Confidence Game - Christine Richard [59]
In the end, Icahn says he made $40 million to $50 million by sticking with the MBIA short position, but it took a long time. “Look, I read the report. I found it interesting. I spent the whole evening reading the report, as I remember,” Icahn says.
But the schmuck insurance has yet to be resolved. Ackman sued Icahn over the Hallwood deal in 2004, and it was still being litigated five years later. In June 2009, the judge in the Hallwood case ordered Icahn to post a $7.6 million bond following a judgment in Ackman’s favor while Icahn appealed the ruling.
“He’s a bit of a cry baby,” Icahn says. “The irony is we could have been friends.”
ACKMAN CONTINUED TO BUILD his investment team in the spring of 2004, when, ever on the lookout for talent, he met Jonathan Bernstein. Bernstein, a recent college graduate, was getting into a taxi on Park Avenue on a rainy evening, when he realized he’d jumped the queue in front of Ackman. “Sorry. This is your cab,” Bernstein said. Ackman suggested they share it.
“I don’t think I’d ever shared a taxi with someone I didn’t know before,” Bernstein remembers.
They got stuck in traffic, and Ackman asked Bernstein what he did for a living. Bernstein explained that he was about to accept a position working at Merrill Lynch analyzing financial institutions. They talked about banks and about Roger Lowenstein’s biography of Warren Buffett, which both had recently read. Then Ackman asked Bernstein if he was single.
“I was a little taken aback,” Bernstein says. “Here I am, trapped in the back of this taxi with this gray-haired man asking me if I’m single.” It turned out that Bernstein was about to get invited to a party that Ackman and his wife throw every year for their single friends and relatives.
Bernstein accepted the invitation. Although he didn’t find a romantic interest, he did land a job with Pershing Square, becoming the third member of its investment team.
Over at MBIA, changes were under way. Gary Dunton was made the company’s chief executive officer while Jay Brown remained chairman of the board. Dunton, who graduated from Harvard Business School in the 1980s, had worked at Aetna Life & Casualty Company and USF&G Insurance before joining MBIA in 1998.
Business at MBIA was booming. In February 2004, MBIA reported a profit of $182 million for the fourth quarter of 2003, a 50 percent jump. The banner results were driven in part by a rise in demand for insurance on collateralized-debt obligations (CDOs).
BY THE SUMMER OF 2004, Ackman was losing patience with the SEC. Months had gone by since his meeting with the SEC staffers, and he hadn’t heard back from them. Marty Peretz, the New Republic editor-in-chief and Ackman’s longtime friend and investor, offered to write to SEC Chairman William Donaldson, with whom he was friendly.
“Dear Bill, I am writing to bring to your attention a company that is deserving of substantial SEC scrutiny that to date has appeared to escape the SEC’s normally careful review process,” Peretz wrote in a July 2004 letter to Donaldson. Peretz described Ackman’s two-year effort to publicize problems at MBIA, including the initial report, the hiring of forensic accounting experts, Ackman and Siefert’s 33-page letter to the SEC, and the five-hour presentation to a group of SEC officials in February 2004.
“It is Mr. Ackman’s counsel’s view that the SEC has not pursued Mr. Ackman’s and [accounting firm] Kroll’s allegations seriously, and may have dropped the matter entirely,” Peretz wrote.
He continued: Ackman’s research on Farmer Mac led to a GAO report recommending various changes to improve the company’s liquidity, reduce its off-balance-sheet risk, and protect U.S. taxpayers from loss.
Whistleblowers should be taken seriously, even if they have something to gain from drawing attention to problems at a company, he wrote. “If Ackman’s research on MBIA proves correct, the