Bain Capital, Private Equity Firms Accused of Price Fixing in Lawsuit

  • Share
  • Read Later
Mark Lennihan—AP

Stephen Schwarzman, co-founder of the Blackstone Group, arrives at the company's office in New York, June 18, 2012. Blackstone is one of several firms facing a shareholder lawsuit that alleges collusion in the private equity industry.

Mitt Romney’s presidential run has had the ancillary effect of increasing scrutiny of the private equity industry. After all, Romney founded the private equity outfit Bain Capital, and has built his case for the presidency in part on his record at Bain, which he claims reflects an ability to rehabilitate floundering enterprises and create jobs.

Unfortunately for the private equity industry — which traditionally prizes secrecy — Romney’s candidacy has gotten the U.S. press core digging for any juicy bits of news on private equity it can scrounge up. And it may have unearthed a live one: According to heavily-redacted court documents unearthed by The New York Times yesterday, former shareholders of the giant hospital-management firm HCA have formally accused Bain Capital and several other private equity firms of price fixing.

(MORE: New Public-Private Partnerships: The President’s Stealth Plan To Create Jobs?)

According to the Times report, the documents allege that Bain’s success over the past decade was due in part to agreements with other private equity companies to artificially keep the prices of firms they were bidding on low.

Private equity firms generally use a combination of their own capital and borrowed money to take public companies private. After a period of time, the PE firms aim to sell those companies publically to investors at a higher price. So buying in at artificially low prices directly beefs up profits. Writes The New York Times:

“The case centers on the “club deals” that became popular during the leveraged buyout boom of 2003 to 2007, a period that the complaint calls the “Conspiratorial Era.” It claims there was a complex web of collusive arrangements involving 11 of the world’s largest buyout firms on 19 deals.

In the buyout of HCA, for instance, Bain, K.K.R. and Merrill Lynch bought the company in 2006 for $32.1 billion, then a record. Documents produced by the defendants and filed this week showed e-mails and meetings indicating that other equity firms had agreed to “stand down” and avoid bidding with the understanding that they would be brought into future deals.”

The Times report goes on to describe one private equity firm, TPG Capital, which — according to emails cited in the complaint — decided against bidding on HCA because “our relationship with them, KKR, and Bain was more important.”

(MORE: Report: New York AG Investigates Private Equity Tax Loophole)

It’s impossible to tell from the New York Times report, or from the nine pages of the complaint which the Times linked to, how substantiated these claims are. Some of it — namely the TPG capital quote above — seems pretty damning. But most of the email communication in the report is redacted. According to the Times, lawyers for the firms and an anonymous executive from one of the defendant companies say that the plaintiffs are selectively using the emails to make normal business practices appear to be collusive.

Dan Primack, a senior editor at Fortune who covers the private equity industry, is skeptical of the allegations. He argued in his newsletter yesterday that, “It’s hard to believe that PE firms –- a competitive bunch -– would conspire to not compete on certain ‘Golden Age’ deals, while fighting like cats and dogs on others.”

But if the firms were colluding, why is it so improbable that they selectively chose which deals they were going to collude on? And, according to Josh Kosman, another veteran private equity reporter in the New York Post, this case has been going on for five years, and has survived “at least ten” attempts by the accused firms to dismiss the case. If the suit was really without merit would it have survived this long?

Unfortunately, according to Kosman’s sources, we’ll have to wait until next year for the case to make it to trial, so new details are unlikely to emerge anytime soon. This is certainly good news for the Romney campaign, which would be harmed by any lengthy public airing of allegations against his former firm. It should be stressed that all of the offenses alleged in this suit occured between 2003-2007, at least two years after Romney cut ties with Bain. That being said, if these allegations are true, it would certainly say a lot about the culture of his firm, and the industry itself, just a few years after he departed as one of its most prominent figures.

PHOTOS: The Rich History of Mitt Romney

12 comments
Sort: Newest | Oldest
James Burns
James Burns

remember this mitt was the sole owner of bain and still is, its just been placed in a trust

 

D_Bob
D_Bob

The Bain people value secrecy above all else. This is why they're likely to be more angry at Romney than anyone else, when all this is over:

"If you haven't heard much about how takeover deals like Dunkin' and KB Toys work, that's because Mitt Romney and his private equity brethren don't want you to. The new owners of American industry are the polar opposites of the Milton Hersheys and Andrew Carnegies who built this country, commercial titans who longed to leave visible legacies of their accomplishments, erecting hospitals and schools and libraries, sometimes leaving behind thriving towns that bore their names.

The men of the private equity generation want no such thing. "We try to hide religiously," explained Steven Feinberg, the CEO of a takeover firm called Cerberus Capital Management that recently drove one of its targets into bankruptcy after saddling it with $2.3 billion in debt. "If anyone at Cerberus has his picture in the paper and a picture of his apartment, we will do more than fire that person," Feinberg told shareholders in 2007. "We will kill him. The jail sentence will be worth it."

Read more: http://www.rollingstone.com/po...

Ben IncaHutz
Ben IncaHutz

The "old boy" network is still alive and well. They will do anything to protect their interests. The rest of us exist only to pay the taxes that allow them to live in safety and comfort. 

Bait and Switch TV
Bait and Switch TV

Venture Capital is about funding new companies; Private Equity (Mitt and

associates), is about gutting established successful companies

--sucking out their capital and assets, then leaving the company holding

the debt bag. It is a deliberate gutting and looting of American

corporations. This is the antithesis of Venture Capitalism.

Very important to also consider Mitt Romney's role in the Leveraged Buyout of America --LBOs vs jobs.  Wall St Banks and private Equity firms like Romney's Bain Capital, KKR, and Goldman Sachs enacted a large scale Leveraged Buyout of America;

See Lady Gaga Does LBOs [short, comedic, but true ]for more information

about Mitt Romney's LBOs by Bait and Switch TV: Investigative Satire...

http://www.youtube.com/user/Ba...

lurch3
lurch3

I don't think the low information voters understand that what Romney amp; Bain did with companies is no different than what the banks did with home-owners: Convince them to take out loans, get their cut, let the home-owner to drown in their own debt, and then snatch up the house and sell it for pennies on the dollar. It's Wall Street thievery all over again.

Dan Bruce
Dan Bruce

Private equity firms acting against the best interests of the American people? I'm shocked!

NolanMurray
NolanMurray

Jeff replied I am dazzled that some people able to earn $6257 in 1 month on the network. did you see this(Click on menu Home)

Jfante1452
Jfante1452

Half of the people in this country (their party starts with an R) refuse to believe they could do anything so dastardly. Afterall, it wouldn't be Christian. Or Mormon.

Fatesrider
Fatesrider

Please, they're not "half of the people".  In fact, neither the liberals or the conservatives (Democrats and Republicans) come within even eight points of having half.  Moderates are never counted since there are only two "real" parties in the country, but I suspect that if one were to actually count the moderates, there'd be more of us than either the liberals or the conservatives.

But no matter how you count it, the two extremes need US to decide which idiot child is going to be elected.  We'd rather vote for someone who actually represents OUR values - working together, compromising to get the job done, not standing on a political point of principle while people are hurting, being leaders of people instead of puppets of the special interests - but the powers that be prefer to keep things simple with a black and white political system that fails to see any shades of gray, and by doing so, keeping us at each other's throats instead of theirs.