A tip of The Audit’s green eyeshade to The New York Times for fighting to get this look inside the private-equity “club deals” of the bubble era.
The paper brought a motion two months ago to unseal a lawsuit that alleges private-equity firms used those club deals to collude to drive down deal prices. The PE lawyers had gotten the publicly filed complaint heavily redacted to remove all the best parts—presumably to avoid the very kind of press focus the NYT is bringing to the case.
Yesterday the paper reported that the judge ordered the full complaint unsealed, and we get a look at what Blackstone, KKR, Bain and the rest didn’t want us to see: damning emails between top executives of competing firms.
In this one, Blackstone president Hamilton James talks about his firm’s Freescale Semiconductor deal:
“Henry Kravis just called to say congratulations and that they were standing down because he had told me before they would not jump a signed deal of ours,” Mr. James wrote.
Two days later, Mr. James sent an e-mail to Mr. Kravis’s cousin and co-founder, George R. Roberts. “We would much rather work with you guys than against you,” Mr. James wrote. “Together we can be unstoppable but in opposition we can cost each other a lot of money.”
“Agreed,” responded Mr. Roberts.
Hamilton James is a big-time Obama donor who hosted a $36,000 a head fundraiser with the president earlier this year at his Park Avenue pad. Some thought he might be in line to replace Tim Geithner as Treasury Secretary.
I hate to quibble with such a good piece of work, but the NYT doesn’t note that James is a big Obama donor, a miss that would look a lot better if it didn’t spent five graphs on Mitt Romney.
The Times, again, writes about Mitt Romney’s very tenuous connection to this burgeoning scandal, reporting that one plaintiff’s lawyer says “he clearly profited” from the collusion. That’s true, but it doesn’t mean anything since there’s no reason to believe Romney had any role in the deals, much less the collusion over them. Anyone with a mutual fund in their 401(k) profits off their investments’ bad behavior. We don’t hold them accountable for that, and Romney shouldn’t be, either.
There’s another big name in these emails, though, too: General Motors CEO who at the time was a Carlyle Group partner. Here he writes to colleagues after Henry Kravis’s KKR asked its competitors to ““step down on HCA,” which it bought in a $32 billion LBO.
“All we can do is do [u]nto others as we want them to do unto us,” Jonathan Coslet, a TPG executive, wrote. “It will pay off in the long run even though it feels bad in the short run.”
These look like smoking guns to me, a view that’s backed up by the private equity flacks’ weak defenses quoted in the piece. I’d assume that the Department of Justice’s antitrust people are following this, and it would be good to see some reporting on that.
Great. Now, when is someone going to throw the antitrust book at that banking cartel that for decades has been counterfeiting "money" and robbing Americans of more than just equity? (Oh, wait... the govt won't chop down its own money tree... never mind.)
#1 Posted by Dan A., CJR on Fri 12 Oct 2012 at 11:23 AM
Speaking of Henry Kravis, the profile of Glen "The hack responsible for the Bush Tax Cuts and a bunch of silly stuff for Romney" in the NYTimes mentions him and Columbia Business School.
Dearie.
http://www.nytimes.com/2012/10/14/business/glenn-hubbard-is-romneys-go-to-economist.html
"[I]n Mr. Hubbard’s case, some of his amply compensated work takes policy stands that buttress the viewpoints of the corporate interests that are paying him.
That’s been true of the mutual fund industry, which has paid him more than $1 million over the years. In an academic paper and a book, he took a strong position favoring the industry’s approach to fees, which critics say hurt everyday investors. He was paid what he called an honorarium of $150,000 for the academic paper by the insurance arm of the Investment Company Institute, the mutual fund industry trade and lobbying group.
“Dean Hubbard is a mercenary,” says John P. Freeman, emeritus professor of business and professional ethics at the University of South Carolina School of Law, who has accused the mutual fund industry of profiteering, “out to protect fund managers who are taking advantage of investors.”...
He serves on three corporate boards, which collectively paid him $785,000 last year. One of those is the board of Kohlberg Kravis Roberts, the private equity firm of which Henry R. Kravis was a co-founder. In 2010, Mr. Kravis pledged $100 million to the Columbia Business School, his alma mater, for the construction of a new building. It was the largest gift in the school’s history...
In absence of any official word, faculty members have been left to speculate about why Mr. Hubbard nearly lost his job. Nor does anyone know why Mr. Bollinger decided to reappoint him, though current and former faculty members have a pet theory: that Mr. Bollinger was worried about losing the financial support of Mr. Hubbard’s friends, most notably Mr. Kravis.
As several faculty members pointed out, a little acidly, Mr. Hubbard had helped to cut taxes for people like Mr. Kravis. “They owed him,” one professor said...
