Post by jannikki on Jan 29, 2007 20:08:51 GMT -4
Activist or Manipulator; Greenlight Capital Moves Market on Memo – January 28, 2007
David Patch
Recent events make it abundantly clear that the battle between short sellers and the companies they short will not be ending any time in the near future.
Earlier last week it was reported that David Einhorn, manager of hedge fund Greenlight Capital had drafted a scathing memo to the Board of Directors for Allied Capital (NYSE: ALD) seeking removal of the officers of the Company. Copies of the memo, including the research conducted by Einhorn to substantiate his claims, were leaked to the media and the negative nature of the allegations contained in the memo had an immediate impact on the market value of the company.
On the day the memo hit the public the stock dropped 6.5%.
There is a twist to this story as David Einhorn is not your typical Hedge Fund activist. Fact is Einhorn has no vested interest in the growth of Allied's operations or growth in the underlying equity trading the market. No, while not publicly disclosed in the press reports, Greenlight Capital is short Allied Capital and wishes the stock value of the company continues to depreciate and not increase.
Einhorn took out a bet [short sale] that the company was overvalued and appears willing to take all necessary steps to insure the public has heard his arguments on the position he undertook. Effectively Einhorn is acting as a research analyst speaking through a press release he orchestrated although by law he is not bound by the same criteria.
This recent public memo was not the first attack lobbied by Einhorn against the company as it was revealed recently that late last year Einhorn had filed a lawsuit in Atlanta against Allied Capital in the name of the US Government. Einhorn’s allegations are that Allied Capital cheated the US Government out of tax revenues due to fraud among other charges.
While the US Government failed to intervene in the lawsuit Einhorn continues to drag the company into court seeking restitution on behalf of the US Government and us lonely folk. What a guy.
All of this leads to an interesting conundrum.
Should the Securities and Exchange Commission allow non-investors such as David Einhorn to take personal opinions public without the proper disclosure that the opinions are self serving and not necessarily representative of the interests of the company or their shareholders?
In the memo to the Allied Board this past week Einhorn claims "Allied has spent tens of millions of dollars of shareholder money defending current management".
While no court of law or regulatory body has yet to convict any of those Einhorn speaks of, Einhorn is refocusing this management teams efforts, and the company's finances, to respond in the media and in the courts to Einhorn's allegations. All this rhetoric begs the question as to whether Einhorn is misleading the public as he personally is responsible for much of the management’s efforts and expense defending their business.
It is called taking your eye off the ball and Einhorn shows us how it is done. Einhorn is distracting management, and diverting company and shareholder funds and then Einhorn attacks the company claiming management is not focusing on the business and is frivolously spending shareholder money.
Could he get any more transparent?
Remember, Einhorn is not a shareholder here and would like to see every invested shareholder lose money since shareholder losses become his gains. I want to keep pointing this out because reading his public memo this is not abundantly clear.
In fact, Einhorn's public memo represents something similar to a research report on Allied and begs the question, do securities laws need to be tightened to avoid such biased reporting? After all, Einhorn discusses revenues, expenses, and future business operations and isn't that certainly part of what a research analysts reports on. Einhorn does not qualify under the research laws because as a hedge fund manager he is not required to register with the SEC and as a hedge fund he does not buy or sell securities to the public.
No, Greenlight Capital only buys long and sell shorts those securities we all invest in and does so at volumes representative of a financial institution.
Einhorn's actions also lead to the broader issue yet to surface at the regulatory level. That of the "short and distort" scheme where short sellers take out a short position in a company and then disseminate negative news on the business and distract business leaders resulting in the value of the equity to go down.
To date the SEC has become very public over their concerns of the "pump and dump" schemes. These schemes involve the public dissemination of inaccurate information intended to increase public interest in purchasing the specific equity being "pumped". The promoters disseminating this information intending to dump large volumes of shares they own into this buying frenzy leaving the new shareholders holding on to the now over-valued shares.
Just as promoters can pump up a stock, rich and powerful short selling activists like Mr. Einhorn have the ability to distort the circumstances of a business driving such values down through the created panic sell off. The sell off increasing the profits of the short position taken out in the stock prior to disseminating such distorted information. There is nothing that specifically links Einhorn's actions to such an event but his actions do cast a shadow of doubt on the integrity of the system and how it perceives activities such as these.
