Circle of Competence

Here’s a cool interview with David Einhorn by TheStreet.com on Allied Capital (ALD) and its devious ways… one I thought you guys might enjoy viewing. To this point, nothing about the man has struck me as fake or deceptive, and it’s a shame that honest, analytical individuals like Mr. Einhorn are vilified in the general media.

More recently, the publicity of the book has gotten Mr. Einhorn some positive reviews as people delve into the story. It’s nigh impossible to read the book and conclude that Mr. Einhorn is the greedy, profiteering short-seller that Allied Capital has led the public to believe since 2002.

Don’t be deceived by the recent positive press he’s gotten, however; up until this year, Einhorn had gotten nothing but flak from the media, ALD shareholders, regulators, and the company itself. Their main argument: Einhorn was lying to manipulate ALD’s stock and push it down for personal profit.

I only highlight this story on CoC because I truly believe that people with integrity should be respected by the public. Instead of giving a logical refutation of his analysis, naysayers have chosen to attack the weak link: motive. Ignoring the anti-semitism that is part of this story (in this writers opinion), it pains me to listen to ad hominem attacks from people with limited knowledge of the situation (read: ALD and Einhorn, MBI and Ackman).

If you’ve read the book, you know exactly what I’m talking about. Because Einhorn had the motive to manipulate ALD’s stock, well by golly he must have been doing it! Shareholders actually believed this line, because all the while ALD has kept paying their regular “dividend,” a tax distribution fueled by capital raising that is akin to a modern day Ponzi scheme. In the meantime, the real issues of portfolio mis-valuation and corporate corruption have yet to be addressed in any substantive way. Nothing holds up in the court of public opinion quite like motive.

To this day, Allied maintains:

“Allied Capital finds it ironic that Mr. Einhorn claims to be speaking on behalf of shareholders’ interests, when he continues to work against those interests and may profit from declines in the company’s stock price,”

What’s actually ironic is that Allied Capital claims to be speaking on behalf of shareholders when they have been profiting though salaries and bonuses for years while shareholders are defrauded and wronged. What’s ironic is that Allied Capital has the gall to personally attack Mr. Einhorn while not too long ago they condoned the theft of his personal phone records, a practice called pretexting.

Eventually, I believe Einhorn will be vindicated, and shareholders will suffer. As it stands, he won’t make a dime of off Allied’s demise (all the profits of the ALD short will go to charity), so there goes motive, folks.

Charles Ponzi was able to profit for 3 years of off postal and mail fraud. How long will Allied Capital last?

Disclsoure: No position.