Confidence Game - Christine Richard [68]
I pitched the idea of the story to the Wall Street Journal, which sometimes picked up my stories from Dow Jones Newswires, and an editor seemed interested. The first and most obvious question was, what did “Caulis Negris” mean? Professor Frank Mantello, chair of the Greek and Latin Department at the Catholic University of America, responded to my e-mail query: “With ‘caulis,’ you may have one of the inflected forms of ‘caulae.’ The Latin adjective ‘niger, nigra, nigrum’ means ‘black,’ or ‘dark.’ In combination, ‘caulae nigrae’ (black hole) would be the correct nominative case form, and the one that might be used in an English context.” Even if technically incorrect, it was close enough.
I also contacted everyone on MBIA’s audit committee at the time of the Caulis Negris transaction and asked: “As a member of MBIA’s audit committee, perhaps you can shed some light for me on how well informed MBIA’s board was kept regarding the company’s involvement with Capital Asset?”
Only one responded: James Lebenthal, who headed up the family-owned municipal bond brokerage Lebenthal & Company. “I heard about growing losses,” he said, “but I can’t speak for the committee.”
“But wasn’t this a big topic?” I asked. “The company faced a huge liability. Weren’t there serious concerns about the solvency of the holding company? About shifting the liability to the insurance company? What about the name Caulis Negris? Didn’t that raise concerns?”
“I can understand giving unpleasant subjects unpleasant names, but I don’t know if you go to jail for that,” he responded.
My final call was to MBIA. The company had dodged my questions on Capital Asset for days. But when Michael Ballinger realized that the story would appear in the Wall Street Journal and a Journal reporter, Mark Whitehouse, was also working on the story, he arranged a call.
Ballinger put the company’s general counsel and chief financial officer on the phone. Whitehouse and I were given only a few minutes to speak with MBIA’s chief financial officer Nicholas Ferreri while MBIA’s general counsel listened in. Ferreri assured us that the transaction was properly disclosed and that the company couldn’t have foreseen that the bonds would create losses for their insurance company. When I made one last attempt to ask a question, Ballinger insisted that the executives were late for another meeting. “Wait, there’s something I still don’t understand,” I said.
But Ferreri cut me off: “We know you don’t understand, Christine.” The comment hung in the air for a few seconds, and I wondered if it would give Mark Whitehouse pause. The story was complex. It involved events going back seven years. Heitmeyer had been involved in a legal dispute with MBIA. The facts were indisputable, and the story ran.
The article described how a former business partner had come forward with a videotape showing that MBIA, already under investigation for improper accounting in 1998, failed to disclose additional risks it faced that year. Those risks had been transferred to MBIA’s insurance company using a transaction called “Black Hole.”
Yet MBIA’s stock ended the day up nearly $1 at $55.74. It was the type of story one would expect to cause a drop in the share price. Or, if the market dismissed the story as untrue or irrelevant, the stock price should have been unchanged. But a sharp rise?
MBIA later disclosed that it bought 6 million shares during the first half of the year. I do not know if MBIA bought shares the day my story ran, but the shares had a habit of rising almost anytime there was negative news on the company.
The rise in the shares certainly won me no points with my editors. Even Ackman cooled on speaking with me for a while. For financial reporters, the stock market is the instant arbiter of good journalism.
Nevertheless,