Bain’s “Commitment to Transparency” Canard

By Nanea, a private equity insider

I’ll be having much more to say later about the Bain documents posted on Gawker.

In the meantime, I would like to point out the utterly misleading nature of the statement issued by Bain Capital in response to the documents’ release. The Bain Capital press release, which was quoted by many news outlets, stated:

The unauthorized disclosure of a number of confidential fund financial statements is unfortunate. Our fund financials are routinely prepared by auditors and demonstrate a commitment to transparency with our investors and regulators, and compliance with all laws

First, the Bain statement incorrectly states that “Our fund financials are routinely prepared by auditors…” In reality, auditors–especially a big one like PriceWaterhouse Coopers–absolutely refuse to prepare financial statements for any clients in any industry that I am aware of. Instead, for liability reasons, they explicitly confine their activity to auditing the statements prepared by their clients and expressing an opinion about them based on the audit. PwC states its role clearly in its cover letter, on PwC letterhead, accompanying all the Bain financial statements it audited:

These financial statements are the responsibility of the General Partner. Our responsibility is to express an opinion on these financial statements based on our audit.

PwC is taking pains to clearly disavow a role in preparing the financial statements because PwC knows that any financial statements, despite being audited, may be materially inaccurate. Bain’s statement yesterday, on the other hand, is trying to convince the public that the statements must be accurate because, Bain falsely claims, the auditors prepared them. One wonders whether PwC has lodged a private objection today with Bain for this false statement, or whether the firm’s professional standards group is evaluating whether they need to in some way correct the public record.

Second, Bain’s statement talks about the documents evincing “… a commitment to transparency with our investors and regulators”. With respect to the regulators, none of these documents were ever filed with regulators. Unlike the financial statements of publicly traded companies, private equity fund financial statements are not filed with the SEC. Similarly, “registered” securities offerings are filed with the SEC and must be approved by it. By contrast Bain’s offerings, as private equity securities offerings (the materials used to solicit investors in the funds), are “unregistered”, meaning that they are not submitted to the SEC. The IRS does not receive these documents routinely, nor do banking regulators or any other financial regulator I can think of.

Ultimately, there doesn’t appear to be much about the Bain statement that is accurate.

Yves here. I called Bain Capital’s media relations department and raised the question of the accuracy of their statement, specifically the effort to give the impression that the documents released by Gawker were disclosed to regulators. I was told that “these funds are SEC registered funds.” I was gobsmacked that he’d try that line. See details below, emphasis mine, from the ADV Part 2 on file with the SEC (this is part of the registration materials for the parent entity, which is registered):

Item 4. Advisory Business

Bain Capital Partners, a Delaware limited liability company wholly owned by Bain Capital, LLC (“Bain Capital”), provides investment advisory services to pooled investment vehicles that are exempt from registration under the Investment Company Act of 1940, as amended (the “1940 Act”) and whose securities are not registered under the Securities Act of 1933, as amended (the “Securities Act”) (the “Bain Capital Partners Funds”)1. As the investment adviser of each Bain Capital Partners Fund, Bain Capital Partners, along with each Bain Capital Partners Fund’s General Partner (“General Partners”), identifies investment opportunities for, and participates in
the acquisition, management, monitoring and disposition of investments of, each Bain Capital Partners Fund.

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  1. profoundlogic

    As you stated before, it’s a government-sponsored enterprise. Modus operandi: obfuscation, denial, followed up with even more obfuscation, and more lying if necessary.

    1. YankeeFrank

      Yes. As we know, only government sponsored entities engage in obfuscation and lies. And, PE funds are not GSE’s in the traditional sense. They are only “government sponsored” in the sense that they have beneficial tax status and government pension funds (current and future pensioners) are the suckers, er, I mean investors, that are taken in by the PE scam.

  2. LucyLulu

    Is it denial or ignorance? These are PR and campaign people making statements about the document dump and imaginary SEC registrations. Do they know anything about finance?

