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Unformatted text preview: 1 Ira W. Sohn Investment Research Conference David Einhorn, Greenlight Capital, “Accounting Ingenuity” May 21, 2008 I appeared at this conference six years ago and joked that my wife, while trying to help me prepare my presentation of the Allied Capital analysis, had a hard time staying awake. This is pretty ironic, since the ensuing fallout from that speech has cost us a substantial amount of sleep. Over the past six years I have learned a lot and grown a little, and formed some strong views about Wall Street regulation and the muzzle it often places on free speech. I think that research conferences like these are important. Of course, this one is particularly worthy because it supports a great cause: The Tomorrows Children’s Fund. Further, it is important for investors to discuss market information and analysis to help sort the good companies from the bad. But, there is a structural impediment in our financial markets that creates a massive disincentive to share research about companies doing bad things. I can fully understand why other investors might decline to appear in this forum or to share a critical analysis. Who could blame them? The cost is high (think lawyers here), it extracts an enormous personal toll, and there are better ways to raise money for a good charity. I have decided to persist because I believe it is important and the right thing to do. Since the Allied speech, I have developed a thicker skin. Back then, when Allied COO Joan Sweeney said that my “plan was to scare the little old ladies,” it actually bothered me. When Holman Jenkins at The Wall Street Journal equated my presentation to a “mugging” – a violent crime – I was incensed because it wasn’t fair. Now, when I read book reviewers of Fooling Some of the People All of the Time calling me naïve because of how I used to believe the system worked, I’m just happy if they like the book. The Allied experience gives me less confidence today than I had six years ago that the regulators are even trying to enforce rules to protect investors from dishonest public disclosures and outright lies by unscrupulous corporate managements. Maybe they are understaffed or too busy with other priorities. Maybe they are not as sophisticated or close enough to the issues. However, my experience leads me to fear that maybe they just don’t care. In Fooling Some of the People All of the Time , I point out that the SEC is not enforcing the existing anti-fraud rules against corporate managements. I wonder if part of the reason Bear Stearns lost the market’s confidence was a sense that Bear had undisclosed losses and that the SEC was not taking proper measures to ensure that Bear reported accurate financials. The large losses that JP Morgan has now acknowledged on Bear’s books support this theory. The lack of confidence in the SEC’s oversight ultimately undermines investor confidence. investor confidence....
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This note was uploaded on 09/30/2008 for the course HOSUE 999.111 taught by Professor Tiger during the Spring '08 term at Johns Hopkins.
- Spring '08