Final Notice

On 12 January 2012, the FSA issued Final Notices and fined US hedge fund manager Greenlight Capital Inc ("Greenlight") and its principal, David Einhorn ("Einhorn"),  a combined £7.2m for trading on inside information relating to a significant equity fundraising by Punch Taverns Plc ("Punch")  in June 2009.  


Greenlight is a US investment management firm, which acquired shares in Punch in June 2008. On 8 June 2009, Punch's broker contacted Greenlight with a view to obtaining its agreement to be wall crossed, in order to discuss a possible equity issuance by Punch. Although Einhorn refused, a call was set up for the next day.

On 9 June 2009, the broker and Punch management participated in a telephone conference with Einhorn ("the Punch Call"). Despite the Punch Call being expressly set up on a non-wall crossed basis, Einhorn was able to conclude from the information provided that Punch was at the advanced stage of the process towards the issuance of a significant amount of new equity with the aim of repaying Punch's convertible loan and creating headroom with respect to certain of its securitisation vehicle covenants, which was expected to complete in around a week.

Immediately after the Punch Call, Einhorn instructed Greenlight to sell its entire shareholding in Punch without consulting internal compliance or legal advisors, reducing its investment from 13.3% to 8.9%. On 15 June 2011, Punch's equity issuance was made public and the price of its shares fell by 29.9%.


The FSA considered the content of the Punch Call, together with the context in which it had taken place as a whole, in determining that Einhorn was provided with inside information. Although certain information received in isolation would not have been sufficiently specific, viewed as a whole, it was clearly inside information.

Einhorn, given his position and experience in the market, should have been able to conclude that he was receiving inside information,  notwithstanding that he did not expect to receive it as he had not agreed to be wall-crossed. Given the swiftness of Greenlight's decision to trade following the Punch Call, the decision was materially influenced by the insider information received.

The FSA accepted that Einhorn's trading was not deliberate or reckless as he did not believe that he had received insider information. However, the FSA concluded that this was not a reasonable belief for someone in his position to hold and his decision to sell the Punch shares was a serious case of market abuse which fell below the standards the FSA expects.  


Unlike the US, it is the nature of the information received, and not the context in which the information was disclosed, which is critical and determines whether it is inside information. The existence of a duty of confidentiality between the parties, not being wall crossed, a non disclosure agreement and being listed on the official insider list, are irrelevant. If the disclosed information is sufficiently precise, not in the public domain, relates to prescribed investments, and is acted upon, this would constitute market abuse. The minimum fine for deliberate market abuse is £100,000.