US hedge fund fined £7.2m for Punch Taverns insider trading

26th January 2012, 10:32am

The Financial Services Authority has issued the owner of a prominent US hedge fund with a £7.2 million fine after he sold shares in Punch Taverns based on inside information.

According the UK's financial watchdog, David Einhorn, owner of Greenlight Capital, was told during a phone call that the pubco was at an advanced stage of equity fundraising back in June 2009.

Einhorn then used this information to sell over 11 million Punch shares, reducing his company's holding in the pub group from 13.3% to 8.89%. 

Days later Punch announced fundraising of £375 million and its share prices fell by 29.9%.

By offloading the Punch shares prior to the announcement, Einhorn saved his business £5.8 million in avoided losses.

In a statement, the FSA said that whilst it accepted Einhorn's excuse that the trading was not deliberate, it couldn't overlook the seriousness of the issue stating that the rules for investment professionals are clear.

"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."

Tracey McDermott, acting director of enforcement and financial crime, explained the severity of the fine: "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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