I want to explain why I wrote Fooling Some of the People All of the Time. After all, I am not an aspiring author and I love my day job as a fund manager. Further, I will not benefit from telling my story, as I have pledged my share of any profit from this book and the investment in Allied Capital (ALD) to charity.
The story you are about to read exposes the grim realities of unchecked corporate misconduct by a bad company and the failures of proper regulatory oversight. The story should have particular interest for individual investors, because those are the folks Allied preys upon. Allied offers the lure of an attractive
"dividend" (which is really an annual tax distribution divided into four neat quarterly pieces and smoothed out over time) and makes simple claims like "you never have to restate a dividend" and "we are the victim of a short attack."
The story sounds good and the management comes across simpatico. The book shows how these investors are willing to be the some of the people, who are fooled all of the time and how Allied takes advantage of them -- and the new investors it finds to take its habitual stock offerings.
Allied Capital is a fraud. I didn't have to write a book to know that I am right about that. However, Allied isn't even the biggest, most egregious, or most audacious fraud I have seen. In a sense it is a garden variety fraud -- dishonest business dealings by dishonest management.
Still at War, David Einhorn Weighs In
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So why all the fuss? The story I am telling is one that has been surprising and unexpected -- even to me. I think the story is important and needs to be told. This book reveals some serious problems in the regulatory landscape that I am in a unique place to discuss. I care that the
and other regulators seem to have stopped enforcing laws against corporate malfeasance. I care that company officials can lie with impunity on public conference calls. And I have been appalled that the government officials overseeing the lending programs that Allied has defrauded are so indifferent and unwilling to act even when presented with clear evidence of abuse. The overall lack of law enforcement is
There is a growing populist sentiment against the
hedge fund industry and
short-sellers. I agree that it is unfair and elitist for only wealthy people and institutions to have access to some of the best money managers. I also agree that the hedge fund industry has its share of bad players -- as do all professions. However, short-sellers need encouragement. They are an important voice in the market. There is a collective benefit we all enjoy by having profit-motivated investors try to sort out the good companies from the bad.
Most short-sellers remain anonymous, and after seeing what I have gone through for simply calling a spade a spade, who could blame them? The only people discussing short-sellers are the even more motivated management teams who get caught with their hand in the cookie jar. They scream loudly, point fingers and make wild accusations, and many uncritical listeners buy into the distraction. This book is meant to inform the marketplace about the other point of view.
If we are going to permit the retribution against the whistleblowers shown in this story -- defamation, investigation, invasion of privacy and so forth -- then we surrender public free speech. If we allow the people in this story to operate outside the law, then we nourish a corrupt business culture. Rather than turn a blind eye to the fraud I witnessed, I made a decision to stand up and speak out despite the consequences. I hope my story inspires regulators and government agencies to do the right thing.
David Einhorn Shows His Hand
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Editor's note: For Marek Fuch's take on this book, read "Hedge Fund Manager Tells All in New Book" and to learn more about short-selling, read "How to Beat the Street: Short-Selling."
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