Confidence Game - Christine Richard [27]
Berkowitz didn’t get a response and didn’t seem to expect one. “I am asking a rhetorical question. I know it’s not my place to ask questions,” Berkowitz told the prosecutors. “How does the [Times] reader know how she knows? I think when she asked me, I wouldn’t confirm or deny that we had sold the stock. It’s her word that we have sold it. She doesn’t give a source.”
“It was true, wasn’t it?” the attorney interviewing Berkowitz asked. “She was right?”
“Yes,” Berkowitz agreed. “She was right.”
Ackman refused to be discouraged. The night before the Wall Street Journal ran its article about the Gotham probe, Ackman, his wife Karen, Paul Hilal, and Paul’s girlfriend went to see Catch Me If You Can, a film about a con artist who is pursued by an FBI agent. “Maybe a bad choice given the circumstances,” Hilal recalls.
After the movie, as they stood outside the theater on that cold January evening, Ackman’s indefatigable optimism emerged. “This is going to be a good thing,” Ackman told the group. “I’m going to meet Eliot Spitzer.”
Ackman previously had sent the MBIA report to both Spitzer and the Securities and Exchange Commission (SEC) but hadn’t heard back. Now Spitzer would hear him out. “I’m going to convince him that there’s merit to what I have to say. This had to happen, so it’s a good thing,” Ackman told the group. He even suggested that someday, once Spitzer got to the bottom of the problems at MBIA, he and Ackman would appear together at a press conference. “He’ll put his arm around me and say, ‘Thanks, Bill.’”
Ackman’s optimism contrasted starkly with the picture painted in the next morning’s Wall Street Journal: “The New York Attorney General’s office is looking into allegations that Gotham Partners Management Company, a once-high-flying hedge fund, acted improperly in connection with a bearish position in bond-guarantee firm MBIA Inc., say people familiar with the matter,” the article began.
Extensive press coverage of the Gotham investigation followed. On January 19, 2003, the New York Times described Gotham’s worsening troubles in a Sunday business section story. In it, Gretchen Morgenson and Geraldine Fabrikant chronicled Ackman’s and Berkowitz’s “startling comedown” from their “glittering client list, dazzling reputations, and smarts galore” to desperation after the Gotham Golf and First Union merger was scuttled. The article mentioned Gotham’s unusually public investment strategy and how it had drawn Spitzer’s attention. The reporters quoted from a recent letter Gotham had sent to its investors informing them that Gotham also had received requests for information from the SEC.
Ackman was convinced that MBIA’s public relations firm, Sard Verbinnen, was getting hold of Gotham’s letters and passing them along to the press. Ackman and Berkowitz had hired their own public relations firm, but the advice they were getting from their attorneys was to stay quiet. Michael Ovitz a friend of Ackman’s and an investor who had been the target of negative press himself, seconded the advice on how Ackman should handle all questions from reporters: “N-O C-O-M-M-E-N-T!”
The smear campaign, as Ackman called it, was effective. Word appeared to be spreading far and wide. “I received a message from Mohamed al Moradi from the Baghdad Times,” Ackman wrote to Gotham’s then PR firm, Joele Frank Wilkinson Brimmer. “He hears that we are ‘going bust.’ It sounds like a joke, but my assistant thought he seemed real. I am not sure it makes sense to call back, but I sure am curious.”
Although the newspaper articles brought a flurry of supportive e-mails from family, college friends, and other acquaintances, the coverage also elicited a certain schadenfreude among some of the hypercompetitive MBAs who populate Wall Street. After watching Ackman take the unusually independent path of setting up a hedge fund straight out of business school, Hilal says, some of Ackman’s peers were gleeful about the negative press. “For some