David Einhorn
September 2010
INTRODUCTION
The Spark of a Speech
My father, Stephen, wanted to write a book before he turned forty, and at thirty-eight realized he better get started. Since he wasn’t yet ready to delve into a serious issue or share a grand vision of the future, he wrote a joke book.
On his fortieth birthday, our entire extended family from around the country joined us in Milwaukee to celebrate. The party was held at a Chinese restaurant. Each member of the family had to give a “review” of the book. The catch: The books weren’t to be handed out until the end of the night.
I remember Grandpa Ben getting up with his notes. As he stood there, he allowed the paper to unwind like a roll of toilet paper until it extended to the floor. He proceeded to review the book. “On page 11 it says . . .” and he told a funny story. “On page 49 the joke goes . . .” and he told a funnier story. “On page 361 Steve wrote . . .” and we were falling off our seats. “On page 12,329 the joke begins . . .”
That evening is one of my best childhood memories.
After the party, Dad gave me the very first copy of his book If You Try to Please Everyone, You Will Lose Your A** . . . and 89 Other Philosophical Thoughts. My parents sold about a thousand copies. I think there are probably a few hundred left in the basement. Dad has updated it for his sixty-fifth birthday in June 2008.
Though I had no intention of writing a book by the time I turned forty, extraordinary circumstances have caused me to beat the deadline. I wish it were a joke book. It’s not.
This is the story of a dishonest company called Allied Capital. If you play with the name it isn’t hard to conjure ALL LIED CAPITAL. Think of it as The Firm in John Grisham’s book without the sexual tension and chase scenes. This is a company that is not only fooling its shareholders by paying lofty “dividends” partly based on new capital contributions in a classic pyramid scheme format, but is also robbing taxpayers.
I may be a “whistle-blower,” but I’m no Erin Brockovich. I am one of the luckiest people in the world. I have terrific parents who raised me well. I have a smart and wonderful wife and three good-spirited, healthy children. I have had success in business that I never dreamed I could achieve. I work with intelligent, good people. To me, it isn’t even really work. Compared to hard work like manual labor or dealing with a difficult boss, my work is fun.
Not many people have heard of Allied. I have been asked repeatedly: “Who cares about Allied Capital? What are you trying to accomplish? Who is the audience?”
There are a few possible audiences for this book. The first is members of the Greenlight Capital “family.” Greenlight is the investment company I run. Our core products are commonly known as hedge funds. I believe we have an excellent reputation—not just for good results, but for thorough analysis and integrity. We are a firm that is not shy about self-criticism when we make mistakes, and we make plenty.
For those of you who are part of the Greenlight family, I am happy you are reading this story, but you are not the target audience. As you may already know, Greenlight has held a “short” position in Allied Capital for six years; that is, we have allocated a portion of the fund to profit if Allied’s stock declines in value. Most of you have heard me describe Allied’s misconduct for years. As a result, you may already agree with me and share my frustration.
A second possible audience is the tens of thousands of holders of Allied stock. If you have invested in this business development company (BDC), you have done consistently well for up to forty-five years. As a large group of mostly individual investors, you appear not to care about what I have to say. Judging by some of the nasty e-mails I have received, some of you vociferously resent Greenlight’s efforts. You do care about Allied’s quarterly cash distributions. As long as they keep coming, most of you are in for the ride. Many of you will probably think this book is a desperate attempt to persuade you to dump your Allied stock so Greenlight can make money as the stock falls. Management has repeatedly said I am on a “campaign of misinformation for personal profit.” You probably believe them. If so, nothing I write will change your view.
What you may not understand is that in the scheme of things, Greenlight’s bet against Allied Capital is not that significant. While there may be a lot of dollars at stake, Allied is not our largest or most important investment. Over the last six years, our firm has had 3 percent to 8 percent of its capital invested in selling short Allied.
Also, in 2002 Greenlight’s principals pledged to donate half of anything we personally made on Allied to a pediatric cancer hospital. When the investment didn’t pan out as quickly as we hoped, Greenlight donated $1 million to the hospital in 2005. As I said at the time, “I have been waiting, but the children should not have to wait.” With the publication of this book, we are now pledging to give the other half of our potential personal profit (including our share of book royalties), to two worthy organizations: the Center for Public Integrity and the Project On Government Oversight, both in Washington, D.C. This book shows, if nothing else, that we need better investigative journalism and government watch-dogs. This should make clear that my interest in the story now extends well beyond money, because no matter how far Allied’s stock price eventually falls, I
