Ocean between US and UK insider trading regimes When UK regulators announced on Wednesday that they had fined US hedge fund mogul David Einhorn and his Greenlight fund £7.2m for trading on inside information about a planned 2009 equity fundraising by Punch Taverns, the reaction on the two sides of the Atlantic was starkly different. US lawyers and hedge fund traders were outraged because they did not believe what Mr Einhorn did was illegal. To them, the T-shirt wearing, poker-playing hedge fund manager was well within his rights to sell 11.65m Punch shares. After all, he had told the UK pub company's broker he did not want to be given confidential information that would prevent him from trading. "I just fail to see how this is inside information in the first place," says the chief legal officer for one global hedge fund who describes the FSA's decision to fine Mr Einhorn as "shocking." Some UK lawyers and traders were equally appalled, but for an entirely different reason. To them, Mr Einhorn's behaviour was so clearly a violation of UK market abuse rules that they wondered why he hadn't been criminally prosecuted. "Why isn't he in jail?" one banker asks. The case highlights the vast gap between the US and UK market abuse regimes and how poorly some traders who make big bets on both sides of the Atlantic understand the differences. The US has a very narrow definition of insider trading, but it polices the arena with great vigour, putting hundreds of people in jail and using techniques such as wiretapping and deals with insider witnesses that some in the UK find unacceptable. The UK, by contrast, has an extremely broad definition - market abuse can be unintentional - that has only recently begun to be enforced in any meaningful way. Mr Einhorn is the second overseas trader in as many years to be hit with big fines for trading violations that were neither deliberate nor reckless violations of UK law. I think we could well see more of this. I am surprised we haven't seen more of it already," says Angela Hayes, UK partner at the Mayer Brown law firm. The US rules on insider trading, honed through decades of trials and appeals, say that a trade is illegal if it is based on information that is not only market-moving but also obtained or leaked in violation of a duty to keep it confidential. Early US prosecutions focused on corporate executives and bankers trading ahead of their own deals but the US net has gradually expanded to include reporters, printers and so-called "expert networks" that link corporate insiders with traders. The US Securities and Exchange Commission and Justice Department bring scores of cases a year and the hedge fund world has been a significant focus recently. The sprawling probe dubbed "Operation Perfect Hedge" has yielded 56 criminal convictions to date and just this week, Diamondback became the first hedge fund to settle a case in connection with the probe. UK laws meanwhile put more of a burden on investors - if they receive market-moving non-public information they are not supposed to trade. While criminal insider dealing requires deliberate intent, the UK's Financial Services Authority has brought several big civil market abuse cases involving "inadvertent" or "unintentional" violations and successfully defended them on appeal. The Einhorn case provides a cautionary tale for traders unfamiliar with the UK's broader regime. Greenlight was already a substantial Punch shareholder when the hedge fund received a call from the company's Bank of America Merrill Lynch broker Andrew Osborne asking if the hedge fund wanted to be "wall crossed," banker slang for being given inside information that will temporarily prevent the recipient from trading. Mr Einhorn refused, a step that would have gone a long way toward putting him in the clear in the US. But he then he participated in a phone call with Mr Osborne and Punch management in which he was told several things about Punch's upcoming fundraising that the FSA says added up to inside information. The regulator says that Mr Einhorn should have known - or known enough to ask a lawyer - that he was no longer able to trade and his subsequent decision to sell 11m shares, saving the fund nearly £6m, was illegal. Mr Einhorn told investors on Wednesday that the fine was "unjust." "I had ... declined to receive inside information, repeated my desire to remain unrestricted, and indicated that I might like to sell my stock and, despite the FSA's conclusion, there had been no obvious statement of inside information disclosed during the conversation," he says. Nathan Willmott, a UK lawyer with SJ Berwin, says: "The case really focuses on a key problem for investors, and hedge funds in particular, namely when market intelligence is sufficiently precise to become inside information." The FSA is seeking to impose a fine of roughly £350,000 on Mr Osborne, but the broker, who declined to comment, has not decided whether to appeal. The prominence of the case and the size of the fine serve as a warning to overseas investors to read up on UK law, lawyers say. With the European Union working on a market abuse directive that is in many respects similar to UK law, the issue is unlikely to go away. "Market participants, especially those that are familiar with US-type securities laws, have to be very mindful of where they are operating," says Tariq Mundiya, US partner at law firm Wilkie Farr.