‘No cop on the beat’: Greenlight’s Einhorn blows weak regulators

Prominent hedge fund manager David Einhorn has lambasted US financial regulators for allowing “near-anarchy” to break out in the markets because of their inaction on a range of controversial issues.

The president of Greenlight Capital has waded through the GameStop controversy in his last letter to investors, arguing that the market chaos surrounding the ailing video game retailer in late January was exacerbated at “a critical juncture” by venture capitalist Chamath Palihapitiya and Tesla’s Elon Musk.

However, his most inflammatory comments were aimed at U.S. regulators and the lawmakers who fund them, highlighting several examples of what he considered to be. absent or lying execution of the rules and laws that govern the markets.

“For the most part, there is no cop on the beat,” Einhorn wrote. “It’s like there are no financial fraud prosecutors; companies and management emboldened enough to engage in crime have little to fear. “

The hedge fund manager said it was healthy for ordinary investors to discuss equity betting online – and praised Keith gill, the retail trader who sparked the GameStop frenzy, for a “big call.” But Einhorn argued Congress should hold hearings on a weak app more broadly, rather than the GameStop situation.

“From a traditional perspective, the market is fractured and perhaps breaking up completely,” he wrote in the letter. “Many who would never support the defounding of the police have argued – and for all intents and purposes succeeded – in almost completely defusing, if not defunding, regulators. For the most part, near anarchy seems to reign in the markets. “

As an example of how regulators allow small investors to be harmed, Einhorn pointed out Hometown International, a microstock which he said had only one store in countryside New Jersey but was valued at $ 113 million as of Feb.8 – despite sales of just $ 13,976 last year. “The pastrami must be amazing,” he joked.

Others criticized the slowness of the Securities and Exchange Commission to fully implement parts of the post-crisis Dodd-Frank law, which was passed over a decade ago. This is one factor that explains how opaque investment group Archegos was able to quietly rack up huge leveraged stock market bets, which collapsed and inflicted multibillion dollar losses on banks in late March.

Poker player Einhorn first rose to prominence on a large and premonitory bet against Lehman Brothers stock in the financial crisis, and at its peak in 2012, Greenlight Capital managed around $ 12 billion.

However, Einhorn’s value-driven investment approach has struggled since then, and some of its prominent shorts have bombed – most notably its bet against electric carmaker stock You’re here.

In his quarterly letter, Einhorn again criticized Tesla founder Musk, this time for pouring “jet fuel” on the flames of the GameStop saga. He argued that comments at a critical time from Musk and Palihapitiya – the latter an investor in a rival of the Robinhood brokerage at the center of the saga – “further destabilized the situation.”

Nonetheless, Einhorn doubted regulators would take action on the matter. “If regulators wanted Elon Musk to stop manipulating stocks, they should have done so with more than a slight slap on the wrist when they accused him of manipulating Tesla’s stocks in 2018,” he said. he declares. “The laws don’t apply to him and he can do whatever he wants.”

Musk and Palihapitiya were not immediately available for comment.

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