Battered Loaner Blames The Times for its Collapse

Business reporters often get their best information on companies from short-sellers, the investors looking to make money on a stock’s decline. Unlike most analysts,who have to maintain a relationship with the companies they cover, short-sellers have no such attachments. They hunt for a stock’s weaknesses-and they put their money behind their views.

But executives at a small, government-sponsored enterprise called the Federal Agricultural Mortgage Corporation-known as”Farmer Mac”-say one New York Times reporter followed one of their company’s short-sellers to extremes. They claim that The Times’ coverage has been unfairly influenced, helping to drive the company’s stock price down.

Now Farmer Mac is swinging back at The Times .

“We don’t expect that everybody has the same view of Farmer Mac,” Farmer Mac chief executive Henry Edelman told Off the Record. “But when we see a symbiotic relationship between people who have a particular point of view and a journalist, that gives us concern.”

The Times has strongly defended its coverage of Farmer Mac. But executives at the company remain angry, pointing out that since business reporter Alison Leigh Cowan began writing about them in April, Farmer Mac’s stock price has fallen by half. The company’s accounting and business practices have come under fire from the General Accounting Office, the Farm Credit Administration and the U.S. Senate. Currently, almost half of Farmer Mac’s 8.5 million shares available on the New York Stock Exchange have been sold short by investors who expect the stock to fall even further.

Historically, news coverage of Farmer Mac-a company chartered by Congress in 1987 to assist farmers and ranchers-has been confined to trade magazines like Ag Lender and National Mortgage News .

But that ended on April 28, when The Times published a story by Ms. Cowan entitled “Big City Paydays at ‘Farmer Mac.’” Ms. Cowan wrote that Farmer Mac was “one sweet honey pot” of an organization, in which Mr. Edelman and his associates took home big bonuses while the company foundered on bigger debts and dubious lending. The day after the report, Farmer Mac’s stock price plunged from $43.99 to $39.50.

Ms. Cowan’s report presented a stark contrast to the “strong buy” and “buy” ratings that UBS Warburg and Robertson Stephens analysts, respectively, gave the company’s stock. Despite The Times’ report, Farmer Mac announced on June 18 that it had surpassed Wall Street estimates, with second-quarter earnings rising 50 percent.

That day, UBS Warburg’s analyst, Gary Gordon, wrote that “Farmer Mac’s market share … will grow at about 1% annually …. ” He noted that “interest rate risk remains low,” “credit risk remains low,” and “capital level remains strong.”

For these reasons, he valued the stock at $60 a share. But the impact of the Times story lingered, company officials claim. The day of Mr. Gordon’s report, Farmer Mac’s stock price stood at $22.30.

With everything but the stock price apparently going the company’s way, sources close to Farmer Mac have questioned the origins of Ms. Cowan’s piece.

According to sources, Ms. Cowan first approached the company about doing a story on April 11. In the interviews that followed, sources said, Ms. Cowan expressed concerns about the company’s substantial short-term debt, its failure to create a secondary market for agricultural loans, and its sale of supposedly risky “long-term standby purchase commitments” (LTSPC’s)- insurance for farm lenders against bad loans.

A source said that executives considered these questions strange, given the company’s government-mandated role.

“She had been fed all this information about what a troubled company Farmer Mac was,” one source said. “But she was just lost on the subject.”

What made Farmer Mac executives particularly suspicious, sources said, was that they had heard questions very similar to Ms. Cowan’s only days before from a trio of hedge fund managers, including Gotham Partners co-manager Bill Ackman. Mr. Ackman is a 36-year-old Harvard M.B.A., the son of real-estate mogul Larry Ackman and a rising force in Democratic Party politics. His investors now include New Republic publisher Marty Peretz.

Mr. Ackman has a reputation for aggressive tactics. In 1998, he helped orchestrate the first successful hostile takeover of a real-estate investment trust, First Union, based in Cleveland. In April, Mr. Ackman won a long court battle over his investment tactics in Hallwood, another REIT he allegedly hoped to take over-and, Hallwood alleged, liquidate.

Recently, Mr. Ackman set his sights on Farmer Mac. By the time he attended a meeting with company executives on April 8, sources said, Mr. Ackman had already taken a “short” position.

Farmer Mac executives believe that Mr. Ackman spoke to Ms. Cowan prior to her interviews with Farmer Mac executives, pointing out its supposed weaknesses.

“She was asking questions like someone who had been handed a script,” said a source close to the company.

Mr. Edelman was more blunt. He charged that The Times ‘ “coverage enhances the economic position of one particular party.”

Ms. Cowan’s April 28 article did not mention Gotham Partners. But in her story, she raised many of the same concerns that, according to sources, Mr. Ackman expressed in his April 8 encounter with Farmer Mac executives.

The company decided to take action. On April 29, Farmer Mac asked the Securities and Exchange Commission to investigate Ms. Cowan herself, and her conversations with short-sellers. On April 30, The Times released a statement that said: “We are confident of the completeness, fairness and accuracy of our reporting.”

Ms. Cowan and Times business editor Glenn Kramon did not return calls from Off the Record seeking interviews. A spokesperson for The Times, in response to questions from Off the Record, said: “We believe our past comments cover the subject fully, and we don’t think it’s appropriate to discuss the internals of our reporting process in any greater detail.”

