Friday, August 8, 2008 2 comments ++[ CLICK TO COMMENT ]++

I Hope MBIA Doesn't Do It: Sue William Ackman

Bloomberg reports that MBIA may consider suing William Ackman:

MBIA Inc. said it may sue Bill Ackman, striking back against the hedge fund manager who waged a six-year campaign against the bond insurer and said this year that the company may be insolvent.

MBIA is ``assessing all our options, including litigation'' against Ackman's Pershing Square Capital Management, Chief Executive Officer Jay Brown said on a conference call today after the company reported a $1.7 billion profit. ``MBIA agrees that statements may have violated New York State insurance law.''

Brown's comments came in response to an anonymously submitted e-mail asking if MBIA planned to follow-up on New York State Insurance Superintendent Eric Dinallo's comments in a Financial Times article last month saying that ``rumor mongering'' about a bond insurer's solvency ``crossed a line.''


I know Jay Brown and William Ackman have a long-running battle between themselves, but suing would be really lame and detrimental to the markets. I don't feel that anything William Ackman has done would be considered as an attempt to profit off lies. I think he is right about some things and wrong about many others but he presents his views. I think any legal action against Ackman would be a serious attack on freedom of speech and simply amounts to scapegoating the short-sellers. I really hope MBIA does not pursue any legal action. For what it's worth, this is just an idea and MBIA hasn't indicated that it is planning to do so. Suing short-sellers who openly present their cases--I do not view this as rumour mongering from false facts--is a setback to free markets.

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2 Response to I Hope MBIA Doesn't Do It: Sue William Ackman

August 8, 2008 at 1:21 PM

Siv,

You're spot on here. While I've generally agreed with Ackman, even if he was way off this would be a terrible lawsuit. Of anyone, the short sellers with highly public and detailed analyses are the last people you want to be suing. If you run your business correctly and the business is humming along just fine, then your short seller will lose money. If you're screwing up and you ruin your business, say trying to insure toxic structured finance products, well then you've got very little ground to stand on when his analyses come true. There seems to be very little "mea culpa" coming from the executives of these companies.

contrariandutch
August 8, 2008 at 2:41 PM

Sivaram,

I think it is important to distinguish between two types of speech/action from Ackman (and other high profile bears).

1. Stating that the company will suffer much bigger then expected losses (and backing the statement with analysis). Ackman should imo be entirely free to publish his views as this does no damage. If anything, he does the public a service by providing a reasoned bearish viewpoint that one may or may not agree with.

2. Making unsubstantiated, but widely published, statements that MBIA is insolvent in an effort to whip up panic while his own numbers say otherwise accompanied by political lobbying against the company and presenting "rescue plans" that would conveniently wipe out the common equity while doing nothing for policy holders. Actively damaging the business of a company in order to benefit a short position should not be protected speech, and if the recent FT article by NY insurance regulator Dinallo is correct, it may indeed not be permissible under existing law.

It would be unfortunate if it came to a lawsuit as that could prove chilling on free speech (always a bad thing) but Ackman (and others) invited a hadball response when they stopped merely analysing and publishing their views and started efforts to damage the business.

Meanwhile, MBIA presented excellent numbers and also revived their share buyback program which, given the low sharprice, has enough money left to buy back about 13% of the stock so that is looking good for MBIA shareholders.

And about speech, have you noticed how the financial press treated GAAP results as gospel when they were deeply negative but suddenly sees them as "a mirage" now that they show a profit? Remarkable!

If there were a prize for "most hated company" I do think there would be only two contenders, MBIA and Ambac... Too bad there is no such thing.

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