Short Seller Sinks Teeth Into Insurer

Im going to try to give shorter answers, said William Ackman, with an awkward smile.

William Ackman’s hedge fund has over $6 billion in assets.

It was Wednesday, and Mr. Ackman, a 41-year-old hedge fund manager, was in the middle of a surprisingly well-attended news conference. He had just finished an hourlong presentation at an investment conference in Midtown Manhattan, and if truth be told, the only reason it had been contained to an hour is that Mr. Ackman had rushed through it, burying his audience in a blizzard of facts, while flipping through an astonishing 145 slides.

If the presentation and ensuing news conference proved anything, it was that Mr. Ackman was incapable of giving short answers. Then again, thats usually the way it is with obsessives.

Mr. Ackman is an emerging star in the shareholder activist division of the hedge fund big leagues. In the last few years, he has taken aim at McDonalds, Wendys and, most recently, Target, usually emerging from these tugs of war with profits for his hedge fund.

His firm, Pershing Square Capital, which he founded in 2004, now bulges with over $6 billion in assets. If I think Im right, I can be the most persistent and most relentless person in America, he says. But for sheer, obsessive doggedness, nothing he has ever done can compare with his pursuit of a company called MBIA Inc. In fact, I dont think Ive ever seen a fund manager grab a company by the tail and simply not let go the way Mr. Ackman has done with this once-obscure holding company, whose main subsidiary, MBIA Insurance, is the nations largest bond insurer.

Though he says he is not typically a short seller, Mr. Ackman has been shorting MBIAs stock since 2002. He began his assault with a highly unusual move for a short seller — he posted a lengthy report, laying out his case against MBIA, on the Internet, for all to see. (I believe in free speech, he says now, by way of explanation.)

He purchased credit default swaps as a way to profit in the event of a bankruptcy by the holding company. He talked to the S.E.C., the New York State Insurance Commission and the New York attorney generals office about the company. (He also claims that MBIA was behind a short-lived investigation by the attorney generals office aimed at him. MBIA declined to comment on the accusation.)

And thats not all. He held hours of meetings with analysts at Moodys and Standard & Poors, the two big bond rating agencies, trying to persuade them to lower MBIAs credit rating. He once buttonholed the chief executive of PriceWaterhouseCoopers, MBIAs accountant, at a charity dinner, and sent him his report. He has made allegations of accounting shenanigans. He has talked to reporters and analysts, and given presentations like the one he gave this week. All the while, he has continued to dig into the company, searching for dirt he could use against it.

For most of that time, his efforts have come to naught. Despite the fact that MBIA, at one point, had to restate five years of earnings — after being tripped up on an accounting problem that Mr. Ackman brought to light — its stock continued to do well. The analysts and rating agencies continued to side with the company. Indeed, the more dogged Mr. Ackman became, the more the company seemed impervious to his slings and arrows.

And then came the subprime crisis, which in recent months has wreaked havoc on MBIAs stock price, and raised questions about its business model. Sean Egan, the co-founder of Egan-Jones, an independent bond rater, believes that MBIA and the other big bond insurers will be saddled with billions of dollars in losses as collateralized debt obligations stuffed with subprime debt — so-called C.D.O.s — they have insured continue to go south. So does Mr. Ackman, who believes that as losses pile up and the bond insurer has to pay them off, it will have to shut off the supply of money it sends to the holding company.

At the investor presentation he held this week, Mr. Ackman predicted that the holding company could be bankrupt by February, which MBIA says is preposterous. (MBIA does not expect material losses in its C.D.O.s because they were structured with high levels of subordination in excess of triple-A levels and other structural protections, said its chief financial officer, Chuck Chaplin.) Mr. Ackman now stands to make, personally, hundreds of millions of dollars on his bet against MBIA — which he says he will donate to his charitable foundation. If you sense some defensiveness in that gesture, well, so do I. The question — and its the one that always seems to crop up when short sellers are involved — is whether Mr. Ackmans single-minded pursuit of MBIA is something he should feel defensive about.

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