    I haven’t looked at the papers, I wouldn’t know how to interpret them. But isn’t the point of locating entities in places like the Cayman Islands and Bermuda to avoid having to register with the SEC or be bound by other US regulatory agencies? And my understanding is that the Cayman Islands does not release information to the IRS. C’mon, IME, that’s the main reason why rich people send money offshore, to avoid the reach of Uncle Sam (minimum deposit was $100K in Grand Cayman last I heard if anybody’s interested). If US taxes are paid, it would be on the honor system. You need to just ‘trust that Romney paid taxes’ on all the Cayman assets, just as “you people” need to ‘trust he paid all the taxes he owed’ for the last 10 years.

    I doubt Romney did anything outright illegal. He would be embarrassed however if he releases more returns, by the extent he went to ‘legally’ avoid paying taxes and knows that the democrats would jump on it as a campaign sound byte. And unless he is audited by the IRS, his aggressive and questionable tax evasion stances taken are a moot point. An occasional audit, resulting in owing back taxes, fines and penalties, is probably a cost of doing business. Don’t worry, if elected he’ll slash the IRS staff some more to reduce the deficit…… even though each IRS auditor collects an average of ten times their cost of employment.

    1. taunger

      I keep seeing this “I doubt he did anything illegal” line repeated over and over again; I don’t understand it. Why would anyone give a character like Romney, who is obviously complicit in the perpetuation of control fraud, the benefit of the doubt?

      At the very least, the voter fraud issue raised in a recent link shows very likely federal voting fraud.

      But then, it is innocent until proven guilty, isn’t it?

      1. Lambert Strether

        Romney has plenty of company in the perpetuation of control fraud. Like all the players in both legacy parties, and the regulators. No, that doesn’t make it right…

      2. Up the Ante

        “I keep seeing this “I doubt he did anything illegal” line repeated over and over again; I don’t understand it. ”

        “Why would anyone give a character like Romney, who is obviously complicit in the perpetuation of control fraud, the benefit of the doubt? ”

        Perhaps if you examine how Lucy would have us believe TEPCO of reactor meltdown fame is to be commended for its handling of that disaster, a disaster assisted by TEPCO’s very own control fraud, you will gain a sense of a pattern in ‘her’ comments, a pattern designed to ‘ease’ you away from condemnation of these corporate actors.

        ‘Lucy’=’easing’, conversational easing

        [further cipher-breaking]

        1. be'emet

          parallel line: “I don’t begrudge his millions…” I golf with them kleptomaniacs every day.

      3. Zhu Bajie

        “But then, it is innocent until proven guilty, isn’t it?”

        In the courts. Not necessarily in public opinion.

    2. readerOfTeaLeaves

      Is it denial or ignorance? These are PR and campaign people making statements about the document dump and imaginary SEC registrations. Do they know anything about finance?

      Is it a smart business model for Bain to pay people to lie to knowledgeable questioners (in this case, Yves)?

      Whether or not the PR person knows finance, it’s their job to provide reliable information. In this instance, they’ve just made Bain appear to be a corrupt, dishonest organization.

      1. Up the Ante

        “Is it a smart business model for Bain to pay people to lie to knowledgeable questioners ”

        These ‘Rom’ people want to be ‘found out’. I’d examine everything from precisely that angle.

    3. Richard Kline

      So LucyLulu, not pile on, but the point is relevant in a larger sense. Giving Romney the benefit of _any_ doubt regarding whether ‘he did something illegal’ is not a logically sound process. It is abundantly clear that Mitt Romney doesn’t think financial laws apply to someone of his pedigree, net worth, connectivity level, and whiteness. I’m sure Mitt Romney doesn’t believe he did anything ‘out of bounds,’ or anything ‘the rest of us [pampered protected plutocrats] didn’t do.’ I don’t doubt that Romney just can’t get traction on what all the fuss is over. His money is his business. He doesn’t have to pay taxes on anything he can hide, just like anyone else as rich as he is. It doesn’t matter where he lives, he can vote wherever he wants because money is the real vote, and he’s got plenty of that. I doubt Mitt Romney even thinks its ‘against the law’ in having run his tax avoidance and money-laundering corporation because it was _private_. He was only helping people who wanted to be helped. He wasn’t defrauding any Very Important Person, or maybe any person person in his book. The government doesn’t count, because the government is obviously only there to provide income opportunities to the wealthy, to police the non-wealty, and to lie to the public. Therefore no ‘ethical crime’ was committed. Statues are irrelevant, it’s what the judges rule that constitues a crime or not, that’s how things work at Mitt Romney’s financial altitude.

