debt, in the same week that he had talked to the pub group’s management and its bankers about the potential for issuing a chunk of new equity.

Over the next four days, Greenlight sold 11.65m shares of the company, reducing its stake from 13.3 per cent to just under 9 per cent. When the transaction was announced, Punch shares fell 29 per cent.

The FSA claims Mr Einhorn received privileged information about the capital raising from Andrew Osborne, Punch’s former financial adviser at Merrill Lynch on the June conference call – specifically the potential size and timescale for such a transaction.

Mr Osborne was on Thursday fined £350,000 for improperly disclosing those data points to Mr Einhorn, bringing the total amount of penalties handed down in the case to more than £7.7m.

Mr Einhorn, by contrast, has repeatedly described the enforcement proceedings as “unjust,” while vigorously challenging the FSA’s description of the material as inside information.

“The fine is for trading in advance of a decision that had not been made, and the FSA concedes we did not believe we had any inside information,” Mr Einhorn said in January.

What was not known, until Thursday, is exactly what was said on the call. Mr Einhorn had previously made clear that he did not want to be “wall-crossed” for the transaction, meaning he did not want to receive confidential information that would prevent him from trading. The transcript reveals his first reaction to the news that Punch was considering a significant fundraising.

Told that Merrill had “pencilled” in a figure of about £350m, Mr Einhorn responds: “Wow, wow. That would be shockingly horrifying from my perspective. Can you sell half the company just at a buck and a half – a Euro – a pound and half? Oh, no.”

Told later that he could enter into a written non-disclosure agreement that would allow Punch to share more information, Mr Einhorn says he is “uncomfortable” with any agreement that would restrict the firm’s ability to “transact” in the pub group’s shares.

Andrew Osborne: “We can give you a time frame.”

David Einhorn: “So, what would – what – what would that be?”

Andrew Osborne: “Well, within less than a, kind of a week.”

Friends of Mr Osborne said on Thursday that he wanted to put the case behind him and move on; Mr Einhorn was not providing an immediate comment. As for the FSA, officials said they were happy to let the transcript speak for itself.

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