Confidence Game - Christine Richard [45]
But the attorneys cut Ackman off there and moved on to other questions.
OTHERS WERE CALLED to testify as well. On May 8, 2003, hedge fund manager David Einhorn of Greenlight Capital arrived at the Securities and Exchange Commission (SEC) in Washington to give testimony in the Gotham investigation.
Investigators were trying to find some connection between Einhorn’s very public short position on Allied Capital and Ackman’s critical research and trading in the securities of MBIA and Farmer Mac (the Federal Agricultural Mortgage Corporation). Had the pair somehow worked together to undermine confidence in the companies? Or to manipulate the companies’ securities?
“Have you ever met regularly or irregularly with a group of fund managers that would include Whitney Tilson and Bill Ackman?” asked the SEC attorneys. “Have they ever compensated you for providing them with an investment idea? Are there any other relationships between you and Greenlight and Mr. Ackman and Gotham Partners?”
Several years later, in a book about his experiences as a short seller, Einhorn recalled the uncomfortable interview. The temperature in the basement room where he testified felt like it was 85 degrees on that early May morning, Einhorn recalled. “The environment was unsettling. It was supposed to be that way,” Einhorn wrote. “Perhaps the austerity foreshadowed what might happen if your case didn’t go well.”
The interview, however, turned up no untoward connections between the hedge fund managers, and Einhorn was not called back for questioning in the afternoon.
David Berkowitz also was called to testify at both the SEC and the attorney general’s office. Berkowitz and Ackman had parted ways earlier that year. While Ackman continued to sell off Gotham’s assets and oversee the Gotham Credit Partners fund, Berkowitz moved on to another firm where he managed money for a wealthy family.
At the attorney general’s office, Berkowitz answered questions about Pre-Paid Legal, about the decision to wind down the main Gotham funds, and about the MBIA report. As the hours of testimony dragged on, the questions seemed to be going nowhere.
“Mr. Berkowitz, to the best of your knowledge, have you or Gotham Partners ever received anything in the way of compensation—money or otherwise—from a reporter in exchange for information related to a story that the reporter would be working on?” Marc Minor, one of Spitzer’s attorneys, asked.
“No,” Berkowitz replied.
“Were you in the practice of using reporters to get information about a company that you otherwise were not able to get?”
“No,” Berkowitz said.
Minor seemed determined to uncover some plot involving reporters. He pulled out what he called “Exhibit 35,” a Bank of America research report that appeared to have been faxed to Berkowitz from the Wall Street Journal.
“Do you recall receiving this document?” Minor asked him.
“No,” Berkowitz said.
“The underlining in the body of the document—are those your underlinings?”
“I am a bit neater in underlining,” Berkowitz responded.
A note in the margin of the document appeared to reference credit-default swaps: “How have spreads moved?” And a box was drawn around a chart in the report highlighting CDO issuance for 2001 and 2002. Minor pointed out, “For the record, there are a series of diagonal and straight lines and arrows and to the left is a series of numbers: 10/5/1. What is it?”
“I have no idea,” said Berkowitz. “I am sitting here trying to figure it out. It looks like I’m trying to do some compound-interest calculation of some sort, but I really have no idea.”
Several pages later there were more drawings, numbers, and arrows. “Do you know what this refers to?” Minor asked.
Then it came back to Berkowitz. “I think it’s a brain teaser of some sort,” he answered. “One of those things like how do you get five people across the river in a boat that carries only two people? I think that’s it.”
It clearly wasn’t the revelation that Minor was looking for.
“Did you solve it?” Minor asked.
“At the risk of being a little