Confidence Game - Christine Richard [39]
“Financed conduits supported by $1 trillion of asset-backed commercial paper were constructed on the basis of triple-A ratings that suggested—no, practically guaranteed—that the investments could never fail,” wrote Gross.
Ackman’s report had briefly shone a light into the shadows. That was a dangerous thing to do because it was easy to be wrong. Information about many SPVs wasn’t readily available; even when it was, the details were often open to interpretation. Waldman reminded Ackman that it was risky to tread in this murky territory. He wanted to know what Ackman’s understanding of the law was regarding the release of research to the public on a company, particularly on a company an investor had shorted.
“My understanding is that as long as you do not knowingly disseminate false and misleading information, there is nothing wrong with sharing your views as an investor with anyone, positively or negatively. I got that from Mr. Spitzer. I was comforted by his remarks.”
“That does not sound like Mr. Spitzer’s view.”
“I listened very carefully. Mr. Spitzer said, ‘As long as you do not knowingly disseminate false and misleading information for the purpose of generating a trading benefit . . . we don’t have a problem with that. However, if you do do that, we are going to pursue it aggressively.’”
During each break, including the lunch break when Ackman and Marcu headed for a sandwich shop in the lobby, Marcu reminded his client that he was there to answer questions, not to volunteer information. He wasn’t optimistic that Ackman would heed his advice. “Bill rejected my advice more times than all of my other clients combined over the course of my entire career,” Marcu remembers.
When questioning resumed, Waldman directed Ackman’s attention to a letter collected as part of the investigation. In it, Ackman tells his investors that his lawyers have advised him there is nothing illegal or inappropriate about making Gotham’s analysis of MBIA public. Marcu and Waldman were comparing various drafts of the letter when Ackman interrupted them.
“May I speak?”
“There’s no question pending,” said Waldman. “Do you wish to volunteer something?”
He did. “We live in America. Free speech is an important central tenet of living in America,” Ackman said. “Someone may say something they believe to be true, which later turns out to be false. If they were held to a standard whereby they were subject to some violation of law as a result of that, I don’t think anyone would ever make a public statement again. Certainly not about something as complicated as a public company, particularly this one.”
He continued. “The capital markets benefit when money managers, who do their homework, share ideas. I worked incredibly hard to make this report accurate. Is it possible that there’s a mistake in the report? Yes. Did I knowingly put something in the report that was false? No.”
THE ATTORNEY GENERAL’S office had more questions about Triple-A One Funding that they put to Greg Lyss. The former Gotham analyst arrived at 120 Broadway to testify several weeks later with Marcu. Waldman and Marc Minor conducted his interview.
Lyss left Gotham after the fund cut back to only a few employees, but he had helped to put together the report on MBIA. It was Lyss who suggested changing some phrasing in the report to say that MBIA guaranteed Triple-A One Funding’s commercial paper. It seemed obvious to Lyss from reading the company’s filings that this was the case. MBIA later said it didn’t guarantee the short-term debt. The question was important because the credit-rating companies would not assign MBIA a triple-A rating if it were on the hook to buy up billions of dollars of commercial paper in the event the securities were rejected by investors.
Lyss told Waldman there were situations in which the banks might not be required to make good on their commitment to provide liquidity. Language