Is David Einhorn Guilty of Insider Trading?

[Parsad]

More bad judgment than a deliberate attempt to break the law. 

 

Agreed.  He entered a grey area where a reasonable case can be made either way.  His big mistake was failure to exercise an abundance of caution, or use the Buffett standard of WSJ page A1.  He should have known better and as his public profile increases he will get less of the benefit of the doubt.

 

As a matter of habit, I try to conclude each conversation with an insider by confirming that material non-public information was not disclosed.  Had Einhorn asked that simple question on the recorded call, he would not be in the trouble he finds himself in today.

 

That's no free pass.  It's the reasonable man test that applies.  It's better to avoid any questions about market sensitive topics.  Then, if something material to trading should be revealed anyway, don't trade on it.  If something material reinforces a trading strategy in progress, cancel future trades until the news becomes public.

 

Yup!  Either that, or follow Mohnish's rule...don't talk to management!  That's pretty simple too, but every investor wants a leg-up, or they need confirmation, or what have you and they talk to management.  Tell me, why do smart investors actually need to speak to management?  Buffett never even visits the head offices or warehouses of many of the businesses he owns.  He goes solely by the financial statements.  Yes, when he was younger he would do more legwork, but he also did alot of other things when he was younger that he doesn't need to do today. 

 

Einhorn has zero excuses for what happened.  This is a guy who tears apart CEO's of other corporations because of something they did that was slightly out of whack...never mind actually fraudulent or fined by a securities commission.  There is no underlying context or explanation for what happened to him.  He received non-public information on which he traded...the end!  Cheers!     

[rijk]

 

"Einhorn has zero excuses for what happened.  This is a guy who tears apart CEO's of other corporations because of something they did that was slightly out of whack...never mind actually fraudulent or fined by a securities commission.  There is no underlying context or explanation for what happened to him.  He received non-public information on which he traded...the end!  Cheers! "

 

well spoken sanjeev!!!!

 

it's a bit scary how many individuals on this board kind of try to explain/justify what happened.....

 

regards

rijk

[onyx1]

More bad judgment than a deliberate attempt to break the law. 

 

Agreed.  He entered a grey area where a reasonable case can be made either way.  His big mistake was failure to exercise an abundance of caution, or use the Buffett standard of WSJ page A1.  He should have known better and as his public profile increases he will get less of the benefit of the doubt.

 

As a matter of habit, I try to conclude each conversation with an insider by confirming that material non-public information was not disclosed.  Had Einhorn asked that simple question on the recorded call, he would not be in the trouble he finds himself in today.

 

That's no free pass.  It's the reasonable man test that applies.  It's better to avoid any questions about market sensitive topics.  Then, if something material to trading should be revealed anyway, don't trade on it.  If something material reinforces a trading strategy in progress, cancel future trades until the news becomes public.

 

Point taken, thanks all.

[Kraven]

 

"Einhorn has zero excuses for what happened.  This is a guy who tears apart CEO's of other corporations because of something they did that was slightly out of whack...never mind actually fraudulent or fined by a securities commission.  There is no underlying context or explanation for what happened to him.  He received non-public information on which he traded...the end!  Cheers! "

 

well spoken sanjeev!!!!

 

it's a bit scary how many individuals on this board kind of try to explain/justify what happened.....

 

regards

rijk

 

I call it as I see it.  I am not trying to justify or explain anything.  I also don't agree Einhorn has zero excuses.  The fact that he tears others apart for their actions doesn't mean that his actions are automatically suspect.  We are all human and make mistakes.  Sometimes these types of things are obvious and sometimes they aren't.  This one doesn't seem obvious to me.  I have known plenty of traders who liked to live on the line and likewise plenty who were scared of their own shadow and everytime they took a dump they wanted to make sure that legal was ok with them going forward on their next trade.  I maintain that mistakes happen and this didn't seem to be deliberate.  Should he have not done it?  Absolutely.  Should he be sharing a cell with Raj Rajaratnam?  Not based on the current facts.  This wasn't a scheme to create an insider trade in my view.

[Kraven]

More bad judgment than a deliberate attempt to break the law. 

 

Agreed.  He entered a grey area where a reasonable case can be made either way.  His big mistake was failure to exercise an abundance of caution, or use the Buffett standard of WSJ page A1.  He should have known better and as his public profile increases he will get less of the benefit of the doubt.

 

As a matter of habit, I try to conclude each conversation with an insider by confirming that material non-public information was not disclosed.  Had Einhorn asked that simple question on the recorded call, he would not be in the trouble he finds himself in today.

 

That's no free pass.  It's the reasonable man test that applies.  It's better to avoid any questions about market sensitive topics.  Then, if something material to trading should be revealed anyway, don't trade on it.  If something material reinforces a trading strategy in progress, cancel future trades until the news becomes public.

 

I don't disagree with what you've said (although it's now the "prudent person" view as reasonable man was not pc enough), but think you are taking a complicated situation and attempting to put simple parameters around it.  Sometimes you can't avoid market sensitive topics?  You could call a CEO and say hello, how are you doing and he says great, if it wasn't for this capital raise I need to do tomorrow.  You've also assumed that what is "material" is obvious.  It isn't always.  Also, what is "non-public" isn't always obvious.  You said "if something material reinforces a trading strategy in progress . . . "  That assumes that one knows what is material.  My points are simply that these are treacherous waters and it isn't as straightforward as it seems.  As I mentioned in the other post, some people believe nothing short of nuclear war is material and others think what the CEO ate for lunch is material.  It is the "prudent person" rule, but that is of course as grey as it comes and it is, if taken to the extreme, as determined by a jury of your "peers".  Of course peers being relative since the jury will be people who aren't in the business and when told a trade is for over $1000 will immediately think you must be a crook and how can you be so rich.

