Confidence Game - Christine Richard [28]
As the pressure from the press continued, Ackman and Hilal took frequent late-night walks to the Hudson River to talk. Hilal sensed this was the one time Ackman let anyone see that he was worried. “Bill has a feeling of invulnerability,” says Hilal. But it was clear to Hilal that his friend was concerned about the impact of all the negative publicity on his kids, his wife, and his father’s business. The timing couldn’t have been worse for what is a notoriously anxiety-producing ritual for well-off New York City parents: Ackman and his wife were making the rounds interviewing at private schools for one of their daughters. “It’s no fun going around to nursery schools and having people think you’re the next Dennis Kozlowski,” Ackman says. The idea that Ackman and Berkowitz might go to jail was something Hilal thought about in darker moments.
There were light moments, too, though. Playing off David Berkowitz’s name—the same as that of the Son of Sam serial killer who had terrorized New York City in the 1970s—Klafter joked that hardened inmates would fear sharing a cell with Berkowitz after reading about his crimes in the Wall Street Journal. “Oh no! Not him! Not David Berkowitz, the hedge fund manager!”
“It was a bit of gallows humor,” Hilal says, but it helped keep their spirits up.
BY LATE JANUARY, the Spitzer investigation was broadening to include other hedge fund managers who had been publicly skeptical about MBIA and several other financial firms. One of these investors was David Einhorn, founder and president of the hedge fund Greenlight Capital. Ackman and Einhorn had struck up a friendship several years earlier after attending an “idea dinner” where investors shared information about and got feedback on investments.
In recent months, Ackman had shared his analysis of MBIA with Einhorn, who had meanwhile been unusually public in his criticism of another company called Allied Capital Corporation, a firm that provided debt and equity financing to midsized companies. Einhorn told the audience at an investment conference in May 2002 that he was taking a short position on Allied Capital because he was skeptical about the firm’s accounting and disclosure practices. The stock dropped 10 percent on his comments. Einhorn later posted a research report on Greenlight’s Web site detailing his analysis of the Washington, DC-based company.
On January 21, during his annual dinner for investors, Einhorn got a call from Wall Street Journal reporter David Armstrong. Armstrong asked Einhorn a series of questions about Allied Capital, MBIA, and Gotham. Before ending the conversation, the reporter asked him if he had heard from Spitzer’s office or from the Securities and Exchange Commission. He wouldn’t tell Einhorn why he thought he might.
After a tense evening, Einhorn returned home around 11:30 p.m. and found the Wall Street Journal story online. It described how Ackman, Berkowitz, Tilson, and Einhorn engaged in what appeared to be coordinated attacks on MBIA, Farmer Mac, and Allied Capital. Although the article didn’t say that they broke any laws, it portrayed the group as a band of business school bullies turned loose on the financial markets. Gotham released a negative research report on MBIA and Tilson wrote a negative article on the bond insurer that appeared on several Web sites. Einhorn asked no fewer than 10 questions during a Moody’s Investors Service conference call on the bond insurers shortly after Ackman’s report was issued. Ackman, Tilson, and another Greenlight employee all asked questions during a Goldman Sachs conference call on bond insurance around the same time.
This fusillade of skepticism had angered company executives, the article explained. Farmer Mac told regulators that its problems began when Ackman turned up to interview its chief executive officer, appearing initially as an interested investor