It started out innocently enough. David Einhorn, founder of Greenlight Capital Inc., one of today’s most successful hedge funds, gave a speech at a charity investment conference where he outlined his best investment idea – selling short shares of Allied Capital, a leading business development company. At the end of the speech, Einhorn pledged part of any profit from the short sale of Allied’s shares to benefit the charity. The audience responded with rousing applause. Allied also responded. The company launched a personal attack and called securities regulators to investigate Einhorn and his business.
FOOLING SOME OF THE PEOPLE ALL OF THE TIME: A Long Short Story (Wiley; May 2008; $29.95; Hardcover) recounts Einhorn’s six year clash with Allied Capital and provides an unflinching look at the unscrupulous side of Wall Street where profits, politics and winning count more than integrity and the truth.
The story started when a small fund alerted Greenlight to Allied Capital. Greenlight found Allied had questionable valuation methodologies and Einhorn decided to short the company’s stock. Rather than answer Einhorn’s charges, Allied began an aggressive strategy to attack Einhorn’s reputation and deflected scrutiny by calling into question the motives of Greenlight and the entire hedge fund industry. As Einhorn describes in the book, Allied then employed a combination of corporate double-speak, back-room politics, and mudslinging to divert attention from the serious problems Einhorn described. Stopping at nothing to maintain its facade, Allied also pushed the authorities to investigate its critics, while stealing their phone records.
Undeterred, Einhorn unraveled a tapestry of questionable loans, inflated appraisals, improper loan origination practices and impermissible property flips at Allied’s largest subsidiary, Business Loan Express (BLX), which he learned had cost government lending programs, and taxpayers, hundreds of millions of dollars. As Einhorn followed the trail of illegal activity, his journey for the truth took him to the Securities and Exchange Commission, the Small Business Administration, the U.S. Department of Agriculture, the N.Y. Attorney General’s office and even a Congressional hearing.
FOOLING SOME OF THE PEOPLE ALL OF THE TIME reads like a John Grisham novel full of shadowy characters, slippery lawyers, unsophisticated and naive investors, compromised government officials and conflicted Wall Street “analysts.” This is more than just an investing book, it’s an investing novel – but it is all the more shocking because it is not fiction. And what is even more outrageous is that Allied’s story is not unique, serving as the perfect example of how a flawed regulatory system in the complex financial world can fail.
Einhorn describes how Allied repeatedly flew-in-the-face of SEC rules and other regulatory agencies by artificially “managing” its write-ups and write-downs and using a ponzi-like pyramid scheme to pay “dividends” to its investors. The story takes a “Kafkaesque” turn when Einhorn alerted the government, regulators, and the financial community to what Allied was doing. Regulatory officials were apathetic and unconcerned, while others questioned Einhorn’s motives rather than investigating the facts. Their tepid response is chilling and begs the question – how many other companies are flouting government regulation, and misleading investors?
FOOLING SOME OF THE PEOPLE ALL OF THE TIME offers readers an inside look at how a hedge fund conducts investment research and how the regulatory system fails to protect the innocent and at times, may be a tool of the corrupt. It is also about the treatment honest people are subjected to for seeking the truth.
ABOUT THE AUTHOR
DAVID EINHORN is the President and founder of Greenlight Capital, a long-short value-oriented hedge fund, which started with $1 million under management in 1996. Over the ensuing years, Greenlight has generated greater than a twenty-five percent annualized net return for its partners. Einhorn is the Chairman of Greenlight Capital Re, Ltd. (Nasdaq: GLRE) and serves on the boards of the Michael J. Fox Foundation for Parkinson’s Research and Hillel: The Foundation for Jewish Campus Life. Einhorn graduated summa cum laude from Cornell University, earning a B.A. from the College of Arts and Sciences.
| For more information, contact: Jocelyn Cordova 201-748-6249 jcordova@wiley.com |
FOOLING SOME OF THE PEOPLE ALL OF THE TIME By DAVID EINHORN Wiley; May 2008; $29.95 ISBN: 9780470073940; Hardcover  |
