Hedge fund fined £7.2m for Punch Taverns insider dealing

A hedge fund owner and his fund have been fined £7.2 million between them by the City watchdog for insider dealing on Punch Taverns shares.

David Einhorn and his hedge fund Greenlight Capital were fined for engaging in market abuse. Einhorn was privy to a conversation with a corporate broker on 9 June 2009 in which he found out that Punch Taverns (PUB.L), which has around 5,000 pubs across the UK, was at an advanced stage of significant equity fundraising – amounting to inside information.

The Financial Services Authority (FSA) said that in just ‘a matter of minutes’ after the call Einhorn had given the instruction to sell all of Greenlight’s holding in Punch, which amounted to 13.3% and held in underlying funds managed by Greenlight.

Over the next four days Greenlight reduced its holding from 13.3% to 8.89% and on 15 June 2009 Punch announced a fundraising of £375 million and shares in the company fell 29.9%. The sale of Greenlight’s Punch shares meant the hedge fund saved losses of around £5.8 million.

The FSA accepted that Einhorn’s trading was not deliberate as he did not believe he was privy to inside information, however the regulator said it expected investment professionals to handle information carefully.

Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: ‘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.’

Einhorn was fined £3,638,000 and Greenlight was fined £3,650,795.