      I have no idea whether in the technical sense Romney has committed any crime as defined by statue. It seems abundantly clear that Mitt Romney has nor respect for regulation, government, or statue whatsoever. If his accounting guy says ‘this’ll fly,’ that’s all Mitt needs to know. In fact, that’s likely all Mitt has _ever_ known, he doesn’t know personally whether any of the ‘strategies’ or ‘vehicles’ he has participated in are _illegal_ illegal or simply structural impediments or even if they exist at all. All Romney knows, I strongly suspect, is that his eyeshades guy said ‘this’ll fly’ and so here Romney is. He wants to say, “If it was good enough for my accountant, it’s good enough for all you horrible little people, now do go away.” But Mitt has just the whit of sense to know he can’t say that, so he doesn’t have anything he can say.

      Estimating by the clear evidence that Romney has no respect whatsoever for regulation, statute, or the media, it strikes me as highly likely that, yup, he HAS done something illegal. Maybe not big time in terms of statute or penalty (which both are ridiculously weak so that’s no yardstick). But disregard for purpose tends to lead to discounting of consequence, so he’s probably wandered outside the lines. That’s all Mitt sees them as, lines; not anything of relevance to his conduct personally. Only money matters, and he’s walked away with that so he’s won, hasnt’t he? What about that don’t we _get_?, his sorry puss says every time he sticks it in the camera. “I got the money like I’m supposed to and you didn’t and you’re just jealous. Get over it, little dweebs.”

      I’ll be quite happy if Mitt Romney crashes and burns. And if so, he really won’t have anybody to blame but himself. Of course he’ll try. See, when he made of with Big Money, that was all him. But when he goes through the floorboards into the sewer, somehow he’ll be busy telling us on the way done that that is _our_ fault. Because plutocrats only win and the rest of us only lose, what about that don’t we get?

        1. Richard Kline

          —In which case, we get the joy of Paul Ryan’s Better Living (TM). For the Repugnicants, that’s a win-winner-winningest sceanario. It it’s a question of what I’d prefer, I’d prefer the Repugnicants to be greased in the general, and then the Demuglicrats to get all the blame for the cave in during the following four-year. What happens next, I don’t know, but shaken not stirred is a better recipe for Bottom Come Top cocktail in the mix books I’ve bothered to read.

      1. Up the Ante

        Your comment is a fine addition to ‘Lucy’ and her defense of TEPCO.

        “He doesn’t have to pay taxes on anything he can hide, ”

        So ‘Lucy’ ‘easing’ our condemnation of ‘Rom’ and TEPCO .. must mean the pro-nuke crowd is fronting their man, and embarking upon your comment, ‘Rom’ “reinsures” his own .. and it’s not the tax coffers of the U.S.

        [nukers attempting to ‘reinsure’ their industry]

        1. LucyLulu

          My, my, so many erroneous assumptions.

          Are you having a bad day, dear? Is there anything I can do to help?

          1. Up the Ante

            “Are you having a bad day, dear? Is there anything I can do to help? ”

            You could begin to demonstrate an awareness that some sign of a learning curve is being required of you by these engagements. Truly, is it belligerence that empowers you to ignore others requiring it of you in ostensibly intelligent conversation. You include points of detail and conveniently leave out a synthesis of understanding, instead you supplant it with easing of condemnation of corporate actors.

            You need a stiff dose of espresso, ‘cuz anybody wielding such detail can NOT leave out synthesis of understanding, or in your case the synthesis you offer is out of place. Seriously, eased condemnation of corporate actors ?? Troll pay is barely sufficient to warrant your inclusion of detail yet not sufficient to complete its handling ???

            Why bother ? And this is not the first time I’ve requested such from you and here we are again and with you planning for more of the same. Why bother .. when being found out ?

            As your attitude requests such of me, I’ll be flippant. Perhaps your ‘comments’ is your down time from the troll lab’s meth usage on other projects ? Yes, lol.

      2. be'emet

        when did IRS go out of the audit business? they went over every cipher of a friend, a street musician, trying to prove that no one could possible live by what he reported. He had kept every receipt, came out clean. Demonstrates against kleptomaniacs at every opportunity.