[rijk]

"Should we have not done it?  Absolutely.  Should he be sharing a cell with Raj Rajaratnam?  Not based on the current facts.  This wasn't a scheme to create an insider trade in my view."

 

i assume that "we" is a typo.....

 

fine, maybe all intentions were good, even though it's hard to figure out how someone like einhorn could claim innocence or ignorance

 

in my mind, it's not so much what happened but more the reaction, if this was an "honest mistake", why make up all the childish excuses a la sokol, why not admit making a mistake or an error?

 

regards

rijk

 

 

 

[Kraven]

"Should we have not done it?  Absolutely.  Should he be sharing a cell with Raj Rajaratnam?  Not based on the current facts.  This wasn't a scheme to create an insider trade in my view."

 

i assume that "we" is a typo.....

 

fine, maybe all intentions were good, even though it's hard to figure out how someone like einhorn could claim innocence or ignorance

 

in my mind, it's not so much what happened but more the reaction, if this was an "honest mistake", why make up all the childish excuses a la sokol, why not admit making a mistake or an error?

 

regards

rijk

 

Yes, a typo.  Fixed.  Life simply isn't so straightforward all the time.  He could be dealing not just with loss of money (i.e. a fine), but loss of liberty (i.e. prison).  At the end of the day, my position is that it seems grey to me.  Again, that doesn't mean he should have done it and as others have said and I have said, best to stay away when it's grey. 

[jacobwolinsky]

I think this is political because of the recent developments today, I explain in more detail here-http://www.valuewalk.com/2012/01/fsa-angry-greenlight-capital-saga-continues/

[Guest Hester]

 

Yup!  Either that, or follow Mohnish's rule...don't talk to management!  That's pretty simple too, but every investor wants a leg-up, or they need confirmation, or what have you and they talk to management.  Tell me, why do smart investors actually need to speak to management?  Buffett never even visits the head offices or warehouses of many of the businesses he owns.  He goes solely by the financial statements.  Yes, when he was younger he would do more legwork, but he also did alot of other things when he was younger that he doesn't need to do today. 

 

Einhorn has zero excuses for what happened.  This is a guy who tears apart CEO's of other corporations because of something they did that was slightly out of whack...never mind actually fraudulent or fined by a securities commission.  There is no underlying context or explanation for what happened to him.  He received non-public information on which he traded...the end!  Cheers!   

 

While I don't talk to management and don't find it helpful too often, I don't think the answer is to not talk to management. I think the answer is to just not get anywhere near the line. If you think you are close to the line, don't trade. Grind your teeth, bite a pencil if you have to, and bear the losses. I wish Einhorn would of done this, and I bet personally he does too.

 

But the shareholders are the owners. Management just manages the business and the capital. You know this but if the manager never talks to the actual owners of the business, that has some very deep and troubling consequences for American business and markets. Managers are already overpaid and face little risk if they mess up, and shareholders are already too passive in the activities of the companies they own.

[twacowfca]

 

Yup!  Either that, or follow Mohnish's rule...don't talk to management!  That's pretty simple too, but every investor wants a leg-up, or they need confirmation, or what have you and they talk to management.  Tell me, why do smart investors actually need to speak to management?  Buffett never even visits the head offices or warehouses of many of the businesses he owns.  He goes solely by the financial statements.  Yes, when he was younger he would do more legwork, but he also did alot of other things when he was younger that he doesn't need to do today. 

 

Einhorn has zero excuses for what happened.  This is a guy who tears apart CEO's of other corporations because of something they did that was slightly out of whack...never mind actually fraudulent or fined by a securities commission.  There is no underlying context or explanation for what happened to him.  He received non-public information on which he traded...the end!  Cheers!   

 

While I don't talk to management and don't find it helpful too often, I don't think the answer is to not talk to management. I think the answer is to just not get anywhere near the line. If you think you are close to the line, don't trade. Grind your teeth, bite a pencil if you have to, and bear the losses. I wish Einhorn would of done this, and I bet personally he does too.

 

But the shareholders are the owners. Management just manages the business and the capital. You know this but if the manager never talks to the actual owners of the business, that has some very deep and troubling consequences for American business and markets. Managers are already overpaid and face little risk if they mess up, and shareholders are already too passive in the activities of the companies they own.

 

Much agree.  When we have a large, long term holding, we go in person and talk to management once or twice a year.  This lets them know we care and that our interests are alligned.  We get to know the managers and the business much better once the managers realize we are on their side and open up.  We also get to hear their ideas related to long term thinking.  We never ask them questions about off limits topics such as future earnings or even, "How's business?"

 

One exception to our face time rule is BRK.  Warren is so transparent in helping all shareholders understand the business that face time is not necessary,  We do occasionally correspond, however, and as I write this post, I have a nice note on the table in front of me from both Warren and Debbie expressing appreciation for some small thing I had done for them.  :)