The phone call which nailed an insider trader

New York hedge fund trader David Einhorn and former Merrill broker Andrew Osborne were made to pay for a sharp piece of market abuse. Nick Goodway examines the case

It is not unheard of for the City regulator to come under fire over its failure to catch some of the most blatant instances of insider dealing. But then comes a case like the one which saw top New York hedge fund manager David Einhorn fined £7.2m last month for trying to sell his Punch Tavern shares ahead of a huge rights issue.

In this instance, all the Financial Services Authority (FSA) had to do was ask Punch's stockbroker, Merrill Lynch, for the tape of the phone call.

Not only did that capture Mr Einhorn and his fund Greenlight, but yesterday the FSA fined the former Merrill broker Andrew Osborne £350,000 for his role in the affair.

He acted for Punch during its £375m rights issue and set up the call with Mr Einhorn after which he tried to sell his entire 13.3 per cent shareholding.

The FSA said that during the call, Mr Osborne disclosed inside information that Punch was in the advanced stages of a major equity fundraising."

The regulator said it accepted his actions were not deliberate, but said it undermined the integrity of the market and damaged confidence. It also said Mr Osborne was aware shortly after the call that Greenlight had started selling shares but failed to tell senior management, lawyers or compliance officers at Merrill Lynch.

Tracey McDermott, the FSA's acting director of enforcement and financial crime, said: "He... should have been extremely cautious in proceeding with the call with Greenlight in light of the clear legal and regulatory risks involved.

"By disclosing inside information, Osborne engaged in serious market abuse," she added.

Unusually, the FSA has released the entire transcript of the conference call hosted by Merrill Lynch broker Andrew Osborne in June 2009 between senior Punch management and David Einhorn and an analyst at Greenlight.

It is a telling insight on the relationship between senior corporate excutives and their major shareholders.

After the usual niceties, Giles Thorley, chief executive of Punch at the time, jokes that he would take Einhorn "around on a pub crawl around some English pubs". They then talk about Punch's broad strategy of selling pubs and paying down its debt and convertible bonds.

The broker then cuts to the action.

Andrew Osborne

"I think it's fair to say, David, that following the roadshow, there's been a degree of [inaudible] inbound queries from both shareholders and non-holders [overspeaking] who believe that it would be appropriate for the company to consider issuing equity at this moment in time."

David Einhorn

"I don't know that we're going to sign an NDA [non-disclosure agreement], because we prefer to just remain investors, but from my perspective, and I'll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it's not going to make it on its own is that we've just grossly misassessed the – you know what's going on here. And – and that, that will cause us to have to just reconsider what we're doing, which is not the end of the world to you. You will continue on even if we don't continue on with you. It's – it's – it – it really is some – it really is okay, it's not what we're looking for, and I'm not trying to browbeat you into doing something that's going to bankrupt the company because there's a lot of reasons the company shouldn't want to go bankrupt."

Giles Thorley

"Yeah, yeah – no, I – I – listen – I appreciate that David. And – don't get me wrong. As a major shareholder, we have to give you the opportunity to have the conversation and we're just simply trying to sort of give you that opportunity. I totally appreciate that we've had a very good dialogue with [reference to Greenlight Analyst] throughout the time as shareholders and yourself and so, you know, I'm just – we can take that conversation as far as we can on this basis or we can take you further if you want to on – on a different basis. You know, clearly, if we decide to do something and it comes in a, a, – and it's in the public domain, then we can have further conversations at that time."

Andrew Osborne

"You know, I was gonna say, David, I mean look – and clearly, you know, we've – we've – there's a whole lot of analysis sort of behind this and there's a sort of presentation, if you wanted to, but I mean, we would need to kind of talk to your counsel about an NDA if, you know, if you wanted to go down that route."

David Einhorn

"I am uncomfortable with an NDA that is going to, you know, restrict our ability to, you know, to transact."

Giles Thorley

We're – we're well aware of that, and to the extent anything, we ever did anything like that, we would have to be – give you the – a clear understanding of the timescales, which that – that covers and the, you know, to the fact that the company will cleanse any – any conversation to allow you to trade in due course.

David Einhorn

"Yeah, that's - that's right."

Giles Thorley

"Well, we're absolutely aware of that and – and if that's, you know, and if you want us to consider that on that basis, I'm happy to do so."

Andrew Osborne

"We can give you a timeframe."

David Einhorn

So, what would – what – what would that be?"

Andrew Osborne

"Well, within less than a, kind of a week."

The conversation draws to a close with Einhorn stating: "All right, look, if it's a question of – let us – let us think this through. Let us – let us – let us think this through whether it makes sense to sign an NDA or not. I'm – I'm not sure that it does."

Start your day with The Independent, sign up for daily news emails
Sport
sportSo, how closely were you paying attention during 2014?
Arts and Entertainment
Dennis speaks to his French teacher
tvThe Boy in the Dress, TV review
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Life and Style
Mark's crab tarts are just the right size
food + drinkMark Hix cooks up some snacks that pack a punch
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect