David Einhorn, the brash American hedge fund manager famed for taking huge, aggressive bets against companies' share prices, has been slapped with a £7.2m fine for insider trading in the British pubs group Punch Taverns.
The total fine, split equally between Mr Einhorn and his hedge fund, Greenlight Capital, meant that the 43-year-old billionaire and his company were, in effect, only £1.4m down on the deal.
Mr Einhorn had been told on a telephone conference call by Punch's corporate broker, Merrill Lynch, that the company was close to staging a £375m fund-raising – a move that would inevitably push down its share price. Minutes after the call, he gave instructions for his fund's entire stake in Punch to be sold.
Over the next four days, Greenlight sold 11.6 million shares, taking its stake down from 13.3 per cent to 8.89 per cent. The following day, Punch announced the fund-raising, triggering an instant 30 per cent crash in the share price. By selling the shares, Mr Einhorn avoided losses of nearly £5.8m.
Mr Einhorn, 43, famed for betting against Lehman Brothers' shares in 2008, successfully claimed that, despite having run his own hedge fund for 15 years, he was unaware that the news was inside information. The Financial Services Authority believed him, but fined him for the fact that, as such a seasoned and serious professional, he should have realised it was.
In his defence, Mr Einhorn said the broker had phoned the previous day to ask if he would commit to being made an insider to the fund-raising information, which would prevent him from trading. He refused, but the broker still went ahead the next day with the conference call with management in which the inside details were given.
Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: "Mr 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 act appropriately."
A spokesman for the regulator also said that "related proceedings" were being taken against other parties over the affair.
Mr Einhorn said last night: "We believe that this action is unjust and inconsistent with the law and with prior FSA enforcement precedent.
"However, rather than continue an arduous fight, we have decided to put this matter behind us and concentrate on managing our business."