International Law

Why Did Einhorn Attack Lehman?

Book cover via Amazon

Here is a great story about David Einhorn and his effort as a short seller to make the market work by openly talking about fraud at Allied Capital, and the subsequent outing of Lehman.

"Einhorn kept digging at the company, ultimately finding evidence of fraud that made his initial report seem tame.

Then Einhorn took a very unusual step for a hedge-fund manager, most of whom would rather you didn't know their names, much less how they run their businesses.

He wrote a very candid and illuminating book about his firm, Greenlight Capital, and the complete Allied ordeal.

The purpose, he says, was not to become famous or to settle scores; it was to tell people that he had been right all along. He wanted them to see the Allied story as having a "bigger meaning"--that the political, financial, and media Establishments can, and do, conspire to quash truth-telling. Fooling Some of the People All of the Time was published just in time for this year's iteration of the same conference.

His plan was to go there and give a talk about the book. ...

And so Einhorn, his sense of righteousness piqued, made a fateful decision: to use the conference to skewer Lehman Brothers.

Given the abuse he'd received after he eviscerated Allied, he had to know that this might also have unpleasant consequences.

But he was determined to out Lehman as emblematic of the greed and arrogance that had caused the credit crisis in the first place."

This is a very interesting story - how many short sellers seek to explain why they believe a company is over-valued?

We need to have more of this type of skepticism in our public debates about the market value of companies instead following the herd.

Full post as published by Misleading Advertising Law on October 08, 2008 (boomark / email).