Confidence Game - Christine Richard [69]
But Heitmeyer never issued the press release. On a Sunday morning in December 1998, as he sat on the veranda of his house in Admiral’s Cove, a gated community in Jupiter, Florida, he was alerted by the security guard that he had visitors. Three lawyers who had been advising him on the sale of his Capital Asset stake to MBIA were waiting at the gate.
“You can’t go ahead with the press release,” one of the attorneys told him when they’d settled back on the veranda. What if revelations in the press release caused MBIA to get downgraded? The attorney answered his own question: Investors might start liquidating MBIA-insured debt, and pension plans and retirees could lose huge amounts of money on bonds they thought were triple-A rated. The financial markets, only recently recovered from the upheaval caused by the failure of Long Term Capital Management, could be thrown into turmoil again.
They were silent for a few minutes, looking out over the tranquil waterway that winds through Admiral’s Cove and to the nature reserve beyond. “You’re going to go down in the history books,” another of the lawyers suggested. “You’ll be as well known as Lee Harvey Oswald. You’re going to cause a major collapse.”
Then one of the attorneys cautioned that if Heitmeyer did go public, he should have 24-hour security.
“Don’t give me that shit,” Heitmeyer said, laughing off the suggestion. “Nobody is going to kill me.”
But the conversation rattled Heitmeyer more than he realized. Less than a week later, after returning from an evening out, he absentmindedly tried to put his key into the wrong lock on his front door. His first thought was that something had been jammed into the keyhole. He feared someone had been trying to break into the house. Next thing he knew, he had triggered the burglar alarm and alerted the Admiral’s Cove crack security detail. Within minutes, he was surrounded by security guards with snarling German shepherds and guns. He decided to take his lawyers’ advice and drop the idea of the press release.
Seven years after that unsettling evening, Heitmeyer arrived at the SEC to discuss MBIA’s dealings with Capital Asset. “Gentlemen, do you realize the magnitude here?” Heitmeyer began. “This company has tentacles that go all over the place. You can only imagine what happens if they’re downgraded.” Regulators needed to look into the Caulis Negris deal, he told them. The final securitization of Capital Asset’s tax liens was a fraud, he said. “If they can do this, anyone can.”
Heitmeyer’s talk with the SEC lasted into the late afternoon. The SEC attorneys called a car to take him back to the airport. While they waited for it, Heitmeyer told them, “Call me anytime. Call me at 3 o’clock in the morning if there’s something you don’t understand.” But they never called.
Heitmeyer did, however, hear from Ackman, who called to request a copy of the Capital Asset board meeting tape and several other documents. Ackman used them to compose a 29-page letter to the New York attorney general, the SEC, the U.S. attorney’s office, and the New York State Insurance Department.
In light of the problems at Capital Asset, the losses at the Allegheny Health, Education, and Research Foundation (AHERF) were even more dire, Ackman explained in the letter. “Consider that management’s lies [about Capital Asset] were contemporaneous with their public statements and SEC filings that said that the company’s unallocated loss reserves, of approximately $78 million, were sufficient to cover all of the losses from AHERF. It was only 18 days later that the company announced the AHERF retroactive reinsurance transaction,