IN conversations with Columbia Business School faculty members, you hear occasional hints of irritation with Mr. Hubbard over his cameo in “Inside Job” and the embarrassment they say it visited on the school. Part of the reason is that the fallout led to new and more stringent conflict-of-interest and disclosure rules — and that those forced many professors to drop lucrative side projects. It’s as though Mr. Hubbard was caught overeating, so everyone had to go on a diet."
More in a sec..
#2 Posted by Thimbles, CJR on Mon 15 Oct 2012 at 04:26 AM
"Mr. Hubbard earned much more making the same pro-industry point in several court appearances, as an expert witness on behalf of corporations and mutual fund interests. One of those cases was a lawsuit by employees of ABB, a power generation products manufacturer, against the company and Fidelity, the mutual fund giant, over accusations that ABB paid excessive fees, at the employees’ expense, to manage the company’s 401(k) plan...
During a cross-examination, Mr. Hubbard said Fidelity had paid him $420,000 for his participation in the case. About $200,000 of that was direct billings — he charged $1,200 an hour — and the rest came from a company called the Analysis Group, which provides teams of experts for research projects. Mr. Hubbard earned 7.5 percent of the amount that Analysis Group researchers charged Fidelity.
A federal judge in Missouri ultimately found that ABB and Fidelity had breached a number of their fiduciary duties and in March of this year ordered ABB to pay $35.2 million and Fidelity to pay $1.7 million for losses.
But Professor Freeman at the University of South Carolina says he believes that Mr. Hubbard’s scholarship on this subject — particularly the paper he co-wrote — was shoddy and did genuine damage.
“What Hubbard and Coates have done is pour holy water on the Investment Company Institute’s hopelessly stupid defense of fees charged by mutual funds,” he said in a telephone interview. That Mr. Hubbard took money for the paper casts doubts on his motives, Professor Freeman says."
Wow. That nexus between academics and corporations? Still pretty bad, still pretty corrupt. It's something we really need to keep an eye on because we see how universities are being subverted by money especially as the state funds to support them are cut.
The state basically cuts the taxes of the rich so the rich can use the capital, which was once given to institutions on behalf of the state, to attach conditions and demands to the institution.
Don't think that this is not by design. Since the Powell memo first told us that:
"The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians."
and that:
"One of the bewildering paradoxes of our time is the extent to which the enterprise system tolerates, if not participates in, its own destruction.
The campuses from which much of the criticism emanates are supported by (i) tax funds generated largely from American business, and (ii) contributions from capital funds controlled or generated by American business. The boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system."
The right has sought to break the intellectual challenge of public universities for decades while attempting to change the academic climate into one that is 'for-profit' like the University of Phoenix.
This is something to watch for, anyways, even at Columbia.
#3 Posted by Thimbles, CJR on Mon 15 Oct 2012 at 04:51 AM
Interesting stuff in that 'aggrieved billionaires' newyorker link you had, aside from the whole lack of self consciousness requires to say stuff like "Obama's heated rhetoric towards us? Why he's just like Hitler!":
http://www.newyorker.com/reporting/2012/10/08/121008fa_fact_freeland?currentPage=all
"Many billionaires have come to view charity as privatized taxation, paid at a level they determine, and to organizations they choose. “All things being equal, you’d rather have control of the money than the government,” Cooperman said. “Even if you’re giving it away, you’d rather give it away the way you want to give it away rather than the way the government gives it away...
Foster Friess, a retired mutual-fund investor from Wyoming... expounded on this view in a video interview in February. “People don’t realize how wealthy people self-tax,” he said. “If you have a certain cause, an art museum or a symphony, and you want to support it, it would be nice if you had the choice.” The middle class anonymously and nervously pays its thirty-five per cent to the I.R.S., while the super-rich pay fourteen per cent, and are then praised for giving five or ten per cent more to pet causes, often with the perk of having their names engraved above the door."
It all ties back to Kravis, Hubbard, and the reduction of state support for academia. The basic functions of government are becoming philanthropic enterprises in which the rich, not the people, have controlling interest. As I said here:
http://www.cjr.org/the_audit/audit_notes_no_more_daily_in_n.php#comment-60828
"One thing that we also really have to question in this age of Infrastructure Trusts and Sovereign Wealth Funds is what is the legtimimate role of government in our public lives?
Because it seems that we're raising money so that private interests can build and control our formerly public infrastructure (water projects and the like), since the government cannot raise the required funds through taxes or bonds"
Never mind the games LIBOR wise and the anti-competitive crap the banks pulled with each other to extract the maximum amount out of municipalities, states, and the public when they needed to finance. It's almost like the public's getting pushed into the arms of private power, no?
#4 Posted by Thimbles, CJR on Mon 15 Oct 2012 at 03:35 PM