26/01/2012 Author: Will Wainewright

UK watchdog hands David Einhorn and Greenlight £7.2m insider trading fine 

David Einhorn and Greenlight Capital, the famous hedge fund manager’s $8bn firm, have been fined £7.2m ($11.3m) for insider trading by the Financial Services Authority, the UK’s financial watchdog.

Einhorn’s decision to sell a substantial portion of Greenlight’s stake in Punch Taverns, a UK pub chain, following a tip-off from a corporate broker in June 2009 that the company was about to launch an equity fundraising round, was labelled a “serious breach” by FSA enforcement chief Tracey McDermott.

The public announcement triggered a 29.9% fall in Punch’s share price, meaning Greenlight had avoided losses of £5.8m ($9m) by trading earlier on the inside information.

An FSA statement noted that he had asked the Bank of America Merrill Lynch broker he spoke to not to "wall-cross" him – in other words, to make him privy to confidential information which would preclude him from trading.

However, it continued: “This was inside information and Einhorn should have appreciated this”. The broker has since left Bank of America.

McDermott, the watchdog’s 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.”

The total fine was split roughly even between  Einhorn and Greenlight, who held the securities in an underlying fund.