If a lawsuit filed yesterday by TPG is to be taken at face value, the private equity kingpin has been the subject of a nasty extortion attempt by a vengeful now former employee, Adam Levine. Levine allegedly not only threatened to use his PR clout to bring down the firm, but purloined confidential materials from TPG’s systems and doctored at least one before sending it to a reporter at New York Times’ Dealbook. And TPG further claims it had good reason to be worried because Levine asserted that it was his grand jury testimony, shortly after he left the Bush White House as a member of its communications team, that brought down Scooter Libby.
But the real bombshell in the filing is the way that the New York Times’ Dealbook looks to have thrown Levine, an alleged source, under the bus.
Yves here. Richard Smith is on the trail of what looks to be his biggest international scam find ever, orders of magnitude larger than the usual below the radar single to low double digit million dollar/pound/euro operation that he has ferreted out in the past. And mind you, even though he focuses on the dubious looking inter-corporate relationships and the often evident lack of normal investors protections and business substance, these companies sell hope and glamour to typically credulous retail investors who lose their money and have no recourse.
As we’ve been examining private equity abuses, readers have been incredulous that investors have put up with one-sided, deliberately vague, complex, and/or obfuscatory contracts, unreasonable demands for secrecy, and lack of access to critically important information, such as the financial statements of the portfolio companies that they own. This failure of investors to protect their own interest is particularly troubling given that so many are fiduciaries.
We have another example of this sort of conduct that comes out of an important story in the Wall Street Journal yesterday. Private equity kingpin KKR made what amounted to an admission of guilt by rebating fees that the SEC had found were improperly charged, meaning stolen from the limited partners. We’ve obtained the document that was the foundation of the story and are embedding it at the end of this post. It’s a remarkable example of how cronyistic the relationships are between hapless, captured investors and the general partners who led them by the nose.
We are about to do some document forensic work, so put on your gumshoes!
One of the most striking things about the testimony in the AIG bailout trial is the degree to which Fed officials play fast and loose with the truth. And I don’t mean the normal CEO version of having no memory of events that are inconvenient and very detailed recollections of things that boost their case. I mean statements that are flat out false.
Jamie Dimon seems to think if he can tell his Big Lies long enough, he’ll be believed. In reality, the only ones who will buy his blather are his fellow members of the elite banker looting classes and their hired help.
Dimon’s latest opportunity to play Ministry of Truth came in an analysts’ call last week, when he tried presenting JP Morgan and banks generally as “under assault”. This was so patently ridiculous that it quickly elicited the scorn it deserved.
As readers may recall, Elizabeth Warren blasted the Administration’s nomination of a Lazard executive and senior mergers & acquisitions banker Antonio Weiss to the number three Treasury psot, assistant secretary for domestic finance. Warren’s grounds for objecting to Weiss were straightforward: his experience was no fit for the requirements of his proposed Treasury role. On top of that, he had been involved in and therefore profited from acquisitions called inversions that Treasury opposes because they reduce the taxes paid by the acquirer, which uses the acquired company to move its headquarters to a lower-tax jurisdiction.
Today Weiss withdrew as a candidate for the Treasury position.
A new story by Gretchen Morgenson of the New York Times highlights how the Federal Reserve and the Republicans* are on a full bore campaign to render Dodd Frank a dead letter, with the latest chapter an effort to pass HR 37, a bill that would chip away at key parts of Dodd Frank. But the bigger implications of this campaign is how these efforts serve to limit the Fed’s freedom in implementing monetary policy. In other words, Fed general counsel Scott Alvarez is undermining the authority of his boss, Janet Yellen.
The Republicans have been quick and shameless in using their control of both houses to try to crank up the financial services pork machine into overtime operation. The Democrats at least try to meter out their give-aways over time.
Their plan, as outlined in an important post by Simon Johnson, is to take apart Dodd Frank by dismantling key parts of it under the rubric of “clarifications” or “improvements” and to focus on technical issues that they believe to be over the general public’s head and therefore unlikely to attract interest, much the less ire. However, as Elizabeth Warren demonstrated in the fight last month over the so-called swaps pushout rule, it is possible to reduce many of these issues to their essential element, which is that Wall Street is getting yet another subsidy or back-door bailout.
Today’s example is HR 37, with the Orwellian label “Promoting Job Creation and Reducing Small Business Burdens Act”.
Gretchen Morgenson of the New York Times released an important story over the holiday period on how a mid-sized private equity firm, Freeman Spogli, with $4 billion under management, was found to have made serious violations of its investment agreement. The SEC’s fund examination unit stated that Freeman Spogli, in two of its older funds, FS Equity Partners V (“FS V”)and FS Equity Partners VI (“FS VI”), looked to have repeatedly violated of fee-sharing agreements and to have operated as an unregistered broker-dealer. It asked for Freeman Spogli to make full restitution of the failure to reduce management fees and provide evidence that required reimbursements that looked to have been, um, ignored were actually made.
While Morgenson has done a fine job of presenting the facts of the case, we beg to differ with her as to some of the inferences she draws. She sees this case as a real step forward for investors. We see it as showing how loath both investors and the SEC to take serious action even in the face of clear-cut evidence of misconduct.