Confidence Game - Christine Richard [48]
“Is David Einhorn a member of this group?”
“No.”
“Mr. Berkowitz is not a member?”
“No. And Bill Ackman rarely came.”
Attorney Marc Minor wanted to know if Tilson had ever worked for Bill Ackman or in any organization that Ackman ran or owned.
“The only time I have worked with him was when I first met him,” Tilson said, referring to their time as undergraduates at Harvard. “We were hired for the summer to sell advertising in the Let’s Go travel guides.”
“And when exactly did you decide to take a short position in Farmer Mac?” Minor asked.
“Immediately after the meeting, the two of us said, ‘Oh, my God, this is the biggest fraud we have ever seen in our lives.’ Both of us had the identical reaction,” Tilson said.
Later, when the questions turned to some handwritten notes on Farmer Mac that Tilson had provided to comply with a subpoena, Minor asked him to read a line from the notes.
“Constantly, debt comes due every week,” Tilson read.
“What was it about that issue, do you recall, that was remarkable? What caused you to write it down?” The questions were delivered rapid-fire.
“Well, any financial institution that has to refinance its balance sheet every week is subject to imploding if [it] can’t access the capital markets for that week. That is one of the risk factors I am identifying here for Farmer Mac.”
“You stated that the debt coming due every week would be an issue for any company.”
“Yes.”
“Does it matter whether or not all the debt comes due each week?”
“Yes, very much.”
“And if it were a portion of the debt that came due each week, how would you calibrate your concerns?”
“Well, if it is 1 percent of their debt, I wouldn’t worry about it too much. If it is—you know—north of 50 percent, which, as I recall, is the case with Farmer Mac, it is a grave concern.”
“You mentioned that these notes may have been taken in a subsequent conversation with someone else other than a meeting with the company,” said Minor. “Who could those people have been?”
“Well, the most obvious candidate is Bill Ackman.”
After a few hours, the tone of the questions was less aggressive. The attorneys seemed to be running through a checklist of issues. When Tilson got up to leave, one of the attorneys asked him, “Are you really friends with Bill Ackman?”
“The idea seemed to create incredible cognitive dissonance for him,” Tilson recalls.
WHEN ACKMAN RETURNED to the attorney general’s office to talk about Farmer Mac, the tension rose again. The lawyers turned their attention to Ackman’s comments in his research report on Farmer Mac, which suggested the company was funding long-term assets with high levels of short-term debt.
“Where are you getting your numbers to show what percent of the company’s debt is short term?” Pierre-Louis wanted to know. “And how are you so sure the company’s loans are, in fact, long term and illiquid? What would happen to your assumption if, in fact, these various assets—the investment securities, the Farmer Mac-guaranteed securities, and the loans—which you referred to, by definition, as illiquid and long term, were not, in fact . . . ”
“If they were liquid and short term? Then I would be wrong,” said Ackman.
“Then you would be wrong?”
“But they are not liquid and short term; they are illiquid and long term. Look at the filings, the company’s public statements,” Ackman said. “Look at the terms of the farm loans it carries on its books. They’re not one-week loans.”
Ackman’s frustration was boiling over, leading Aaron Marcu to ask to take a break, but Pierre-Louis said no to that. “I am not done asking my questions.”
“We are going to take a break,” Marcu insisted.
Pierre-Louis was not happy. “Despite the fact we are in the middle . . . ”
“I don’t want to take a break,” Ackman interjected.
“We are going to take a break,” Marcu said.
“I don’t want to,” said Ackman.
“All right, fine,” Marcu told him. “This is your life.”
“What else can I tell you?” Ackman asked Pierre-Louis, sounding more composed.
They returned to the business of the 10-Qs and 10-Ks, trying to piece together how Ackman