Fooling Some People All of the Time
In 2002, David Einhorn, the President of Greenlight Capital, gave a speech at the Ira-Sohn Conference, where he was asked to share his best investment idea.
Einhorn, who at the time was a young and upcoming hedge fund manager, explained the reasoning behind his fund's short position in Allied Capital. At the time, Allied was a leading company in the U.S. private finance industry.
The speech, as well as the investment itself, is a great example of an investment thesis built around a deep analysis of accounting discrepancies. The development of the story became quite dramatic as management of Allied, retaliated by launching a fierce campaign to discredit Einhorn with the SEC eventually getting involved.
Einhorn was eventually vindicated as in June 2007, the S.E.C. found that Allied broke securities laws relating to the accounting and valuation of illiquid securities it held. However, the SEC did not issue any fines or penalties, and Allied settled without admitting or denying the allegations. Allied was acquired by Ares Capital in 2010.
Einhorn later published his book Fooling Some People All of the Time, which chronicles his account of the Allied short thesis and the events that unfolded after his presentation at the Ira Sohn conference.