Fooling Some of the People All of the Time, a Long Short (and Now Complete) Story, Updated with New Epilogue by David Einhorn

Author:David Einhorn
Language: eng
Format: epub
Publisher: Wiley
Published: 2010-11-11T05:00:00+00:00

Three weeks later, on May 12, 2004, Allied held its annual shareholder meeting. At the end of his prepared remarks, CEO Walton came at the short-sellers once again:

Now I would like to switch gears. I think any people who read the [Washington] Post probably are aware that we have some people in the market who don’t necessarily agree with everything we do. I guess that’s part of being public. It is a phenomenon, which not only affects us but I think many public companies.

But in our case, two years ago we became the target of a misinformation campaign, which we believe was initiated by short-sellers attempting to profit by putting downward pressure on the stock through the use of such misinformation.

In the last several weeks that campaign has once again manifested itself. This seems to be part of a standard playbook used by people who call themselves event-driven investors who distort or, in some cases, simply make up information to manipulate the market. The pattern is pretty clear—take short positions and then do anything in their power to engineer an outcome in their favor. This manipulative activity harms shareholders and ultimately harms the whole capital market.

We’ve watched this activity for the last couple of years. We’ve watched this not only with us, but we believe it has been used with hundreds of companies. There’s a pretty clear pattern to this game. Let me tell you what we see are the ten steps in the short sellers’ playbook. Not quite David Letterman’s Top Ten, but it’s somebody’s top ten.

Anyway, you first identify a company which is highly regulated or complicated. We happen to be complicated and we are regulated.

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.

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