FSA fines Einhorn's hedge fund £7.2m for insider trading

The Financial Services Authority (FSA) has fined David Einhorn and his hedge fund Greenlight Capital £7.2m for trading on inside information in UK stock Punch Taverns in June 2009.

The FSA said in a statement: "On 9 June 2009, Einhorn was a party to a telephone conference in which it was disclosed to him by a corporate broker acting on behalf of Punch Taverns Plc that Punch was at an advanced stage of the process towards a significant equity fundraising. This was inside information and Einhorn should have appreciated this."

The regulator said Einhorn gave the instruction to sell Greenlight's entire holding in Punch "a matter of minutes after the telephone conversation had concluded".

Greenlight held 13.3% of Punch's equity at the time of the phone conversation, according to the FSA, and over the next four days it sold 11,656,000 Punch shares to bring its stake down to 8.89%.

"On 15 June 2009, Punch announced a fundraising of £375m. Following the announcement the price of Punch shares fell by 29.9%. Greenlight's trading had thereby avoided losses of approximately £5.8m for the funds under Greenlight's management," the FSA said.

The £7.2m fine is to be divided between Einhorn and Greenlight Capital. Einhorn has been fined £3.64m and Greenlight £3.65m.

The regulator added: "The FSA accepted that Einhorn's trading was not deliberate because he did not believe that it was inside information.

"However, this was not a reasonable belief. Investment professionals are expected to handle inside information carefully regardless of whether they have been formally wall-crossed.

"This was a serious case of market abuse by Einhorn and fell below the standards the FSA expects, particularly due to Einhorn's prominent position as president of Greenlight and given his experience in the market."

The FSA's acting director of enforcement and financial crime Tracey McDermott said Einhorn's actions represented a "serious breach" of market standards.

"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," she said.

"It is highly damaging to market confidence when privileged shareholders commit market abuse, and the high penalty reflects the seriousness of his breach."

In response, Einhorn said the fine was "unjust and inconsistent with the law and with prior FSA enforcement", but said Greenlight had chosen to put the matter behind it rather than continue "an arduous fight".

"We didn't believe in 2009, and we don't believe now, that there was anything wrong with our conduct and our actions. 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," Einhorn said.

"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. Further, all the witness testimony supports our view."