Fooling Some of the People All of the Time, a Long Short (And Now Complete) Story, Updated With New by David Einhorn (tohfa e dulha read online TXT) 📕

After lunch, though, and for the rest of the next day of testimony, the questioning became gentler. It was as if Kilroy had told Braswell to cool it. When we returned, the SEC lawyers went through all the main issues that Allied was sensitive about: the press, my supposed dealings with class-action lawyers, and my relationship with David Gladstone, Walton’s predecessor and the CEO of Gladstone Capital, in which Greenlight had held a small position. Actually, the SEC seemed very interested in Gladstone.

“And what were your discussions with Mr. Gladstone at that time?” Kilroy asked.

“We asked him about things that were on our mind and what his opinion of those things were,” I replied.

“What sorts of things were on your mind at that time?”

“We were concerned with some of the valuation processes, some of the individual valuations that Allied was doing, some of the what we would call the intercompany relationships and so forth, and I think we posed a variety of questions to David Gladstone.”

That obviously wasn’t enough for Kilroy, and she kept coming back to Gladstone. Even though my answers were always the same, she asked me repeated questions about him throughout the session, fishing for something that just wasn’t there.

“How did you meet Mr. Gladstone? Did you remain in contact with Mr. Gladstone since the time that you met him, or did you come back into contact with him when you started looking at Allied? How did you start speaking with him about Allied? What was the substance of your dialogue? Did he assist you with your research or serve as a sounding board? What was the nature of your discussions?”

I believe the SEC was focusing on Gladstone because Allied had advanced a conspiracy theory that I was a shill for Gladstone and our true purpose in criticizing Allied was to advance the prospects for Greenlight’s minimal holding in Gladstone Capital, which we sold in the second quarter of 2002.

Allied seemed so concerned about Gladstone that after Forbes ran an article where Walton called me a “predator,” Allied approached the author with a juicier story. On September 2, 2002, Forbes published “Hit Man,” which said Gladstone had been fired from Allied for hitting a female employee and suggested that a vengeful Gladstone had been badmouthing Allied’s accounting. I believe Allied did this as part of its campaign to attack the messenger when they couldn’t attack the message and to gain sympathy as a victim of another imagined conspiracy.

During my SEC testimony, the lawyers also asked repeated questions about my speech and why I had issued a written report a month later.

I answered, “Allied had several conference calls and several press releases and was saying various things to the media and so forth. And I felt that a lot of what they were saying was untrue. I felt a lot of what they were saying was misleading. I felt that some of what they were saying was defamatory, and I felt that they were misstating what we had said. I felt that they were mischaracterizing our analysis, and they were accusing us of a whisper campaign. And I felt it was important to set the record straight and to say what we thought the facts were and see if we could put some real facts out there to clarify things.”

Periodically, Kilroy asked softball questions, possibly because she may have seen merit in Greenlight’s criticisms, which allowed me to defend myself easily and even turn the question back toward Allied. For example, “Were you more often than not able to ask questions on [Allied’s conference] calls or did you get a sense that you were being screened out of their calls?”

Near the end of the first day of testimony, Kilroy asked me a question, the answer to which had become obvious: “At the time that you made the speech, did you anticipate that your position on Allied would become so public, or was it your thought that you would give this speech, say what you thought about the company, and then that would sort of be it, and what would happen to the stock would happen to the stock?”

“If what you’re asking is did I feel that the reaction was much, much greater than I would have anticipated? The answer is yes.”

CHAPTER 18

A Spinner, a Scribe, and a Scholar

On the morning of my second day of testimony, USA Today ran a feature on Lanny Davis, headlined, “Crisis Lawyer Tackles New Target: Hedge Funds.” According to the article, Davis had put together a crisis management team to represent companies that were embroiled in scandal. Davis indicated that he had worked for several dozen firms since 1999 and only a couple of times had his name surfaced as part of his work. The article told how Davis took HealthSouth CEO Richard Scrushy “on a tour of corporate governance experts” to help the company form “an ethics oversight board.” Scrushy left HealthSouth and was acquitted of the securities fraud charges in 2005. In 2006, he was convicted of bribery, conspiracy, and mail fraud and sentenced to almost seven years in prison in 2007. According to the article, Davis “broke off his relationship with HealthSouth.” The article explained:

Davis goes on and off the record with such frequency that a newcomer to the game can easily suffer spin vertigo. [Now, Davis was] busy assembling the Full Disclosure Coalition, a group of corporate clients who are pressing Congress to enact legislation that would require investors who sell stocks short (making bets that they will fall) to meet the same disclosure rules as [long investors].

I believe the point of asking short-sellers to disclose who they are is to intimidate them. As I had seen, Allied made great effort to refer to Greenlight’s criticisms as “the short attack” and to undercut our credibility by harping on Greenlight’s financial motive. Allied personified me as the villain to appeal to investors to make a choice: