Confidence Game - Christine Richard [112]
Ackman told him it would have been a mistake to show him the e-mail. Katzovicz would have stopped him from sending it, and every thing in the e-mail needed to be said, Ackman insisted.
Katzovicz said he would not have stopped him, but he might have suggested some changes, some omissions. Perhaps the letter wouldn’t have been such a personal attack on Cox. Sometimes Ackman needed to be protected from himself, and that had to be a part of Katzovicz’s job. If Katzovicz was going to stay with the firm, they needed a new rule. Katzovicz spelled it out: “You cannot kick our chief regulator in the nuts without consulting with me first.” Ackman agreed, and Katzovicz stayed.
Within a week, a junior staff attorney at the SEC called Pershing’s outside counsel to find out where to send a notice of discontinuance. The letter arrived on Ackman’s desk a few weeks later. It stated, “This investigation has been completed as to Gotham Partners Management Co., LLC and William A. Ackman, against whom we do not intend to recommend any enforcement action by the Commission.”
It was the closure Ackman had been waiting to receive for nearly five years.
Chapter Nineteen
Ratings Revisited
To keep the music playing required increasingly egregious excesses—ever greater quantities of increasingly risky loans, structures and leveraging
—DOUG NOLAND, DAVID TICE & ASSOCIATES, DECEMBER 2007
IN DECEMBER 2007, Bill Ackman went door to door with his presentation on the bond insurers, launching perhaps the most aggressive “short” campaign in the history of Wall Street.
Activist investors typically buy a stake in a company and then pressure management to make changes that will drive up the stock price. Short selling and activism are a much more complex pairing. An activist can’t exactly advocate for changes that will cause the company’s share price to collapse or cause it to file for bankruptcy. At least not very often.
Ackman, however, saw his short position in MBIA as a cause. He believed his interests were aligned with those of MBIA’s policyholders because both would benefit if MBIA’s publicly traded holding company had less cash. He also argued that the taxpayer was being cheated by bond insurance, or at least by the crooked municipal bond ratings system that made bond insurance necessary.
MBIA summed it up this way at Congressional hearings on the bond insurers in early 2008: “Ultimately, the [short sellers’] goal would be to see MBIA become insolvent, which would maximize their profits by driving the stock to near zero and triggering payments on the credit-default swaps they executed.”
In December 2007, Ackman and Roy Katzovicz flew to Boise to meet with Idaho’s attorney general, who was also the head of the National Association of Attorneys General. Ackman hoped to interest Attorney General Lawrence Wasden in launching a national investigation into municipal bond ratings.
By this time, Katzovicz’s assistant had purchased a luggage trolley to haul around the documents that accompanied Ackman’s presentations. It tipped over. It collapsed. It was a constant source of frustration. But the presentations weren’t getting any shorter because the bond-insurance story was not getting any less complicated.
The bond insurers were both more and less risky than they appeared, Ackman argued. The subprime crisis threatened the bond insurers’ ratings and their solvency, despite assurances by management that the companies were largely insulated from losses. That’s why Ackman had developed a plan to save MBIA’s insurance company by cutting off dividends to its publicly traded holding company, MBIA Inc. (If regulators believe an insurance company needs to preserve its capital, then they can prohibit the insurance company from sending dividends up to its holding company.) Then there was the issue of the municipal-bond rating system, which allowed bond insurers to sell their triple-A ratings to municipalities even though many already had triple-A ratings