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Last updated: February 16, 2012 8:08 pm
The UK’s Financial Services Authority has handed down a £350,000 fine to one of London’s top corporate brokers following a multi-year probe into improper trading in the shares of pub company Punch Taverns by Greenlight Capital, the $9bn US hedge fund.
To support its decision, the regulator took the unusual step of releasing a transcript of telephone call involving the broker Andrew Osborne and David Einhorn, the chief executive of Greenlight and one of the most prominent US hedge fund mangaers.
Greenlight and Mr Einhorn were fined a total of £7.2m by the FSA last month for selling Punch shares in June 2009 after receiving price sensitive non-public information about a fundraising by the pub operator in the phone call between Mr Einhorn, Mr Osborne and Punch executives.
Mr Osborne, a former managing director at Merrill Lynch, was landed with his fine after deciding not to contest charges of market abuse that were brought at the same time. Both Mr Osborne and Mr Einhorn have sharply criticised the FSA charges, denying them in vigorous terms.
The FSA said in a statement on Thursday: “During the call, Osborne disclosed inside information that Punch was at an advanced stage of the process towards a significant equity fundraising, probably within the timescale of a week.”
In the transcript of the phone call released by the FSA, Mr Einhorn asked: “So – so how much equity do you think you need to raise to protect the situation?” and then asks Mr Osborne to “pencil . . . out” a specific number of what a hypothetical equity fundraising – which would be dilutive to the value of Greenlight’s significant holding in Punch – might be.
Mr Osborne responded: “something like 350 sterling”, to which Mr Einhorn replied: “Wow, wow. That would be shockingly horrifying from my perspective.”
Punch’s management went on to tell Mr Einhorn that no formal decision had been taken on the rights issue and if he signed an non-disclosure agreement – which would prevent Greenlight from trading for its duration – they could disclose their thinking more fully.
Mr Osborne told Mr Einhorn that most other shareholders were “supportive” of “stuff that’s in the NDA.” However, Mr Einhorn declined to participate further.
In a statement, Mr Osborne said he did not believe the FSA’s decision “represents a fair outcome”.
“Throughout the transaction in question, I followed proper procedures at all times,” he said.
Mr Einhorn has not yet commented but said last month that he felt the FSA’s actions were “unjust and in contradiction to the law and the facts.
“Despite the FSA’s conclusion, there had been no obvious statement of inside information disclosed during the conversation,” he said. Mr Einhorn also stated that he had refused to sign a non-disclosure agreement and had declined to receive inside information.
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