Looking down to the ground floor.  People entering the building.

Einhorn not pleased as Punch with insider dealing fine of £7.2m

03 February 2012

If you honestly believe that information given to you is not inside information but the FSA thinks your belief is unreasonably held, then you lay yourself open to sanctions for market abuse, notwithstanding that you have no intention to commit market abuse.

Back in June 2009, David Einhorn, owner of the prominent US hedge fund Greenlight Capital Inc, was on a conference call (the "Punch Call") with representatives of and the corporate broker for Punch Taverns Plc during which it was disclosed to him that Punch was at an advanced stage of the process towards a significant equity fundraising (Press Notice and Decision Notices: FSA/PN/005/2012).

The Punch Call was unusual in that it was a discussion with management following a refusal to be wall crossed.  In the circumstances, the FSA's view was that Mr Einhorn should have been especially vigilant in assessing the information he received.  It was a serious error of judgement on his part to make the decision after the Punch Call to sell Greenlight's shares in Punch without first seeking any compliance or legal advice despite the ready availability of such resources within Greenlight.

The FSA's finding is that it is appropriate and necessary to deter similar errors of judgement in relation to inside information through the imposition of a significant penalty.  In fact, this is the second largest ever imposed on an individual.

Query though how the FSA can "deter" someone from making an error of judgement if that error is genuine? Isn't it in the nature of errors of judgement that they are blameless?

It remains to be seen whether Einhorn will refer this matter to the Upper Tribunal although press reports suggest that he will suck up the fine and move on.  Those who follow this sector will be aware that Einhorn famously shorted shares in Lehman Brothers ahead of its collapse.  Against that background, there may be some truth in his reported view that the FSA have been conducting a politically charged process and wanted to score a win against a high profile US hedge fund.