Institutional Investor's Alpha Magazine - May 2008 - (Page 58)

David Einhorn self-formed, while institutional salesmen or the investment banks sponsor others. Generally, at an idea dinner each participant presents one or two investment ideas and gets grilled by the group. “He hasn’t come for a while, maybe several years,” I responded. “Was Mr. Tilson part of the Richard Shuster group?” “I don’t think so.” “What about Guy Spier [of the Aquamarine Fund]?” Braswell asked. “I don’t think so.” “David Berkowitz? [Bill Ackman’s partner at Gotham]” “I really don’t know.” “Are there any other forums, organizations or informal groups that you participate in that also include Mr. Ackman?” I said I couldn’t think of any. Kilroy jumped in with a bunch of similar questions. “How do you know Mr. Ackman? Do you know Da— DAVID EINHORN vid Berkowitz as well? Did you meet Mr. Ackman before you met Mr. Berkowitz? And do you recall when you met Mr. Berkowitz? And can you describe your relationship with Mr. Ackman? Are you social friends or just acquaintances? What about Mr. Berkowitz? Do you know one of them better than the other?” I basically answered that, yes, I know these guys. We went out to dinner once. I knew Ackman better. A few minutes later Braswell asked, “Mr. Einhorn, have you ever compensated Gotham Partners, Mr. Berkowitz and Mr. Ackman for providing you with an investment idea?” “Except in-kind, no,” I answered. “Have they ever compensated you for providing them with an investment idea?” “The same answer.” Then one of Greenlight’s lawyers, Bruce Hiler, jumped in. “Can I have a minute?” We went into the hallway. I had made a mistake. I needed to make it clear that there was no ﬁnancial compensation. While it is true that I share investment ideas with other fund managers, this works best as a two-way street. No one likes a freeloader. So as a general matter, I share more ideas with others who share back. I don’t keep score about who shares what with me, and the practice is quite informal. My ﬁrst answer was incorrect, as there is no “compensation” arrangement. I reentered the room and answered the question again. “I think the more correct answer to your question is that there’s been no compensation for the ideas.” “Are there any other relationships between you and/or Greenlight and Mr. Ackman and/or Gotham Partners?” he asked. “I don’t think so.” “Let me ask you the same question about relationships that you and/or Greenlight have with Whitney Tilson.” “I don’t know of any.” “What about Mr. Spier of Aquamarine Fund?” “I don’t think so.” Soon, the questioning switched to Allied Capital. Kilroy asked me how I ﬁrst heard about the company. I said other fund managers introduced me to the idea. “And when did you ﬁrst have discussion with those individuals about Allied?” “I think it was around last March.” “And what was the substance of those discussions?” she asked. “They thought this was something of merit, and they wanted to get our view on it also, thought this was something we should look into, and they came over to our ofﬁce and told us what they thought they knew and maybe provided us with some materials of their analysis.” Braswell wanted to hear about my Allied speech [at a 2002 charity event for the Tomorrows Children’s Fund]. “Had Greenlight already taken its short position in Allied prior to the May 15th speech?” Braswell asked. “We were short Allied at the time of the speech.” “And you said the purpose of focusing or talking to them about Allied in this presentation was because you wanted to share one of your better ideas at the charity event. Was another purpose of your speech about Allied to inform others of your thoughts in the hopes that it would put downward pressure on Allied stock?” There it was: Was I manipulating? There were ten other speakers that day. Needless to say, the SEC wasn’t going to call Bill Miller [of Legg Mason] in to ask if his recommendation to buy Nextel stock, of which his fund was a large owner, was an effort to create upward pressure on that stock. The difference appears to be that saying something that makes a stock go up is unquestionably accepted, but the opposite is potential manipulation. “I disagree with the second part of what you said. Deﬁnitely inform others.” “Did you not anticipate that others, other fund managers and Wall Street types who were at this dinner, would short Allied in response to your presentation?” “I would have thought that based on what I said at the conference, people would have looked into Allied, and I think given what I said and what I believed the facts to be that people very well could have decided to sell or sell short Allied . . . on the basis of the merits of the situation at the time.” “They were hammering at me, and I knew I had to somehow get through the rest of the day.” This went on for a bit more until the SEC got into the issue of the active Blackberries during my speech. “Mr. Einhorn,” Braswell said, “the record reﬂects from our investigation that there were people sitting at that dinner and as you spoke, they were on their Blackberries shorting Allied at that very moment.” “Then they must have found what I said to be persuasive.” “And did you have any anticipation that people would do that?” 58 • INSTITUTIONAL INVESTOR’S ALPHA • MAY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - May 2008

Institutional Investor's Alpha Magazine - May 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Send in the Clones The Good Guys: Outside the Box Cover Story: Welcome to Oz Interview: The Tipping Point Regulation: When Sentinels Go Astray Strategies: Taking Credit Research Center: The Hedge Fund 100 Book Excerpt: Shoot the Messenger Alpha Bytes: VaR Enough? Unhedged: Commentary: Not Your Father's Activist

Institutional Investor's Alpha Magazine - May 2008

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