So… You Want Which Fox to Guard the Hen House?

Bain Capital, campaign, candidates, capitalism, free market, Mitt Romney, Uncategorized

Let’s examine some facts which makes up the totality of Mitt Romney’s business experience.

Bain & Company was established in 1973 by a group of seven former partners from the Boston Consulting Group headed by Bill Bain. The company was headquartered in Lexington, MA on Militia Drive. Under Bain’s direction, the firm implemented a number of unconventional practices in its early years. Notably, Bain & Co. would only work with one client per industry to avoid potential conflicts of interest. Partners did not carry business cards and clients were referred to by code names, further demonstrating its reputation for enforcing client confidentiality. The company preferred to work behind closed boardroom doors rather than marketing itself.

The firm’s founding was followed by a period of growth in the late 1970s and early 1980s as the firm opened offices in London, Munich, San Francisco, and Tokyo.

An innovative consulting approach that Bain & Co. pioneered was aligning its incentives with its clients’ performance by accepting equity in lieu of fixed fees. It sometimes landed clients by offering several weeks of work at no cost until the clients stock market value demonstrated an increase in stock price relative to the Dow Jones Industrial Average. An estimated 10% of Bain’s revenue is derived from this equity participation or “success fees.” As an example, Bain took an ownership stake in fruit processor Del Monte Foods while working to revamp the company’s strategy.

“Coming into a leveraged buyout situation is never easy,” says Del Monte CEO Richard Wolford.” Bain’s desire to obtain equity in the client’s business was the engine behind Bain’s interest in the business.

Bain &  Co. found itself facing a growing list of challenges in the 1980s. In the midst of sluggish business conditions and over staffing, Bain also faced the dilemma of having to turn away business due to its one-client-per-industry restriction. Competition increased as other firms copied Bain’s implementation-focused strategy. Daunting though these external challenges were, it was internal infighting among the senior partnership that threatened to destroy the business. In response, Bain & Company, Inc. was formally incorporated in 1985 as Bain Capital Inc. and, over the course of two years, the Employee Stock Ownership Plan (ESOP) was established. Bain’s senior partners began borrowing against the ESOP equity for cash, leaving the firm with a heavy debt load and employees with a stock plan that might have been nothing more than a fable. As business slowed, this debt load began to have a real effect on the firm. Bain ultimately found itself in non-compliance with the Bank of New England’s loan covenants. The resulting debt write-off at the Bank of New England eventually resulted in that bank’s failure in 1991.

Facing financial duress, Bain & Company, Inc. partner Mitt Romney was asked to rejoin Bain Capital, Inc. as interim CEO. Bringing along two lieutenants from Bain & Co.,  Romney began a traveling campaign to rally employees at all Bain offices globally. Romney led a cadre of attorneys that eventually negotiated a complex settlement between the Bain partnership and the firm’s lenders, including a $10 million reduction in the $38 million Bain owed the Bank of New England, which by that time had been seized by the FDIC and placed in Chapter 7 liquidation. The Boston Globe pointed out that: “Over several weeks, Romney’s team managed negotiations with the banks and among the partners. The moment came when negotiations produced a package in which Bill Bain and the founding partners would give up control of the firm, turning back $30 million they had taken from the ESOP and $100 million in notes they held against the firm.”

The Romney Team plan involved “a complicated restructuring of the firm’s stock-ownership plan, real-estate holdings, bank loans, and money still owed to partners”. To avoid the financial crisis that a buyout would have triggered, the group of founding partners agreed to return about $100M cash and forgive outstanding debt. Bain Capital has come a long way since the hostile takeovers it was known for when Mitt Romney was CEO.

Today it reports about $655 billion in assets, including such industry giants as Toys R US, Clear Channel Communications, (parent company of Rush Limbaugh’s EIB network, and the radio shows of Glenn Beck and Sean Hannity, Dunkin Brands (Dunkin Donuts), Burlington, Warner Music Group, and the Weather Channel. Bain Capital also owns another company that for some reason is not listed on the Bain Capital website: EDGAR Online.

