By David Einhorn (Wiley & Sons Publishing, 2008)
Fooling Some of the People All of the Time
In 2002, David Einhorn, the fresh 32 year old President of Greenlight Capital – a New York based hedge fund and research company – gave a speech at a charity investment conference to benefit a children’s cancer hospital. He was asked to share his best investment idea. Subsequently, he described his reasons why his firm had sold short the shares of Allied Capital, a publicly traded leader in the private finance business. Greenlight bet that the stock would decline because the company’s business was in trouble and its accounting was corrupt despite duplicitous efforts of the firm’s management “spin” a positive story to investors. Einhorn’s speech was so compelling that the next day, when the New York Stock Exchange opened for trading, Allied’s shares remained closed. So many investors wanted to sell or short the stock that the NYSE could not balance all the sell orders to open Allied’s trading in an orderly fashion.
What followed was a firestorm of controversy. Allied responded with a Washington-style spin job – attacking Einhorn, and disseminating half-truths and outright lies. Rather than protect investors by reviewing Einhorn’s well-documented case against Allied, the SEC — at the behest of the politically connected Allied — instead investigated Einhorn for stock manipulation. Over the ensuing six years, the SEC allowed Allied to make the problem bigger by approving more than a dozen additional stock offerings that raised over $1 billion from new investors.
Fooling Some of the People All of the Time is the gripping chronicle of that revealing saga. Page by page, it delves deep inside Wall Street, showing how the $6 billion hedge fund Greenlight Capital conducts its investment research and detailing the maneuvers of an unscrupulous company. Along the way, you’ll witness feckless regulators, compromised politicians, and the barricades our financial markets have erected against exposing misconduct on Wall Street. This is an important read because the book gives you an excellent “insider’s” perspective of where the Markets were in the years immediately preceding the collapse of Bear Stearns – the event in March 2008 that precipitated the financial crisis. You will also discover the immense difficulties that prevent the government from sanctioning politically connected companies — making future Enrons inevitable. Further still, this book is important because Einhorn and the research methods that his firm uses to uncover accounting scams and other balance sheet tricks publicly traded companies employ to hide financial weakness was among the first to start shorting Lehman Brothers stock in April 2008 after their overly confident quarterly report.
This revealing book shows the failings of Wall Street: its investment banks, analysts, journalists, and especially our industry regulators. At its most basic level, Fooling Some of the People All of the Time is an important call for stronger regulatory enforcement, more effective regulatory reforms, and fair play in the financial markets.
