Greenlight, Punch and Insider Trading – Or Not

My readers have had some very intelligent an informative comment thread discussions about insider trading in the past, so I”ll throw this one up for discussion: the saga of Greenlight Partners and Punch Taverns.

Cliff notes:  David Einhorn’s Greenlight Partners was a major shareholder in Punch.   Punch was considering raising money and their investment bank called Greenlight.     Greenlight declined to sign an NonDisclosure Agreement, said that they  “had no interest in becoming an insider,” and that they would be “happy to talk to management, but not interested in receiving information to trade stock.”

Greenlight ended up selling a portion of their stock in the next several days before Punch’s offering.  The stock fell 29% on the news of the offering.

Now, the first thing you have to do if you want to comment on this issue is to read the FSA’s explanation from the WSJ.  Next,  go read Matt Levine’s Dealbreaker post on the topic.   He breaks down the issue of “crossing the wall,” and becoming ineligible to trade stock.   Finally, go read Julia LaRoche’s Business Insider post which has more comments from Einhorn.

Now, as I’ve mentioned previously, in my prior career we were always trained to not even come close to walking fine lines like this.   The golden rule was “If you have to ask if it’s ok, just don’t do it.”   In other words, at my former firm, Einhorn’s defense of “We did not enter into any confidentiality agreement, we explicitly requested that we not be given confidential information, and we do not believe we were given any such information”  probably wouldn’t fly with my compliance department (which is not to say that it would be illegal, just that Compliance doesn’t want to deal with the headache of arguing about it).

The news that Punch was considering equity financing certainly seems (to the casual observer) to be confidential, material, and non-public.   That fact alone, however, as we’ve discussed in these comment threads previously, does NOT mean that Einhorn violated insider trading rules.

Have at it.

Matt Levine’s Dealbreaker Post

Julia LaRoche’s B.I. post

WSJ’s FSA Statement

previously on Kiddynamitesworld:  Berkshire & Lubrizol

Levine’s Dealbreaker follow-up

The Actual FSA Ruling



EDIT:  Matt Levine has a follow up post explaining what I also see as a key issue:  the FSA’s statement seems to be making a big deal out of the fact that Einhorn didn’t check with compliance first.  I mentioned that in my prior trading role we would talk to compliance and generally take a “just say no” attitude – but that’s mostly to avoid bad optics for the firm, and to avoid peons doing anything that might screw up the firm’s reputation.  Einhorn is saying that he’s the man at his firm, he knows the rules, and he doesn’t need to check with compliance.  In essence, Einhorn is saying DYKWTFIA???

The problem for me (little old NOT A LAWYER me)  is that even though Einhorn declined to be wall-crossed and declined to sign the NDA and asked not to be given confidential info, it seems as if he WAS given that info anyway…


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