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) 📕

raised in 2005, the audit committee of Allied’s board responded that management and outside counsel had looked into the charges and found nothing—and then invited Einhorn to write again if he had more specific information to offer. It was the standard brushoff that directors and corporate counsel routinely give to whistle-blowers everywhere.

In fact, Einhorn’s letter was plenty specific on the “pretexting” issue, noting that someone had opened an online account in his wife’s name and directed the phone company to send copies of their home phone bills to an AOL account. Any chief executive or corporate lawyer worth his salt would have responded to it by immediately launching a thorough probe, turning over every rock to find out if anybody associated with the company had ordered such an inquiry or received any such information. Unfortunately, that wasn’t done until nearly two years later, when a subpoena was received from a U.S. attorney.

Belatedly, Allied’s board has now formed a “special committee” with a new set of lawyers to conduct a new investigation. But in other respects, Allied remains in its defensive crouch. Allied refuses to disclose which directors are on the committee or the identities of the new lawyers. And even before the inquiry has begun, it repeated its claim that nobody in management did anything wrong. The board was also careful to limit the scope of the new inquiry to the single set of phone records so far uncovered.

This is too little, too late—the kind of begrudging response you’d expect from a group of longtime directors (average tenure, 11 years) overly concerned about their own reputations and legal liability. The only way for the company to regain credibility with shareholders and regulators is to remove Walton as chairman and chief executive, replace the audit committee with new outside directors, and dismiss the outside lawyers and other key players on the Einhorn response team.

As for Einhorn, his campaign against Allied should be closely examined by the Securities and Exchange Commission and Congress as they consider how to rein in hedge funds that have gained undue influence in financial markets and the economy. (© 2007, The Washington Post. Reprinted with Permission.)

I didn’t like being called “cocky” or a “punk.” I also found it annoyingly perverse that my success in exposing fraud at BLX should lead to greater hedge fund regulation. Perhaps Pearlstein had so much antipathy toward hedge funds that he couldn’t help himself. But—here’s the important thing—he was really the first person in the media in five years to say I was right about anything regarding Allied, and he did it in Allied’s hometown newspaper.

CHAPTER 30

Late Innings

On February 19, 2007, I received a phone call from an Allied shareholder. We had debated Allied on several occasions over the years, always in a civil way. The shareholder had just spoken with COO Sweeney and wanted to share the conversation with me.

He said that Allied was really mad, that our fight had been going on for five years, and they were sick of it. Management and the board were “digging in.” Sweeney said my January letter to the board was “wildly misleading” and “grossly inaccurate.” When he pushed her to be specific, she admitted that everything in the letter “was technically correct,” but vaguely claimed that it doesn’t come to the right conclusion, nor did it include “all the facts.” When pressed to identify the missing facts, Sweeney declined, saying it wasn’t necessary to go “tit-for-tat.”

Sweeney told him that BLX “doesn’t need the SBA 7(a) program” and that the losses are nowhere near $70 million identified in the Harrington indictment. She said that the private investigator who stole my phone records was hired by Allied directly, not by an agent. However, the special committee of directors had limited its investigation to the pretexting, because “We don’t need an investigation to refute the [public] letter [Greenlight sent the board].” She wouldn’t comment on whether Allied took other people’s records, but claimed pretexting wasn’t even illegal back then—a rather odd interpretation of privacy law.

She also told the shareholder that the Inspector General of the SBA in Michigan was “personally close with David,” as evidenced by “whoever heard of the SBA calling a press conference to announce a fraud?” That was almost funny—I have never spoken with or met him. In fact, I don’t even know his name. Sweeney went on to say that nobody in management was resigning. By now, I was used to hearing Allied’s cockamamie claims. I simply thanked the shareholder—who I now believe has become a former shareholder—and waited for the next thing.

In 1998, Greenlight invested in the parent of the Virgin Islands Telephone Company. Jeffrey Prosser, its control shareholder, took the company private at a price we felt to be unfair to minority stockholders, including Greenlight. We sued in Delaware, where the company was incorporated.

In 2003, the Delaware court found that the fair price of the company was almost four times more than Prosser had paid. The court also found that Prosser and several others had committed fraud and breached their duties to shareholders as part of the transaction. The good news: The court awarded Greenlight over $100 million in damages. The bad news: After several years of negotiations, Prosser did not pay us, and, in 2006, he and his company filed for bankruptcy.

Enter Lanny Davis, now hired by Prosser. Prosser had a separate dispute with his company’s senior lender, the Rural Telephone Finance Cooperative (RTFC), which Prosser alleged to have interfered with his efforts to salvage value. Prosser filed suit against the RTFC in bankruptcy court in the U.S. Virgin Islands. Prosser’s key witness to support his allegation against the RTFC was none other than Davis himself. As part of the bankruptcy proceeding, we were allowed to depose Davis on February 1, 2007. This gave us the chance to question him under oath about Allied—an opportunity not to be missed.

Our lawyer: “Have you ever stated that Mr. Einhorn was spreading some false and misleading information for his