Fooling Some of the People All of the Time, A Long Short (and Now Complete) Story, Updated with New Epilogue | David Einhorn

Summary of: Fooling Some of the People All of the Time, A Long Short (and Now Complete) Story, Updated with New Epilogue
By: David Einhorn

Introduction

Welcome to the thrilling world of insider trading, hidden financial troubles, and long-standing corporate frauds. This summary of David Einhorn’s Fooling Some of the People All of the Time will take you on a riveting journey through the trials and tribulations he faced while investigating the suspicious accounting practices of Allied Capital Corp. Along the way, you’ll learn about the mismanagement of the Small Business Administration’s 7(a) program, accounting fraud, and the surprising reluctance of the media and regulators to shine a light on complex, large-scale financial wrongdoings. Prepare yourself for a captivating look at the very worst side of Wall Street, and one man’s determined quest to unveil the truth.

David Einhorn Exposes Accounting Fraud

David Einhorn, a hedge fund manager, suspected that Allied Capital Corp was hiding bad news from investors. He recorded phone calls with the CFO and other officials, which revealed that they didn’t mark down the value of loans until they believed they had a permanent impairment of the asset. This violated fair-value accounting and showed that Allied was valuing its assets at cost almost indefinitely, even if the assets’ true value dropped. He also spotted other troubling practices, such as Allied’s ownership stakes in firms that remained in debt to it. Convinced he had unearthed accounting fraud, Einhorn bet against Allied’s shares in a short sale. His suspicions proved correct, and Allied shares plummeted due to Einhorn’s exposure.

The Rise and Fall of Allied

Allied engaged in pyramid-scheme accounting, leading to a series of lawsuits and criticism from David Einhorn and independent researcher Off Wall Street. Despite accusations of scare tactics and shoddy research, Allied’s CEO Bill Walton paid for shares and lied about the company’s merits. The company managed to bounce back due to analysts’ support, but the truth ultimately emerged, causing Allied’s downfall.

The Allied Capital Saga

David Einhorn, a hedge fund manager, discovered Allied Capital’s fraudulent accounting through his analysis of the company’s investments. The investments were made recklessly, and the company reported earnings based on bad loans. Despite Einhorn’s attempts to interest regulators, journalists, and other investors in his findings, his story was ignored. Only one analyst turned bearish about Allied and lowered his rating. The media ignored the story until the SEC began to investigate Einhorn for manipulating the market for personal profit, forcing him to pay legal fees. Allied even hired a private investigator to steal Einhorn’s and other critics’ phone records. The company managed to keep its scheme afloat until 2008.

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