David Einhorn: The hedge-fund crusader who made £1.7bn from Lehman's collapse

Despite making a fortune selling banks short, Hedge-fund manager David Einhorn makes no apologies for short-selling. In fact, he sees himself as a crusader for financial morality.

Last October, David Einhorn explained to an audience in a packed Manhattan ballroom what had gone wrong with Wall Street. Packaging home loans into securities was a "mediocre idea", he said; repackaging them into yet more securities was a downright bad one. Credit ratings were a joke. Investment banks he mentioned Bear Stearns and Lehman took too many risks and disclosed too little. "I didn't think much of the speech at the time," says Justin Fox in Time. "One could hear similar critiques every day." The difference was that Einhorn, who runs the Greenlight Capital fund, was doing something about it, "betting the gig would soon be up at Bear and Lehman by selling their shares short".

After being proved right in both cases, Einhorn a soft-spoken, baby-faced hedge-fund manager, previously best-known for winning $650,000 at the 2006 Poker World Series is public enemy number one as far as Bear's Jimmy Cayne and Lehman's Dick Fuld are concerned. Having reportedly scooped £1.7bn from the bet against Lehman alone, he is likely to figure prominently in the New York attorney general's investigation into short-sellers. But Einhorn, who has never been afraid to speak out publicly against the firms he targets, has become "something of a poster-boy" for hedgies in their hour of maximum revilement, says The Guardian. He sees himself as a "truth seeker, not a panic sower", and a crusader for financial morality. His beef against Lehman was that it was "a naked emperor", guilty of misrepresenting its real financial position. And he claimed an early scalp when he tackled the bank's CFO, Erin Callan, on a conference call in the spring. The "very bright" Callan, who had been in the job just six months, fluffed all of Einhorn's tough questions, notes the Evening Standard. When he made the taped conversation public, she was swiftly removed from her post.

Einhorn has been painted as a bogeyman. But, at 39, he looks like he just left college, and despite his reputation for hard dealing, has a decidedly sentimental streak, says The Washington Post. He appeared at the world's toughest poker tournament in a sweatshirt bearing the handprints of his wife and children. "This is where I get all my good hands," he quipped. The product of a comfortably off Milwaukee family, his early years where unremarkable. After graduating from Cornell, he made several applications to do a PhD in economics, but was turned down every time. He then spent five years working on Wall Street before forming Greenlight with $900,000, mostly borrowed from his parents, in 1996. It now has around $6bn under management and its investors have made, on average, a more than 25% return every year since it started. Despite his reputation as the shorter from hell, the fund is mostly long.

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Einhorn already knows "what it is like to feel the hot breath of the regulators on his neck", says The Standard. Eliot Spitzer, the former attorney general, launched an investigation into whether he had conspired to drive down the stock of Allied Capital in a six-year battle with the firm. No conspiracy was proved, but Einhorn was so outraged that he wrote a book about it.

Fooling Some of the People All of the Time

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argues that short-selling is a vital counterbalance to "society's general inability to do anything about financial excess before it's too late", says Time. It will probably sell well in Mayfair.

Badbeat: alternative strategies for making money in falling markets

Einhorn often draws parallels between investing and poker. "Both are games of incomplete information," he told The New York Times. "You have a certain set of facts and you are looking for situations where you have an edge, whether the edge is psychological or statistical." Many traders would echo the sentiment. Now one firm hopes to profit from it. Manro Haydan, a proprietary trading business, is betting it can make money from online poker "by putting up the stakes for an army of more than 150 freelance 'traders' to gamble over the internet", says the FT. It believes that by applying risk management techniques it can shift the odds in its favour. Hard-core poker players won't be interested in the venture, dubbed BadBeat: they'd rather fund their own hands than give up a share of winnings to a backer. But others might bite. BadBeat covers all losses and takes half of any wins, "leaving poker players on a much better deal than ordinary traders".

This is just one of several "alternative alternatives" for investors looking for returns not linked to shares or bonds. There are funds betting on football players, art, film finance even lawsuits. Even so, the ban on shorting financials until January will hit hedge funds hard, says The Independent. Who will they target instead? Top of the list must be commercial property: real estate investment trusts are already seeking help from the FSA. Builders and pubs also look vulnerable, says The Daily Telegraph. "Consumer-facing" stocks should steel themselves for a rough ride.