Mr. Ackman eventually made his own views public in a May 23 Gotham Partners report on Farmer Mac entitled “Buying the Farm,” which-in addition to citing Ms. Cowan’s article four times and raising many of the same concerns-was similar to the article in a number of ways.

For instance, Ms. Cowan had written that so-called LTSPC’s “could just as easily be called ‘put options,’ because they give Farmer Mac’s customers the right to ‘put back’ bad loans to Farmer Mac.” The same comparison was made in “Buying the Farm”: “We believe [the LTSPC] is, in substance, a put option,” the report said.

The day after Mr. Ackman’s report was published, Farmer Mac stock dropped from $37.20 to $32.25 a share.

On May 28, Ms. Cowan followed up in The Times with an article in which former associates of Mr. Edelman aired complaints about the executive’s leadership ability. Over the next two days, Farmer Mac’s share prices dropped from $30 to $25.60.

In the course of her reporting, Ms. Cowan called, among others, John Botti, managing director of Botti Brown Asset Management, a San Francisco–based investment group that has long-term investments in Farmer Mac. According to Mr. Botti, Ms. Cowan called “so she could learn and listen,” but soon the two were debating the company’s finances.

“There is no doubt in my mind [ The Times had] been getting all of their information from Gotham,” Mr. Botti told Off the Record. “It degenerated into her saying, ‘How could you own this stock after what I’ve told you about this company?’ She would not listen to any reason-she just mimicked back what Gotham was saying.”

Ms. Cowan also spoke with Andy Lowrey, the chief executive of AgFirst Farm Credit Bank, which does substantial business with Farmer Mac. Mr. Lowrey said that Ms. Cowan asked him “if we made any quid pro quo deals for their preferred stock.” He said he told her no.

Then, Mr. Lowrey said, Ms. Cowan “implied that there were real asset-quality problems with Farmer Mac.” He disagreed: “They are very high-quality assets,” Mr. Lowrey told Off the Record. “I just didn’t agree with some of the accusations that were made there.”

Neither the interview with Mr. Botti nor the interview with Mr. Lowrey appeared in any of Ms. Cowan’s articles.

Then, on June 3, Ms. Cowan wrote in The Times that “Farmer Mac’s management held a conference call [on May 31] to reassure Wall Street.” It did not mention Farmer Mac’s investigation request to the S.E.C.

However, in the article-for the first and only time-Ms. Cowan did mention the Gotham report as well as Mr. Ackman, describing him as “an investor whose questions displeased” Mr. Edelman in an April meeting. She also allowed that Mr. Ackman had taken “a short position on the stock.”

Ms. Cowan’s piece also included an anecdote about a disillusioned investor named Guy Spier, a manager of the New York–based Aquamarine hedge fund. Mr. Spier, she wrote, had once been bullish on Farmer Mac, but felt let down by Mr. Edelman and was now selling it short-another example of a Farmer Mac dissident.

Farmer Mac executives were irritated that Ms. Cowan neglected to note it was Mr. Spier himself who invited Mr. Ackman to the April 8 meeting with executives. Mr. Spier and Mr. Ackman knew one another; they had been classmates at Harvard.

On June 9, Ms. Cowan revisited Farmer Mac. This time, she focused on the company’s debt rating. Entitled “Ratings for Unrated Farmer Mac Create Confusion,” her article sought to debunk the impression that Farmer Mac’s debt had received the highest debt rating from Moody’s Investors Service.

The company, Ms. Cowan revealed, was in fact not rated. She didn’t mention that this issue had been a central point of the Gotham report, issued 17 days before.

Eleven days later, Ms. Cowan wrote a story that faulted Farmer Mac for carrying too little reserve capital-a criticism also raised by Gotham Partners.

On June 25, Ms. Cowan reported that the F.C.A. was planning an investigation into Farmer Mac, largely because of allegations of impropriety raised in her Times articles. She also mentioned that Farmer Mac had “called on the New York Stock Exchange to investigate why its shares had lost one-third of their value.”

But Ms. Cowan didn’t mention that Farmer Mac had largely blamed this drop on the “possibly improper trading activities of short-sellers” whose vitriol had filtered into Ms. Cowan’s articles.

That day, Farmer Mac share prices dropped by $5.14.

On July 12, Ms. Cowan produced her most recent dispatch on Farmer Mac. That article, headed “Bill Seeks Openness at Fannie Mae and Freddie Mac,” spent most of its space on Farmer Mac. Gotham Partners had released a follow-up report on July 2, which seemed to inspire some of Ms. Cowan’s new criticisms of Farmer Mac-specifically, that the company was keeping information from investors: “The most important area … concerns disclosure of Farmer Mac’s use of … a type of derivative.” Nine days before, Gotham had written: “Absence of even the most basic disclosure on its derivatives is a striking omission.”

Mr. Ackman declined to go into the matter. He did tell Off the Record that he thought Farmer Mac’s attack on Gotham was unjustified: “When you’re unhappy with the facts, shoot the messenger. You can usually tell the quality of a short sale based on how vociferously the management blames the decline in the stock price on short-sellers.”

Nor did Mr. Ackman have a problem with Ms. Cowan’s reporting. Said Mr. Ackman: “I think The Times ‘ coverage of Farmer Mac has been excellent.”