Was It Worth It?

Greenlight’s New York offices reflect Einhorn’s finance-geek personality. The conference rooms are named after accounting gimmicks: The Nonrecurring Room, for example, references some companies’ practice of taking gains that have nothing to do with their ongoing business.

In addition to managing money, Einhorn serves on a couple of prominent charity boards and has played in the World Series of Poker, grabbing a moment in the limelight in 2006 when he came in 18th out of 8,773 participants in the main event. He donated his winnings, $659,730, to the Michael J. Fox Foundation for Parkinson’s Research.

Einhorn lives for investing and, so far, has resisted the requisite lavish lifestyle. He has one house, outside New York City. He has no jet, no hockey rink with its own Zamboni, no Jeff Koons balloon sculptures hanging next to Ed Ruschas, and no Hamptons estate. I wondered if Einhorn thought that going public with his Allied fight was a mistake. “It shouldn’t be,” he says. “If it is, that’s a bad outcome. It’s a bad conclusion if people can’t talk critically about stocks.”

Einhorn picks his words carefully. “Allied is, in a sense, boring,” he says. “Boring isn’t the right word. I view it as a”—he pauses—“garden-variety fraud, not extraordinary. I have dealt with some extraordinary frauds, but they didn’t make for this story.”

What’s important about this story, he says, is that “the whole system failed”—and is in the process of failing again. “I’m really trying to make bigger points about free speech, free markets, the regulatory environment, and the way Wall Street works.”

Whenever a short-seller criticizes a company, the firm and the media go out of their way to disclose that the critic stands to gain financially. This is proper. Often, however, the disclosure serves to undermine the messenger and distract from the issues. In his book, Einhorn makes the crucial and often neglected point that short-sellers usually have far less incentive to fudge facts than management: “For Greenlight, Allied is one of many ways for us to make money.... For management, Allied is the whole ball of wax. If Allied is shown to be fraudulent, the consequences would be much more dire than losing a few dollars. Top management players could lose their jobs and possibly go to jail.”

Allied is still on the defensive. “The book appears to be nothing but a self-serving rehash of the same discredited charges that Mr. Einhorn has made for the past six years,” a spokesperson said. “The reality is that the third parties that have examined his charges against Allied and Allied’s responses to them—the courts, the S.E.C., leaders in the capital markets, and the investing public—have made it patently clear that his premise that he is right and the whole world is wrong is absurd.”

Honest companies tend to let business take care of itself. “Six years ago, I told the S.E.C. about Allied’s aggressive, inappropriate, and illegal accounting. Five years ago, I told multiple government agencies about the fraud. Four years ago, I told the F.B.I. that other Allied critics and I had our phone records stolen. Three years ago, I notified Allied’s board in detail about its management’s misconduct and made a detailed presentation to the U.S. Attorney in Washington outlining a variety of illegal activities,” Einhorn writes.

And Einhorn has the resources to keep talking about Allied. Typical whistleblowers don’t. He was a critic with time, money, and power on his side. And yet in many ways, he still lost.