Confidence Game - Christine Richard [56]
If you knew where to look, new things were happening all the time. Ackman kept constant tabs on MBIA’s Web site, particularly on a section where MBIA addressed frequently asked questions. Quarter by quarter and even day by day, the disclosure changed. Yet MBIA always sought to give the impression that nothing new ever happened in its business. MBIA was immune to surprises.
After every MBIA earnings call or press release, my phone would inevitably ring. “It’s Bill!” Ackman would announce, with a slightly accusatory tone that seemed to say “There’s something going on and you’re missing it! But, rest assured, I’ve called to fill you in.”
Aaron Marcu remembers the phone ringing one August evening in 2003. It was Ackman—on vacation in Italy—wanting to chat with Marcu about an article he’d come across in a bankruptcy law journal that he thought might relate to MBIA’s involvement in the credit-default-swap market.
“Bill, it’s 9 p.m. here,” Marcu told him. “It must be 3 o’clock in the morning where you are.”
“This is incredible stuff,” Ackman said. “I can’t put it down.”
Here’s a person, Marcu says, who seems to have gotten quite a few things in life right. “He’s tall, good looking, rich. He has a great family, lives in an incredible apartment,” Marcu says. “So what is he doing reading a bankruptcy treatise at 3 a.m. in the morning when he’s on vacation in Tuscany?”
If MBIA executives had hoped that the investigation would cause Ackman to focus less on their company, they were wrong. With Gotham’s main funds being wound down, Ackman was left with one active investment on which to concentrate his full attention—the short position in MBIA.
BY THE FALL OF 2003, Ackman was finalizing plans to launch a new investment firm with a $50 million commitment from Leucadia National Corporation. After Ackman’s surprise encounter with the company’s chairman Ian Cumming at the swimming pool in Las Ventanas in February 2003, the pair had lunch and discussed the idea of Leucadia staking Ackman’s next venture. Under the deal they struck, Leucadia and Ackman would be partners in a newly created fund called Pershing Square, LP. Leucadia put up $50 million, and Ackman agreed not to take on new investors for two years.
Ackman began looking for analysts to build the fund’s investment team. Scott Ferguson, a recent Harvard Business School graduate, began working out of Ackman’s office on a trial run that fall. His assignments included analyzing Eastman Kodak Company and trying to get into MBIA’s investor-day meeting up in Armonk.
Ferguson drove to MBIA headquarters, hoping to gain admittance to the meeting. “I didn’t know what the hell the company did,” Ferguson remembers. He figured sitting through a day of presentations would be a good way to find out. He made the drive up to Westchester on an October morning.
“I told them I was a Harvard Business School student doing some work on the company,” Ferguson recalls. A woman sitting at a table outside the auditorium at MBIA’s office building in Armonk asked Ferguson if his name was on the list. He said no, and after disappearing inside for a few minutes, she returned and told him he couldn’t come in.
“I was just an innocuous-looking guy in a suit,” shrugs Ferguson. Though he was turned away, he got the job with Ackman anyway. It wasn’t the last time Ferguson would be frustrated by Ackman’s interest in MBIA. Shorting an arcane financial institution wasn’t the sort of investment one learned about in business school, Ferguson says. And the position created hostility. But Ackman had no intention of dropping this one.
The fall of 2003 also brought vindication for Ackman. In September, a unanimous five-judge panel of the Appellate Division of the Supreme Court of New York overturned Judge Ramos’s decision to halt First Union’s merger with Gotham Golf, calling Ramos’s decision in the case “disingenuous.”
The ruling came too late to save the Gotham