From an article forwarded to me:

“Bain Capital said that it had purchased Edgar Online for $12 million with the stipulation of the right to name two of the Board Members of Edgar Online, a publicly traded data services company that helps businesses prepare regulatory filings in a new format that will be mandatory by 2012… Edgar Online’s main offering is helping companies to prepare filings for the Securities and Exchange Commission in a computer format known as XBRL, which is used for the S.E.C.’s Edgar tool. It also offers data analysis products for regulatory filings.”

The question is why did Bain buy Edgar Online? Does the phrase “prepare filings” catch in the throat?

“EDGAR, the Electronic Data-Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (the “SEC”). The database is freely available to the public via the Internet (Web or FTP).” Approximately 3,000 company filings are made with EDGAR each and every day. In fact, if you wish to search for company filings on the Securities and Exchange Commission’s website, you will be redirected to the EDGAR database.

So, Mitt Romney’s Bain Capital has the ability see and then monitor every company’s SEC Filing information even before the SEC sees it. Before anyone else can see them, Bain sees the filings. That is what is known as a competitive advantage. It is also known as Trading on Insider Information if Bain Capital is perusing these financial filings and using them to decide what to buy and sell within its portfolio.

According to SEC Guidelines:

“The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insider trading issues where the courts have disagreed. Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is “aware” of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith.

Rule 10b5-2 clarifies how the misappropriation theory applies to certain non-business relationships. This rule provides that a person receiving confidential information under circumstances specified in the rule would owe a duty of trust or confidence and thus could be liable under the misappropriation theory.” (SEC.gov)

In what could be viewed as a huge advantage over the average investor, this scandal would make the movie “Wall Street” look like “Sesame Street”. An investigation of Bain Capital’s internal documents by any enforcement agency, including the SEC or Congress, could make Michael Milken look like a boy scout.

“Milken was indicted on 98 counts of racketeering and securities fraud in 1989 as the result of an insider trading investigation. After a plea bargain, he plead guilty to six securities and reporting violations but was never convicted of racketeering or insider trading. Milken was sentenced to ten years in prison and permanently barred from the securities industry by the Securities and Exchange Commission. After the presiding judge reduced his sentence for cooperating with testimony against his former colleagues and good behavior, he was released after less than two years. Milken could only wish that he had access to every company’s financial reports and SEC filings before anyone else knew about them.

An investigative report by ABC revealed that Republican Presidential Primary candidate Mitt Romney, has avoided paying his fair share of taxes by keeping his money in off-shore accounts in the Cayman Islands and elsewhere. Is it any wonder that he continues to refuse to release his income tax records as is the tradition of those running for the Executive Office of this nation?

Evoking FOIA exemption 7(a), the FBI denied access regarding Bain Capital records held by the F.B.I. on the grounds that such information was currently part of an ongoing criminal investigation: The letter, viewable on Scribd.com, has had the name of the person requesting information redacted, as well as the date it was written. The top of the letter reads “Subject: Bain Capital” The relevant paragraph in the letter, signed by the FBI’s David Hardy, Records/Information Dissemination Section Chief, reads in part, “I have determined that the records responsive to your request are law enforcement records; that there is a pending or prospective law enforcement proceeding relevant to these responsive records; and that the release of the information contained in these responsive records could reasonably be expected to interfere with the enforcement proceedings.” In fact, the only time the Bureau is allowed to deny such a request is during an active investigation in which acknowledgment of responsive records would compromise it.

This should be front-page news but the privately owned major media seems to have missed the importance of this issue. With Wall Street and Congress so corrupt that the average stock investor doesn’t have a chance of making anything on their investments, this is an ethical and moral outrage. Is it any wonder why Mitt Romney’s company, Bain Capital, from which he continues to receive significant compensation from, reports the New York Times, is under the scrutiny of the FBI?

So…Let me see if I understand this correctly, New Hampshire and Iowa want Romney to control the purse strings of this nation? You might as well have the Fox guarding the Hen House! Or maybe…, a Wolf to guard the Sheep!

For a short romping story of “Romneycare” see:
http://en.wikipedia.org/wiki/Massachusetts_health_care_reform

© 2008-2016 by Fred Marsico & MKUltra

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