      3. Zhu Bajie

        “Estimating by the clear evidence that Romney has no respect whatsoever for regulation, statute, or the media, it strikes me as highly likely that, yup, he HAS done something illegal.”

        The Mormon church requires a tithe of it’s members’ incomes. Has he been tithing ALL his income? Or only what he pays income tax on? Or what?

  3. Percy

    Maybe the people in Bain’s “media relations department” have no idea what they’re talking about, which seems likely. Perhaps there are no more smart people who work there. Who knows?

    1. Yves Smith Post author

      FWIW, the guy I spoke to was apparently the head (or maybe only) dude. So this can’t be attributed to someone junior mishandling the call.

      1. psychohistorian

        Do you ever get the impression that this is all planned to scare the bejesus out of the public so that puppet of the global inherited rich (Of which Romney is not) Obama is “elected” in a landslide that is used as the justification to gut Medicare and SS.

        IMO, Romney is taking one for the global inherited rich and the continuation of ongoing inheritance and accumulated ownership of property by a smaller number of people.

      2. Percy

        Yves, whoever it was may have been the head of public relations, but you might forgive that person for not knowing anything about what Exchange Act or Securities Act registration is about or what independent accounting firms do or do not do in connection with financial statements. One might reasonably ask then what on earth that person is for. Aside from avoiding publicity altogether, not possible here, apparently, I have no idea.

        1. Yves Smith Post author

          No, there is a VERY clear difference between SEC registered documents and those that aren’t. For starters, they’d be in available to the public, hence no reason to have to do a document dump and have people pore over them.

          For people in finance, this is really basic. This was not a case of ignorance. This was misrepresentation.

    2. taunger

      I know a guy who worked at Bain, as a schlub associate. He is one of the most brilliant people I know. I highly doubt this is an issue of understanding.

  4. bob

    Everyone is saying that a “trove” of information has been released. The relesed reports show how little is required to be released by them. You have a 99 million dollar fund, and the EOY report is 7 pages long and has very few numbers.

    As pointed out by the post, those numbers are whatever they say they are. The valuation note at the end of one of them admitted as much, in many more words.

    “we decide what it’s worth”, then they pass on these numbers to an auditor who simply does the sums and, surprise, they add up.

  5. Patriot

    This appears to be the big lie approach. Lie, then later disclose that “mistaken statements were released.”

    1. Up the Ante

      “Catch-22 says they can do anything we can’t stop them from doing.”

      And as we are ‘finding them out’, at their request, are the Repubs dissipating their money ?

  6. Hugh

    This looks like a straightforward Cheney-type propaganda lie. It is based on the calculation that far more people will see it and believe it than will see (and believe) any debunking of it.

  7. psychohistorian

    This expanding window into the financial dealings of a wannabe global inherited rich Mormon is fascinating.

    At least the Bush family is “smart” enough to hide its zillions.

    1. Up the Ante

      captive insurance

      “You can do a “rent-a-captive” where you don’t even have to set up your own captive, you just run the funds through a bookkeeping system: it’s even cheaper. The question is whether the IRS (U.S. Internal Revenue Service) lets you get away with it.”

      In 2002, the IRS and the Treasury required transactions with captives to trigger disclosure, list-maintenance, and registration requirements “based on information that many of these arrangements were being used to shift income improperly to PORCs (Producer-Owned Reinsurance Companies) for purposes of avoiding income tax.”

      However, in September 2004, the George W. Bush administration abolished that rule. The IRS commissioner said that, “Based on disclosures by taxpayers and examination of tax returns, we have determined problems associated with these transactions are not as prevalent as initially believed.” ”

  8. Jim

    I think you are looking to deep for character for/in this man.Remember it is perfectly fine, ok by their god to lie/cheat to anyone other then them. And I don’t mean mormans, or prodestants. Their leader/founder thought it is fine and godlike to prevaracate to anyone. Even to cause their death, and be proud of it. Look at their history, and those that followed. Social darwinism to the max.

  9. Dubner

    Has anyone noticed how dumb romney sounds? There is no chance that he ever steered anything at bain. He is a tiny bit smarter than sarah palin in my estimation.

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