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FSA fines US hedge fund and its owner £7.2m

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The FSA has fined David Einhorn, the owner of the US hedge fund Greenlight Capital and his fund £7.2m for engaging in market abuse.

On June 9, 2009, a corporate broker acting on behalf of Punch Taverns told Einhorn during a telephone conference that Punch was at an advanced stage of the process towards a significant equity fundraising.

The FSA says this was inside information and Einhorn should have appreciated this.

The regulator says a matter of minutes after the telephone conversation had concluded and on the basis of that inside information Einhorn gave instructions to sell all of Greenlight’s holding in Punch. At the time these instructions were given, Greenlight held 13.3 per cent of Punch’s issued equity.

Over the next four days Greenlight sold 11,656,000 Punch shares, thereby reducing its holding in Punch from 13.3 per cent to 8.89 per cent.

On June 15, 2009, Punch announced a fundraising of £375m. Following the announcement the price of Punch shares fell by 29.9 per cent.

Greenlight’s trading avoided losses of approximately £5.8m for the funds under Greenlight’s management.

The FSA says it accepts that Einhorn’s trading was not deliberate because he did not believe that it was inside information, however this was not a reasonable belief.

It says 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 was fined £3,638,000 including disgorgement of financial benefit and Greenlight was fined £3,650,795 including disgorgement of financial benefit.

FSA acting director of enforcement and financial crime Tracey McDermott says: “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.”

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