U.S. hedge fund Greenlight Capital and its high-profile owner David Einhorn were fined 7.2 million pounds by Britain's financial regulator, after the manager used inside information to sell shares in a UK pub company before a fall in the price.
The Financial Services Authority (FSA) said on Wednesday it had fined Einhorn 3.64 million pounds and his Greenlight Capital 3.65 million pounds for market abuse.
Einhorn learned from a telephone conversation, held with a broker in 2009, that British pub company Punch Taverns
This decision allowed Einhorn to avoid losses of around 5.8 million pounds, the FSA said.
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, the FSA said.
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.
Einhorn, one of the hedge fund industry's best known managers after big, successful bets against financial firms including Lehman Brothers, said the FSA's action was unjust and inconsistent with its prior enforcement precedent, but had decided to settle to focus on managing his business.
...rather than continue an arduous fight, we have decided to put this matter behind us and concentrate on managing our business, Einhorn said in a statement.
We didn't believe in 2009, and we don't believe now, that there was anything wrong with our conduct and our actions.
MATTER OF MINUTES
The FSA said Einhorn gave instructions to sell all of Greenlight's holdings in Punch a matter of minutes after the telephone call, on 9 June 2009.
At the time these instructions were given Greenlight held 13.3 percent of Punch's issued equity, and over the next four days Greenlight sold 11,656,000 Punch shares, thereby reducing its holding in Punch to 8.89 percent.
Punch announced a fundraising of 375 million pounds on 15 June 2009. Following the announcement the price of Punch shares fell by 29.9 percent, the FSA said.
While the regulator said the trading infraction was inadvertent and not deliberate, the fine may put some tarnish on 43-year-old Einhorn, a stalwart of the hedge fund community who is known for public crusades against abuses by public companies.
Einhorn has targeted Green Mountain Coffee Roasters, claiming the company's accounting practices and long-term earnings power are questionable.
While the average U.S. hedge fund lost about 5 percent in 2011, last year Einhorn's flagship fund rose 2.9 percent.
However, the hedge fund manager lost out on a high-profile bet last year when his effort to buy a significant minority stake in the New York Mets broke down over the summer. He is a life-long fan of the baseball team.
Einhorn isn't the first fund manager to be fined in the UK for insider trading. In 2006 the FSA fined former GLG fund manager Philippe Jabre a then-record 750,000 pounds after he was found guilty of insider trading on a convertible bond sale for Japan's Sumitomo Mitsui Financial Group.
(Reporting by Tommy Wilkes & Katya Wachtel; additional reporting by Sudip Kar-Gupta and Laurence Fletcher; Editing by Elaine Hardcastle and Helen Massy-Beresford)