Confidence Game - Christine Richard [80]
Ackman still cared. Pershing Square continued buying.
During the summer of 2006, Ackman returned to the Securities and Exchange Commission’s (SEC’s) offices in lower Manhattan to meet with the attorneys involved in the MBIA investigation. Roy Katzovicz, a former Wachtell Lipton attorney who had recently been hired as Pershing Square’s chief legal officer, accompanied Ackman. He was in for a surprise.
The group met in a small conference room. Instead of the usual three SEC attorneys, only two were at that meeting. Gerald Russello, the attorney who had been leading the investigation, had taken a job in the general counsel’s office at Bear Stearns. The presentation was going according to plan when Katzovicz noticed that Ackman was getting agitated. “I’ve shown you this fraud. I’ve shown you that fraud,” Ackman said. “What do I have to do? What do I have to prove to you before you take some action?” His face was flushed, his eyes misty.
Katzovicz was dumbfounded. Ackman was giving the SEC attorneys what could only be described as a tongue-lashing. In all his experience as an attorney, he had never seen an SEC lawyer treated with anything but deference. Katzovicz broke out in a cold sweat. He reached out and put his hand on Ackman’s shoulder, hoping to send a message that things might be getting a bit too intense.
“Bill, to be clear, we do not work for you,” replied Steve Rawlings, one of the SEC attorneys. “We appreciate your passion, but this is not a two-way conversation. Do you think the people on this side of the table aren’t sincerely trying to do their best?”
Still, Ackman persisted. “What do I have to do? What does it take?”
Rawlings thought about it for a minute. Then he told Ackman that sometimes the right kind of press coverage had done the trick in the past. “A story on the front page of the Wall Street Journal or the New York Times, especially the New York Times,” Rawlings told him.
How would MBIA ever be held accountable if everyone was looking over their shoulder, waiting for someone else to act? The regulators were waiting for the press. Most of the press was content to wait for regulators to make the MBIA story front-page news. Everyone was waiting for the credit-rating companies to blink, but they were taking comfort from the silence of the regulators.
Ackman regained his composure. “Okay. I have something else for you,” he said and pulled out a trustee report for a collateralized-debt obligation (CDO) called Sagittarius. A trustee report is a kind of report card that shows how a CDO’s assets are performing and how the various layers of protection for each class of CDO investor are holding up. This CDO was running into trouble, and yet MBIA had not taken any reserves against it, Ackman explained. “It’s yet another fraud.”
He passed around copies of the trustee report and then launched into an explanation that Katzovicz describes as “a blizzard of information.” The SEC attorneys flipped back and forth through the pages of the report as they tried to keep up with explanations about defaults, subordination, and super-senior tranches. Soon people all over Wall Street and even in remote corners of the financial world would be doing the same thing.
AFTER OKLAHOMA, I MOVED on to Texas in search of more troubled municipal projects that were somehow maintaining the no-loss illusion. Las Colinas—a Disneyland-inspired business park near the Dallas- Fort Worth International Airport—fit the bill. The development stood incomplete decades after it was first conceived by Ben Carpenter, a wealthy Texan who sought to turn 12,000 acres of ranchland along the Trinity River into a sprawling community of offices, homes, resorts, and golf courses. No expense was spared to fulfill Carpenter’s vision, which was funded with insured, tax-exempt municipal bonds. Canals were dug throughout Las Colinas, and canal boats were imported from Venice