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.
"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."
"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."
"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."
"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."
"I am uncomfortable with an NDA that is going to, you know, restrict our ability to, you know, to transact."
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.
"Yeah, that's - that's right."
"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."
"We can give you a timeframe."
So, what would – what – what would that be?"
"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."