A DealBook piece looks at David Einhorn's very public battles with Allied Capital (NYSE: ALD) and Lehman Bros. (NYSE: LEH), both of which he is short and accused of accounting chicanery. Einhorn's willingness to "talk his book" has generated controversy. Steven Davidoff writes that "Many short plays are enhanced through rumor and innuendo spread by those self-same shorts. Needless to say, these whispers are sometimes unfounded but can do real harm to a company's share price and the company itself."

In his email newsletter, fund manager Whitney Tilson slams this comment: "Hmmm... How many is "many"? More than one? A majority? 99% of the rumor and innuendo in the market I see is on the long side! The shorts I know, on the other hand, perhaps because they're often falsely accused of spreading "rumor and innuendo", bend over backwards to be open and factual."

This is exactly the point. What is the ratio of "pumps" to "bashes"? When Einhorn goes on CNBC and trashes a stock, it's a national story. That's because it's incredibly rare for anyone to go on CNBC and slam a company. The extent of the skepticism we usually hear in the financial media is "overvalued" or "tough prospects."

So I say to Einhorn and Co.: Keep doing what you're doing. Differing opinions, and especially unpopular ones, make for a better market.

Bloomberg News reports that Lehman Brothers Holdings (NYSE: LEH) wants to sell $4 billion in equity. But it already raised $6 billion so why does it need more? It should be no surprise -- but thanks to a chorus of statements by financial leaders that "the worst is over" -- including Lehman's CEO Richard Fuld, Jamie Dimon, Hank Paulson, and Barton Biggs some are surprised that there are still problems.

Since the crisis began -- last August when the Fed began cutting rates from 5.25% to 2% -- banks have been trying to reduce their ratio of debt to equity below the hugely risky 32:1. But it's hard when they hold $500 billion worth of Level 3 assets -- which don't trade and therefore have no objectively set market value. To maintain or improve their capital ratios, banks have been writing down the value of the securities on their books -- $276 billion worth so far -- and simultaneously raising capital. Citigroup (NYSE: C) has raised the most -- $44 billion.

S&P downgraded Lehman, Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER) saying they may disclose more write-downs for devalued assets. And hedge fund manager David Einhorn -- who's short Lehman -- got into a verbal debate with Lehman CFO Erin Callan arguing that Lehman had failed to disclose $6 billion worth of such Level 3 assets -- known as Collateralized Debt Obligations (CDOs) and it needed to raise capital. Today's announcement suggests that Einhorn was right.

Just because executives act like cheerleaders, it doesn't mean investors should take them at their word.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares and has no financial interest in the other securities mentioned

David Einhorn has one of the better money management track records of anyone in the business and has also made headlines with his efforts to expose alleged fraud at Allied Capital (NYSE: ALD). If you haven't read his book on that company, it's probably the best investment title of the year.

Einhorn recently sat down for an interview with TheStreet.com (you can watch it below). He's long Target (NYSE: TGT) and Microsoft (NASDAQ: MSFT) but is still short some of the badly beaten down financial stocks and credit rating agencies. He's bearish on stocks that are trading at high multiples in anticipation of a second-half recovery, something he is "not so sure about."

Of the 50+ business-related books I read each year, maybe 15 were worth reading, in retrospect. Then another five of those are memorable -- in a good year. Hedge fund manager David Einhorn's book Fooling Some of the People All of the Time leapfrogs both of those categories, and establishes itself as a classic of business writing.

The story behind the book is intriguing. It's actually amazing that it ever got published, and tremendous credit should be given to Wiley for taking a chance with such an unconventional tale. Here's the deal: In a 2002 speech at a charity event, Greenlight Capital hedge fund manager David Einhorn gave a speech at a charity event. Asked to talk about his favorite investment idea, he spent 15 minutes explaining why he believe that Allied Capital (NASDAQ: ALD) was a financial crime in progress, ripping off investors and taxpayers as a Small Business Administration lender. Einhorn presented compelling evidence of aggressive accounting and indeed fraud, and disclosed that he was short the stock.

The speech made headlines and the stock tanked. Over the past six years, Einhorn has continued to beat the drum against Allied Capital, presenting information to regulators, reporters, and investors.

The perceptive and common sense-rooted Ben Stein, in a business column in The New York Times, has weighed-in on the credit crisis, and for market absolutists, it's an argument they probably don't want to hear.

