This happened just after mark-to-market accounting severely reduced the company's capital base. The parent company had decided to separate its structured finance and municipal insurance operations and transferred some assets, which Third Avenue officials believed undermined their investment. Whitman called it a "fraudulent transfer" from one part of the company to the MBIA Illinois subsidiary.
The lawsuit is pending. Third Avenue officials cite its status for not commenting. However, Whitman, in a letter to shareholders, charged that MBIA management has "sullied" its reputation.
Nevertheless, MBIA is "vigorously" defending the lawsuit.
"We have complied with all of the terms of their [Third Avenue] investment," MBIA CEO Jay Brown wrote in a public comment.
Still, despite the traumas of MBIA and last year's subprime meltdown, Third Avenue Value so far this year is bouncing back, outdistancing the indexes. The flagship fund was up some 29.5% for the year through August 5.
Once again it was easily beating its benchmarks, the S&P 500 and MSCI AC World Index, by between 3% and 6% and doing better than most of the funds in its category.
Two of the other funds were also outdistancing the indexes this year by a country mile, although International Value was slightly lagging its index in the first half of the year.
The prospect of a protracted bear market, say Third Avenue officials, should mean myriad opportunities to invest in historically good companies that are available for a discount.
These will be companies that are temporarily going through hard times or may be in bankruptcy. Who are they? Third Avenue Management officials won't say. However, they are watching them closely.
"We are licking our chops about this market," Barse says.