When Bill Ackman was still at Gotham Partners, a hedge fund he co-founded in 1993, he shorted one of the then-top five financial institutions, MBIA.It was 2002 and Ackman believed that MBIA was likely to default, so he set up two new funds, Gotham Credit Partners I and IA, to hold only CDS contracts on MBIA. He would be able to collect at least $2 billion in insurance on the contracts if they defaulted, according to Bloomberg.
Obviously, MBIA did not want a big short play anywhere near their business. Already, Ackman had written his conviction in his latest letter to investors (these often leak). Now he was planning on releasing a an extensive report on MBIA’s potentially having unsubstantiated AAA and Aaa ratings.
So Jay Brown, MBIA’s CEO, called Ackman and set up a meeting. In the meeting, Brown basically tried to scare Ackman out of shorting MBIA.
He told Ackman Gotham’s fallout could be similar to the PR fiasco that ensued when word got around about Enron’s manipulating the California electricity market. He told them MBIA and he had friends in high places.
It wasn’t until the end of the meeting that Brown gave Ackman the ultimate unsportsmanlike snub. Ackman reached out his hand and offered it to Brown for a handshake.
Apparently Brown said, “I don’t think so.”
Read why Ackman’s short made so much sense in Bloomberg.