Confidence Game - Christine Richard [111]
Ackman also announced that—at least as far as his personal profits were concerned—he was now shorting the bond insurers for charity. “We are going to make hundreds of millions of dollars on the failure of the holding companies,” Ackman concluded. “So I’m pledging to give my share of the profits to the Pershing Square Foundation.” Ackman had set up the foundation to provide funding for education and other charitable causes.
“He may be aggressive, he may be over the top, he may not be able to speak in short sentences,” New York Times columnist Joe Nocera concluded following the presentation. “But he’s doing the hard work, and thinking the hard thoughts that they refused to do for so long.”
Ackman seized the moment to remind some people of that.
On Sunday evening, just after 11 p.m., Roy Katzovicz got an e-mail from Ackman. He’d been copied on a long message that Ackman sent to the Securities and Exchange Commission. Katzovicz read the subject line—“The SEC’s Enforcement Failures with the Bond Insurers and Other Issues”—and scanned the addressees in the “To:” column: SEC Chairman Christopher Cox; SEC Commissioners Annette Nazareth, Paul Atkins, and Kathleen Casey; the SEC’s director of enforcement, Linda Thomsen; Brian Cartwright, the SEC’s general counsel; John Nester, the SEC’s director of communications; and Mark Schonfeld, director of the SEC’s New York regional office.
Without reading any further, Katzovicz told his wife, “I may have to quit my job tomorrow.” His boss’s habit of writing long, emotional, late-night missives without having him vet them was one of the aggravations of Katzovicz’s job. But this one was the worst yet. There was no point now in reading the message and spending the entire night tossing and turning over all the points that might have been made with less fractious wording or—better yet—deleted altogether before the message was sent. He let it wait till morning.
When he got up at 5 a.m., Katzovicz opened the message. “The SEC has completely fallen on its face in stepping in to prevent the upcoming mushroom cloud that will envelop the bond insurers,” the letter began. Ackman added that he had pointed out the problems with the bond insurers years ago in the Gotham report. “I addressed CDO and derivative mark-to-market issues, the illegality of bond insurers entering into derivative transactions, their inadequate reserves, their aggressive and fraudulent accounting, and a whole host of other issues,” Ackman wrote. “The SEC, as you well know, first spent time investigating me and my then firm, Gotham Partners, for writing the original report on MBIA, rather than focusing on the issues I raised in the report.”
Even though the SEC exonerated Ackman of all wrongdoing and invited him to make multiple presentations to regulators on the industry, “the SEC still has not had the courtesy to give me a letter for my files about the termination of the Gotham investigation without any finding of wrongdoing, despite repeated requests from my counsel for the same,” Ackman wrote.
The letter was also addressed to the three New York SEC staff attorneys with whom Ackman had met over the years: Alan Kahn, Steve Rawlings, and Chris Mele. But the real barbs were directed to those higher up at the SEC. “My sense is that it’s more likely that the responsibility for the lack of pursuit of these issues lies at the highest levels of the SEC including Chairman Cox,” Ackman wrote.
He concluded by offering to meet with the SEC again to further explain how losses might yet be prevented for policyholders. “It is an incredible embarrassment to the SEC and to the quality of our country’s regulatory oversight for you to have dropped the ball here,” Ackman concluded.
When he got into the office that morning, Katzovicz walked into Ackman’s office to confront him about the e-mail. “Why shouldn’t I just quit?” Katzovicz demanded.