To further support such accusations, it has been speculated for years that Einhorn has been short Allied Capital and has been teh primary complaintant to the SEC and US Attorney's Office about his concerns over Allied's Management. Each time drawing informal investigations into Allied Capital and forcing Allied Capital to respond publicly about those investigations as part of the material event requirements of our securities laws. Subsequent to such news event a temporary hit on the stock price takes place.
Einhorn's latest missive all but confirms his harassing tactics against Company executives over issues he feels have resulted in his position failing to meet profitability citing repeatedly how research reports and analysts have overvalued the company based on acts of fraud Einhorn alleges the entire management has engaged in.
Ironically, in 2005 after the SEC released Regulation SHO with a special "grandfather clause" to avoid any market disruption involving the settlement of trades, then-Director Annette Nazareth stated to the NY Times that complaints against the legality of the grandfather clause was just investors whining that their stock prices did not go up.
Today, it appears that David Einhorn is taking a very public stance in whining about the stock price of Allied Capital not going down. Is he taking to whining in a legal manner or has this activist suddenly crossed the lines in what could become our first ever "short and distort" case before the Commission.
On the day Einhorn's memo went public investors lost more than $316 Million as the 145 million shares issued and outstanding, and the additional 13 million shares held long on short sales, dropped $1.96/share.
The lines are drawn and while the Securities and Exchange Commission sits on the sidelines watching the brutal battle between hedge funds and companies continue, almost waiting for a dead body to turn up before action will be taken, we the investing public will pay the price.
If nothing else is understood, it is clear that activist hedge funds have the opportunity to manipulate our markets by their actions and creating laws that protect investors from the self-serving actions of such individuals is in the best interests of all involved.
Personal Note: Ms. Nazareth, I hope you are paying attention. It is clear by your prior actions that you have long stood for the rights of individuals such as Mr. Einhorn over those of the general investing public. Individuals such as Mr. Einhorn have taken these biased levels of protection as a sign that they are untouchable. Now those you have protected simply mock you in defiance of the special laws you afforded them. This is the integrity of those you protected.
Disclosure: Unlike David Einhorn, I disclose that I have no position in Allied Capital by long or short position.
David Patch
Recent events make it abundantly clear that the battle between short sellers and the companies they short will not be ending any time in the near future.
Earlier last week it was reported that David Einhorn, manager of hedge fund Greenlight Capital had drafted a scathing memo to the Board of Directors for Allied Capital (NYSE: ALD) seeking removal of the officers of the Company. Copies of the memo, including the research conducted by Einhorn to substantiate his claims, were leaked to the media and the negative nature of the allegations contained in the memo had an immediate impact on the market value of the company.
On the day the memo hit the public the stock dropped 6.5%.
There is a twist to this story as David Einhorn is not your typical Hedge Fund activist. Fact is Einhorn has no vested interest in the growth of Allied's operations or growth in the underlying equity trading the market. No, while not publicly disclosed in the press reports, Greenlight Capital is short Allied Capital and wishes the stock value of the company continues to depreciate and not increase.
Einhorn took out a bet [short sale] that the company was overvalued and appears willing to take all necessary steps to insure the public has heard his arguments on the position he undertook. Effectively Einhorn is acting as a research analyst speaking through a press release he orchestrated although by law he is not bound by the same criteria.
This recent public memo was not the first attack lobbied by Einhorn against the company as it was revealed recently that late last year Einhorn had filed a lawsuit in Atlanta against Allied Capital in the name of the US Government. Einhorn’s allegations are that Allied Capital cheated the US Government out of tax revenues due to fraud among other charges.
While the US Government failed to intervene in the lawsuit Einhorn continues to drag the company into court seeking restitution on behalf of the US Government and us lonely folk. What a guy.
All of this leads to an interesting conundrum.
Should the Securities and Exchange Commission allow non-investors such as David Einhorn to take personal opinions public without the proper disclosure that the opinions are self serving and not necessarily representative of the interests of the company or their shareholders?
In the memo to the Allied Board this past week Einhorn claims "Allied has spent tens of millions of dollars of shareholder money defending current management".
