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) 📕

She launched an investigation that included obtaining the phone records of board members by private investigators impersonating the members to their phone companies. This was called “pretexting” because somebody calls and pretends to be somebody else to obtain the records.

Now I knew the name for what happened to me and to the other Allied critics. As the HP story became national in scope, with Congressional hearings, criminal prosecutions, and high-level resignations, it became clear that this was a crime after all. Given the ramifications of the HP case, I remembered that the brush-off letter response I received from Allied’s board in 2005 did not specifically address the pretexting issue.

I was sure Allied obtained my records and wanted to raise the level of scrutiny on the company’s illegal activity. On September 15, 2006, I sent the board another letter, reminding members of what happened to HP over this issue and urging them to investigate. The letter stated:

The only group of individuals with any motive to access my phone records and the records of four other prominent Allied critics is Allied management. In light of the public outcry and potential criminal indictments resulting from HP’s conduct, the Board cannot pretend that such use of pretexting is not a serious matter. Indeed, the pretexting in this case does not merely concern leaks, but is far more serious. If Allied management was involved in illegally accessing the phone records of its critics, such pretexting constitutes an attempt by the company to interfere with and chill its critics and therefore skew the flow of information which is critical to the securities markets. The Board clearly has an obligation to investigate such criminal conduct by Allied’s management.

We got back another curt dismissal from the new chairwoman of the Audit Committee, saying that it had “looked into your allegations that Allied’s management played a role in an attempt to access your phone records and have found no evidence to support your claim.” I felt that the denial again was weak and the language carefully crafted. What they found was no evidence. It wasn’t clear how hard they looked, and it appeared the language avoided the issue of someone hired by the company, such as a lawyer hiring someone else to access my records. Though the response letter offered me the opportunity to provide more information, its tone suggested the board was not that interested in getting to the bottom of this. In fact, my letter already contained enough specifics for the board to know what to investigate, had it been interested.

After much consideration, we decided to raise the profile of the story to get Allied to take this more seriously. We reached out to The New York Times, which ran an article on November 8, 2006, describing our accusations that Allied engaged in pretexting. The article, written by Jenny Anderson and Julie Creswell, discussed the Allied critics who claimed they were victims of pretexting and the company’s denial that it was responsible. The article stated:

The allegations, made by Mr. Einhorn in two letters to Allied’s board—one letter was sent as recently as September—suggest that getting the phone records under pretext may have been an effort to root out relationships and silence critics. . . . A spokesman for Allied said the company had no comment on the claims of pretexting, beyond its responses to Mr. Einhorn.

The New York Times article ran the day Allied announced its third-quarter 2006 earnings. On the conference call, Walton criticized me again:

Before we wrap up, I’d like to comment on The New York Times article, which some of you may have seen, that ran in today—this morning’s paper. As most of you know, probably all of you know, for the last four and a half years, David Einhorn, an investor with the short position in Allied Capital, has made a variety of accusations about Allied Capital. Our performance has proven his thesis to be very wrong. David’s motives are simple; he makes money if he can drive down the price of Allied Capital stock. We believe today’s story is yet just another example of Mr. Einhorn’s tactics. With respect to today’s article regarding accessing phone records of Einhorn and other Allied critics, David’s written twice on this same topic. The first time that Einhorn raised an issue regarding access to phone records was in a letter to Allied board members in March 2005. Within a week the chairman of Allied’s Audit Committee responded in a letter to Einhorn, indicating that the board had not seen evidence to support his accusations, but would evaluate any evidence of wrongdoing that he wished to provide.

Mr. Einhorn never produced any evidence to support his accusations. Eighteen months later, after pretexting became big news, Mr. Einhorn provided yet another letter regarding the alleged access of phone records. In this letter he clearly attempts to capitalize on the recent media scrutiny involving Hewlett-Packard and that he’d be happy to provide the board with additional information that will be of assistance. These are his words. On September 29th, Allied’s chairman of the Audit Committee responded to Mr. Einhorn in a letter. In that response the chairman indicated that the board looked into Einhorn’s allegations and found no evidence to support his claim of management misconduct with respect to phone records. The board then requested once again, that he supply any evidence of wrongdoing. To date, he has not responded. Twice our board has written to him that his allegations are not supported by the facts, and twice our board invited to provide evidence of wrongdoing. Twice he has provided no information.

Significantly, his failure to respond was after he had indicated that he would be happy to provide evidence of wrongdoing. There is simply no evidence to support a claim that Allied tried to access Einhorn’s phone records. We never received his records and all that the article points to in support of this claim is the word of Einhorn, an individual with a motive to depress Allied Capital’s stock.