Allied Capital
In May 2002, at the Ira W. Sohn Investment Research Conference, Einhorn made a speech about a mid-cap financial company called Allied Capital, and recommended shorting it. The stock opened down 20 percent the next day. Einhorn claimed that Allied was involved in lending practices that defrauded the Small Business Administration. Allied said that Einhorn was engaged in market manipulation, and illegally accessed his phone records using pretexting.
The U.S. Securities and Exchange Commission (SEC) investigated Einhorn for market manipulation, and Eliot Spitzer also announced that he intended to start an investigation. In June 2007, the SEC found that Allied broke securities laws relating to the accounting and valuation of illiquid securities it held. Einhorn has published a book, Fooling Some of the People All of the Time regarding this six-year fight. In late 2008, the SEC began investigating charges that Einhorn has made about the SEC's mishandling of this matter, including the possibility that "a former SEC attorney may have taken confidential investigative materials with him when he left the Commission and provided those materials to a company he went to work for as a lobbyist." The SEC OIG confirmed in 2010 that the SEC had failed to properly pursue the allegations against Allied Capital made by Einhorn, and that Mark Braswell, the enforcement bureau chief in charge of the investigation left the agency and landed Allied Capital as a lobbying client.
Einhorn would come to view Allied as a microcosm of market trends: "What we've seen a year later is that Allied was the tip of an iceberg; that this kind of questionable ethic, philosophy and business practice was far more widespread than I recognized at the time...Our country, our economy, is paying a huge price for that."
Read more about this topic: David Einhorn (hedge Fund Manager)
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