While no court of law or regulatory body has yet to convict any of those Einhorn speaks of, Einhorn is refocusing this management teams efforts, and the company's finances, to respond in the media and in the courts to Einhorn's allegations. All this rhetoric begs the question as to whether Einhorn is misleading the public as he personally is responsible for much of the management’s efforts and expense defending their business.
It is called taking your eye off the ball and Einhorn shows us how it is done. Einhorn is distracting management, and diverting company and shareholder funds and then Einhorn attacks the company claiming management is not focusing on the business and is frivolously spending shareholder money.
Could he get any more transparent?
Remember, Einhorn is not a shareholder here and would like to see every invested shareholder lose money since shareholder losses become his gains. I want to keep pointing this out because reading his public memo this is not abundantly clear.
In fact, Einhorn's public memo represents something similar to a research report on Allied and begs the question, do securities laws need to be tightened to avoid such biased reporting? After all, Einhorn discusses revenues, expenses, and future business operations and isn't that certainly part of what a research analysts reports on. Einhorn does not qualify under the research laws because as a hedge fund manager he is not required to register with the SEC and as a hedge fund he does not buy or sell securities to the public.
No, Greenlight Capital only buys long and sell shorts those securities we all invest in and does so at volumes representative of a financial institution.
Einhorn's actions also lead to the broader issue yet to surface at the regulatory level. That of the "short and distort" scheme where short sellers take out a short position in a company and then disseminate negative news on the business and distract business leaders resulting in the value of the equity to go down.
To date the SEC has become very public over their concerns of the "pump and dump" schemes. These schemes involve the public dissemination of inaccurate information intended to increase public interest in purchasing the specific equity being "pumped". The promoters disseminating this information intending to dump large volumes of shares they own into this buying frenzy leaving the new shareholders holding on to the now over-valued shares.
Just as promoters can pump up a stock, rich and powerful short selling activists like Mr. Einhorn have the ability to distort the circumstances of a business driving such values down through the created panic sell off. The sell off increasing the profits of the short position taken out in the stock prior to disseminating such distorted information. There is nothing that specifically links Einhorn's actions to such an event but his actions do cast a shadow of doubt on the integrity of the system and how it perceives activities such as these.
To further support such accusations, it has been speculated for years that Einhorn has been short Allied Capital and has been teh primary complaintant to the SEC and US Attorney's Office about his concerns over Allied's Management. Each time drawing informal investigations into Allied Capital and forcing Allied Capital to respond publicly about those investigations as part of the material event requirements of our securities laws. Subsequent to such news event a temporary hit on the stock price takes place.
Einhorn's latest missive all but confirms his harassing tactics against Company executives over issues he feels have resulted in his position failing to meet profitability citing repeatedly how research reports and analysts have overvalued the company based on acts of fraud Einhorn alleges the entire management has engaged in.
Ironically, in 2005 after the SEC released Regulation SHO with a special "grandfather clause" to avoid any market disruption involving the settlement of trades, then-Director Annette Nazareth stated to the NY Times that complaints against the legality of the grandfather clause was just investors whining that their stock prices did not go up.
Today, it appears that David Einhorn is taking a very public stance in whining about the stock price of Allied Capital not going down. Is he taking to whining in a legal manner or has this activist suddenly crossed the lines in what could become our first ever "short and distort" case before the Commission.
On the day Einhorn's memo went public investors lost more than $316 Million as the 145 million shares issued and outstanding, and the additional 13 million shares held long on short sales, dropped $1.96/share.
The lines are drawn and while the Securities and Exchange Commission sits on the sidelines watching the brutal battle between hedge funds and companies continue, almost waiting for a dead body to turn up before action will be taken, we the investing public will pay the price.
If nothing else is understood, it is clear that activist hedge funds have the opportunity to manipulate our markets by their actions and creating laws that protect investors from the self-serving actions of such individuals is in the best interests of all involved.
Personal Note: Ms. Nazareth, I hope you are paying attention. It is clear by your prior actions that you have long stood for the rights of individuals such as Mr. Einhorn over those of the general investing public. Individuals such as Mr. Einhorn have taken these biased levels of protection as a sign that they are untouchable. Now those you have protected simply mock you in defiance of the special laws you afforded them. This is the integrity of those you protected.
Disclosure: Unlike David Einhorn, I disclose that I have no position in Allied Capital by long or short position.