A US trader has been fined £7.2m by the City watchdog for selling shares in Punch Taverns after receiving insider information, it has emerged.
A broker acting for Punch told David Einhorn the pub company was set to raise £375m from the market in a rights issue in 2009. Einhorn then ordered his fund Greenlight Capital to sell shares in Punch, which operates over 6,000 pubs across the UK.
Shares in Punch plummeted by almost 30 per cent after it made the announcement, but Greenlight had already sold around 11.7 million shares by then. The hedge fund cut its stake from 13.3 per cent to 8.9 per cent and saved itself approximately £5.8m in losses.
Einhorn was fined £3.6m by the Financial Services Authority (FSA), the second biggest fine the watchdog has ever handed out to an individual. The trader’s hedge fund was fined a similar amount, including disgorgement of financial benefits.
The FSA dismissed Einhorn’s claim that he had not broken the rules as he did not believe it was inside information. The watchdog said “this was not a reasonable belief”.
FSA acting director of enforcement and financial crime Tracey McDermott said Einhorn’s actions amounted to “a serious breach of the expected standards of market conduct”.
McDermott continued: “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.
“It is highly damaging to market confidence when privileged shareholders commit market abuse, and the high penalty reflects the seriousness of his breach.”
However, Einhorn maintains that he and Greenlight did nothing wrong in relation to selling shares in Punch.
The trader said: “We believe that this action is unjust and inconsistent with the law and with prior FSA enforcement precedent.
“We didn’t believe in 2009, and we don’t believe now, that there was anything wrong with our conduct and our actions.
“The fine is for trading in advance of a decision that had not been made, and the FSA concedes we did not believe we had any inside information.
“However, rather than continue an arduous fight, we have decided to put this matter behind us and concentrate on managing our business.”
Einhorn said he had explicitly asked not to be passed confidential information and he does not believe that he was given confidential information.
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