Business Books: Hedge fund manager relates "short" story

By Joseph A. Giannone

NEW YORK (Reuters) - David Einhorn is one of the most successful people on Wall Street, building his hedge fund Greenlight Capital into a $5 billion giant.

Yet it is his struggle with Allied Capital Corp -- in which he was accused of stock manipulation and his phone records were hacked -- that is the subject of his new book, "Fooling Some of the People All of the Time: A Long Short Story."

His conclusion after the six-year battle is that U.S. regulators are reluctant watchdogs.

Einhorn established a short position in investment company Allied Capital (ALD.N: Quote, Profile, Research, Stock Buzz) after concluding that its accounting practices were misleading to investors and therefore broke the rules.

Short sellers profit when stock prices fall. Einhorn drew notoriety because, unlike most hedge fund managers, he shared his negative views about some companies with investors, reporters and regulators.

For years, the Securities and Exchange Commission showed little interest in what was going on at Allied, he said. Instead Einhorn found himself fending off accusations that he was trying to manipulate Allied's stock price.

"The SEC seems to have an indifferent attitude toward management wrongdoing," Einhorn said in an interview. "The SEC is run by a corporate advocate, not an investor advocate, so investors are getting a false sense of security."

At the heart of this 356-page saga is Einhorn's contention that Allied misled investors by inflating the value of loans and equity stakes on its books, long after it is clear that companies in its portfolio are struggling.