Stein, like many of us, has pondered how the massively well-paid men and women of Wall Street could create such a catastrophe. How did some of the smartest, talented executives, Stein ruminates, generate such immense losses that "they made banks clam up on lending -- at great risk to the economy?"

Compelling questions

Stein asks: Where were the fail-safe devices? The government watchdogs? The ratings agencies? A speech by Greenlight Capital hedge fund manager David Einhorn at a Grant's Interest Rate Observer event, provided the answers -- the unfortunate truths of the recent housing/credit boom -- which Stein summarized:

39-year old David Einhorn runs a hedge fund with assets under management of $5 billion, but he isn't content with that. Today's Wall Street Journal reports (subscription required) on his new book, Fooling Some of the People All of the Time: A Long Short Story, detailing his public crusade against Allied Capital (NYSE: ALD), which he has accused of fraudulent accounting. Mr. Einhorn is short the stock.

In the book, he also lashes out at the SEC, which has been the target of criticism from fraudsters, fraud-busters, and the anti naked short selling baloney brigade.

Einhorn told the Journal that "The SEC is run by a corporate advocate, not an investor advocate, so investors are getting a false sense of security."

That's a pretty serious criticism, but it seems to be supported by some of the commission's recent actions, including its decision to make it even tougher for investors to hold underperforming directors accountable.

I ordered a copy of the book a few days ago and will post a review as soon as possible.

Greenlight Capital is a very interesting and successful hedge fund ran by value investing superstar David Einhorn. The fund has annualized returns at 27% per year for the last 10 years. Einhorn's investment style is especially interesting because he is not afraid to make large, focused bets and because he specializes in special situations, specifically spinoffs.

Focus investing is a concept which has recently seen a resurgence due to the success of Mohnish Pabrai and many other focused hedge funds such as Greenlight. As I recently covered here, spinoff investing is a compelling method of investing which I consider to allow for "structural undervaluation."

Interestingly, Einhorn isn't a one horse pony when it comes to investing. He's also a very talented poker player. In fact, he came in 18th (of 8,773) in the 2006 World Series of Poker for which he took home almost $660,000. This is pertinent because many people believe there is a correlation between excelling in trading/investing and doing well in poker.

As the markets become more and more efficient and finding ideas is becoming more difficult for investors, the style of piggyback investing has emerged. Simply put, 'piggybacking' is following the smart money and making investment decisions based on the publicly-available position sheets of the best investors. By law, the majority of funds are required to release a list of their holdings to the SEC database via 13F-HR filings. Also, activists and any passive investor with a stake greater than or equal to 5% in a given company are required to file 13G or 13D filings. Therefore, it's not very difficult to follow the smart money these days.

Proponents of this school of thought, notably James Altucher of Stockpickr.com and TheStreet.com, argue that it makes much more sense for the individual investor to simply track and cherrypick the best ideas from the smartest investors' portfolios rather than try and interpret news events or randomly sort through stocks. And, for the most part, I tend to agree. As an individual investor, and more importantly a blogger, I constantly struggle to find new and interesting ideas to write about or invest in and I've found that this method has worked well to help me find new potential investments and create interesting watchlists.

A lunch with Warren Buffett auctioned on eBay was worth $250,100 to the guy who runs New York hedge fund Greenlight Capital, David Einhorn, in 2003, and last year the winning bid was $351,100.

Why does the second richest man in the world want you to buy him a lunch?
Well, the lunch is a yearly charity event that started in 2000. The proceeds go to the Glide Foundation, a San Francisco nonprofit organization.  The Glide Foundation runs 86 programs including feeding the homeless, working with children of drug addicts and rehabilitating gang members.

The winner of the auction will join seven other people for a lunch courtesy of Smith & Wollensky in one of their upscale steakhouses in New York.  Together they will share a lunch and a private conversation with Buffett.

Warren Buffett is the world's second-richest man after Bill Gates and his personal worth is estimated at over $40 billion.  If people buy one share of Berkshire Hathaway Class A for $90,000, or pay $3,000 for Class B just to be allowed in the annual share holder meeting with Warren Buffett, then it shouldn't surprise anyone that people bid hundreds of thousands of dollars for a more private audience with "the sage of Omaha".

The lunch auction should begin June 22 on eBay at a starting bid of $25,000.  We will be monitoring the auction closely and wish good luck to all those who put in a bid.