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) 📕

Second, find some fact. It doesn’t matter if it is material or not. Find a way to take the fact out of context or distort it so it has little or no relationship to the truth and make it sound sinister and quite material.

Third, take your short position.

Fourth, search out what we call research analysts, regulators, long investors and the press and tell them something bad is afoot. And, oh, by the way, don’t call the company to get the real story. Nobody has called us . . . I mean not in any material way and call the company. Don’t call the company to get the story. It will only get in the way of the distortion.

Fifth, attack the credibility of management in anonymous chat boards is the usual way to do this.

Sixth, create the illusion of a groundswell of concern. Get the short-sellers in a syndicate, call the SEC, research analysts, long investors, and press, and repeat your lies and distortion. If you do it enough and do it well, you can marshal powerful tools to bring about your outcome. Unknowingly, they become part of the game.

Seventh, get a class-action lawsuit. More sure to follow.

Eighth, go on the road and get every short-seller to pile on and pressure the stock down.

Ninth, keep reminding everyone that the shorts uncovered Enron. They are the smartest investors in the world, and if the company fights back, it must have something to hide.

Tenth, if everything goes according to plan, the stock goes down and you profit. And, as an added bonus, and this is their favorite part, if people figure out this is a game, go long and you ride it back up. And we have seen people coming out of our stock over the past two years who have played this game several times.

But we think the game has gone on long enough and it has got to be exposed for what it is. We believe our shareholders have been harmed, and it has interfered with our business. When we started this two years ago, or when this started two years, we believed that if we continued to correct the record and run the business we were doing the right thing for our company and the shareholders, but the manipulation has continued.

Let’s understand where, who is behind this. These event-driven investors manage large pools of capital funded by wealthy investors, and their activities are completely unregulated and undisclosed. It’s undisclosed and we believe it is damaging the investment savings of retail investors whether you invest directly or whether you invest through a fund. There’s no transparency as to this trading activity and the financial motives. You can freely manipulate or freely execute the manipulation game without detection.

The most recent attacks, the well publicized $9 million BLX loan transfers generated a profit for those short the Allied story. Our accounting and disclosure surrounding this transaction were completely appropriate.

Sooner or later, the facts and the truth will prevail over the misinformation and innuendo. We proved that two years ago, and we will continue to provide proof through performance. But we are also going to work to expose the market manipulation activity whenever it occurs, and we’re looking at every option available to us to protect the company and your shareholder value. We have a great company and a great future ahead of us.

In the two years since the speech, Greenlight had its own good performance. We survived a real bear market in 2002, with the S&P 500 falling 22 percent and the Nasdaq an even more vicious 31 percent, and we came out with a positive 7.7 percent return. The Allied short generated a 21 percent return on capital, and we made all our profits that year on our short sales. It was the first year we were not profitable on both longs and shorts. Eleven of our fifteen most profitable investments were shorts, as the short portfolio returned 65 percent on its capital invested. We needed them because we suffered large losses in long positions, particularly WorldCom and Tenet Healthcare.

The market turned up in 2003 and Greenlight returned 36.8 percent, with all the top fifteen winners being longs and the top seven losers, headed by Allied, being shorts. Our five largest longs heading into that year each went up at least 78 percent, which made Allied’s 38 percent rise manageable. In fact, Allied went up slightly less than the rest of the short portfolio. It was a broad bull market with the S&P 500 advancing 28 percent and the Nasdaq rallying 50 percent. We ended the year with $1.8 billion under management.

As the months passed, we realized that Eichenwald had not made progress on a larger story. He was focused on his Enron book, and although he told us that he remained interested in the Allied/BLX story, we asked him to free us from the exclusive. He agreed, saying that he wasn’t going to get to the article anytime soon. That was a big disappointment because we had given him a valuable exclusive for eight months.

We decided to approach The Washington Post, because the story of Allied, as a Washington, D.C., company abusing a federal agency, seemed natural for the newspaper. Steve Bruce, Jock Ferguson from Kroll, and I met with the reporters Jerry Knight and Terrence O’Hara. I had spoken to Knight three years earlier about Computer Learning Centers, another local company. He remembered, and I thought that would help me get the benefit of the doubt. Both had written about Allied previously. We met in a conference room next to the newsroom and spoke for about three hours. Ferguson and I made the same presentation that we made to Eichenwald and gave the reporters supporting documents.

Unlike Eichenwald, though, they didn’t seem interested in reading anything. Actually, they were politely dismissive. Their message to us was, “Grow up—fraud at the SBA happens