Confidence Game - Christine Richard [34]
Ackman also followed up on an overture he had made to Samuel DiPiazza, the chief executive officer of PriceWaterhouseCoopers, MBIA’s auditing firm. In January 2003, at a charity dinner for the Initiative for a Competitive Inner City, Ackman had cornered DiPiazza. After spending a few minutes telling him about the MBIA report, Ackman dashed back to his office to retrieve a copy for him.
“I was curious as to your thoughts on the issues raised in the report,” Ackman wrote to DiPiazza on February 21, 2003. DiPiazza responded but said he hadn’t had time to review the report.
Three days later, Ackman e-mailed DiPiazza again, this time summarizing the report. He also stressed the important role the auditors played in supporting the view that MBIA was triple-A. “According to the rating agencies, they do not do their own investigation of the company’s accounting; rather, they accept the auditors’ statements as fact and determine their rating of the company based on this information,” Ackman explained. Given the reliance of the rating companies on the auditors and the market’s reliance on MBIA’s triple-A ratings, “I do believe it is a CEO-LEVEL issue for PriceWaterhouse,” Ackman wrote.
In all three e-mails, Ackman concluded with a version of the following: “MBIA has asked the attorney general and the SEC to investigate Gotham Partners in connection with our public release of the MBIA report on our [Web site].” MBIA also had hired a public relations firm to discredit Gotham, Ackman wrote. “I ask only that you not discredit the report based on stories about us that you read in the newspaper. While MBIA has attacked us and materially harmed our business and reputation, they have not identified any material factual errors in our report.”
When Jay Brown wrote to MBIA’s shareholders at the end of February as part of the company’s annual report, he mentioned the Gotham report. “My views in this area are straightforward and consistent with the U.S. system of free and open capital markets,” Brown wrote. “We encourage all investors to seek out all forms of research on both our company and our industry, whether flattering or critical.”
Ackman, who was scheduled to testify several days later at the attorney general’s office, was incredulous. While Brown claimed to be tolerant of critical opinions, MBIA was privately advocating for Ackman to be punished for publishing the report. “While no CEO likes to see his or her stock sold short, I believe this form of investing contributes to the robust nature of the American capital system,” Brown concluded.
ON MARCH 3, 2003, the day before Ackman was scheduled to testify at the attorney general’s office, he attended a Wall Street Hedge Fund Forum presentation at the McGraw-Hill building in midtown Manhattan. Eliot Spitzer was the guest speaker. Spitzer opened with a joke about every third hedge fund manager in the audience having a subpoena waiting under their seats. Then the good news: Unlike Wall Street research departments, Spitzer said, hedge funds aren’t in need of a structural overhaul. They are, however, under increased pressure “to play games” as the market has fallen.
During the question-and-answer session that followed Spitzer’s speech, he was asked whether his investigations of short sellers could have a chilling effect on investors expressing critical views about companies.
“We do not begin an inquiry unless and in fact we actually think that there is more than just somebody’s desire