Confidence Game - Christine Richard [18]
The First Union and Gotham Golf merger had been scheduled to close on December 12, but Judge Ramos issued a temporary restraining order on December 6, dashing any hope that the merger would go through by the end of the year and give Gotham the cash it needed to redeem investors without selling a disproportionate share of the fund’s liquid assets. Gotham and First Union planned to appeal, but that could take months and Gotham didn’t have that kind of time. All of Ackman’s carefully orchestrated plans came crashing down.
When I called Tarnoff in 2009 to ask him whether MBIA may have somehow intervened in the case, Tarnoff replied by asking me what the letters M-B-I-A stand for. It was a surprising question given Tarnoff ’s expertise in municipal finance and MBIA’s dominant share of the municipal bond guarantee business.
When I asked if his presence in the courtroom was intended to sway the judge’s decision, Tarnoff told me, “Whoever said that has a perverted opinion.”
As for the gestures and eye rolling during the proceedings, he said, “This is a ridiculous inquiry!” Then he hung up abruptly, ending the interview. My calls to Ramos’s office were not returned.
When First Union’s attorneys took depositions as part of the appeal process, lead plaintiff George Kimeldorf was asked about the preferred shareholders’ last-minute decision to add Tarnoff’s law firm, Morrison Cohen, to their legal team.
“I was told that their senior attorney, Mr. Tarnoff, had some acquaintance with the judge. And I believe I was told that they were good attorneys,” Kimeldorf responded.
ACKMAN SOON LEARNED that getting people to listen to his concerns about MBIA’s top rating would be tough going. At a birthday celebration in late November at the home of Greg Lyss, the Gotham analyst, Ackman met Richard Cantor, a former bond insurance analyst for Moody’s Investors Service. It would be “unthinkable” for an analyst to downgrade MBIA, Cantor told Ackman. Analysts assigned to cover the company approach it that way, he added. “The triple-A rating is just something an analyst inherits.”
Ackman witnessed that resistance firsthand at Standard & Poor’s (S&P) in a meeting that had been arranged at the suggestion of Leo O’Neill, the president of S&P. Ackman met O’Neill at the Harvard Club in September, where O’Neill was speaking at a symposium. “What would happen if an analyst came to S&P and said that a company it rated triple-A didn’t deserve its top rating?” Ackman asked when O’Neill took questions from the audience after his talk. “We’d take it very seriously,” O’Neill answered from the podium.
“It’s not a hypothetical. It’s real,” Ackman told O’Neill privately after the presentation.
“Is it Fannie Mae?” O’Neill added, dropping his voice.
When Ackman said it wasn’t, O’Neill told him to call his office so they could set up a meeting.
The meeting was well attended. Howard Mischel, Dick Smith, and David Veno, the bond-insurance analysts, were summoned, along with the firm’s chief credit officer, the head of public finance ratings, the head of structured finance ratings, and S&P’s general counsel. But as Ackman gave his presentation on MBIA to the assembled group, his sense was that no one was taking him seriously, as several of the analysts continually looked at their watches.
Ackman was undeterred. He turned his full attention to writing a detailed report on MBIA. During the first week of December 2002, the report was e-mailed back and forth numerous times among lawyers and various Gotham employees. “We want to stay far, far away from libel, slander, etc., and make clear what’s fact and what’s opinion,” Ackman wrote in an e-mail to Lyss and David Klafter.
Ackman, David Berkowitz, Klafter, and Lyss had been vetting the report for days, trying to clarify complicated ideas, labeling what was fact and what was Gotham’s opinion. “Last version,” Ackman wrote, eliciting an immediate response from Lyss: “I assume