A Houston software executive was charged on 15 October with hiding approximately $2bn in income from US tax authorities over 20 years, in what officials said was the largest criminal case ever brought against a person accused of evading US taxes.
Robert T. Brockman, chief executive of automotive software-maker Reynolds & Reynolds, was indicted on charges including tax evasion, money laundering, failure to disclose assets held overseas and wire fraud. Brockman is the sole investor in the first private equity fund managed by Vista Equity Partners, a firm founded by billionaire Robert Smith. Authorities said Brockman concealed gains he made in Vista’s funds from the Internal Revenue Service.
Smith on Thursday, 15 October, admitted to willfully evading $43m in federal taxes from 2005 to 2014 and agreed to cooperate with the continuing investigation. Under a settlement reached with the Justice Department, he will pay $139m in fines and back taxes but won’t be prosecuted.
The charges against Brockman, 79 years old, were unsealed Thursday in San Francisco federal court. Brockman for years directed investments of tens of millions of dollars into Vista’s funds, according to the indictment. Prosecutors say he used secret bank accounts in Bermuda and Switzerland to hide income, but the indictment doesn’t specify how much tax Brockman skipped by hiding offshore the $2bn he earned from Vista’s funds.
Brockman pleaded not guilty on all counts and was released on a $1m bond after a hearing conducted remotely. “We look forward to defending him against these charges,” said his attorney, Kathryn Keneally of Jones Day.
A spokesman for Vista declined to comment. An attorney for Smith declined to comment.
A spokeswoman for Ohio-based Reynolds & Reynolds said: “The allegations made by the Department of Justice focus on activities Robert Brockman engaged in outside of his professional responsibilities with Reynolds & Reynolds. The company is not alleged to have engaged in any wrongdoing, and we are confident in the integrity and strength of our business.”
Brockman, a former Marine Corps reservist, started working at Ford Motor Co. upon graduation from college and later accepted a job at International Business Machines selling auto-parts-inventory and accounting data-processing services. He founded Universal Computer Services Inc. in 1970 and became chairman and CEO of Reynolds & Reynolds when it acquired his company in 2006, according to a biography on the website of the Brockman Foundation, his family charity.
Closely held Reynolds & Reynolds, which makes software for auto dealerships, and its affiliated companies have roughly 5,000 employees and annual sales of about $1.4bn, the foundation website says.
Messrs. Brockman’s and Smith’s alleged tax evasion was “brazen, intentional and significant,” said Jim Lee, chief of criminal investigations for the Internal Revenue Service. “These allegations should disgust every American taxpayer as well, because the law applies to all of us when it comes to tax and paying our fair share,” Lee said.
“I have not seen this pattern of greed or concealment and cover-up in my 25-plus years as a special agent,” Lee added.
Brockman set up a complex network of offshore companies and trusts designed to conceal $2bn in gains earned from investments in Vista’s private equity funds, according to the indictment. Vista wired money to bank accounts in Bermuda and Switzerland owned by an entity controlled by Brockman.
Brockman hid his control of the offshore entities by filing false tax returns, US Attorney David L. Anderson said at a press conference Thursday in San Francisco. The misconduct lasted from 1999 to 2019, authorities said.
“Complexity will not hide crime from law enforcement,” Anderson said. “We will not hesitate to prosecute the smartest guys in the room.”
To keep the tax evasion secret, Brockman shredded documents and used code words over encrypted email accounts, calling himself “Permit” and referring to the IRS as “the house,” Anderson said. A computer program called “Evidence Eliminator” was purchased by a person who managed Brockman’s offshore entities, according to the indictment, which didn’t name the person.
Brockman was also charged with wire fraud over his alleged trading of debt issued by his own company, in violation of an agreement with investors who purchased the securities. The debt was syndicated in 2006 through banks including an arm of Deutsche Bank AG, which the indictment says was deceived about Brockman’s trading.
While little known on Wall Street, Brockman helped launch the career of Smith, who has become the wealthiest Black person in the U.S. and one of the private-equity industry’s most prominent figures, thanks to his firm’s high returns and unique strategy for turning around software companies—as well as his own splashy philanthropy.
Messrs. Brockman and Smith met in 1997 when Smith was an investment banker at Goldman Sachs Group Inc. working to help sell Brockman’s company, according to a statement of facts attached to Smith’s non-prosecution agreement. Brockman told Smith no taxes would be owed on the sale because the company was owned by a foreign trust located in Bermuda that had been set up by Brockman’s father in the 1980s, according to the statement.
The sale didn’t happen, but Brockman urged Smith to set up a private equity fund in which Brockman would be the sole outside investor, the document states. Smith left his banking job to start the private-equity firm and has been in charge of Vista ever since.
Smith last year pledged to pay all student debt incurred by the 2019 graduating class at Morehouse College and their parents. The historically Black institution in Atlanta said the donation amounted to $34m.
The announcement of a non-prosecution agreement for Smith was unprecedented, said Jeffrey Neiman, a former federal tax prosecutor. The Justice Department doesn’t typically announce such leniency deals with individuals, Neiman said.
“In some ways, it does kind of conflate the message of whether bad deeds can go away with the payment of a lot of money and you can avoid the criminal justice system,” said Neiman, now a partner at Marcus, Neiman Rashbaum & Pineiro.
Smith’s cooperation with the government “put him on a path away from indictment,” Anderson said. “It is never too late to tell the truth.”
Smith, 57, whose net worth Forbes has estimated at more than $5bn, founded Vista in 2000 with $1bn from a charitable trust established by Brockman’s family. The Vista chief put over $200m of his own profits into one offshore entity and used another to conceal his ownership and control of the first entity, the government said on 15 October.
While some of the money in the offshore entity ultimately went into Fund II Foundation, a charity Smith created in 2014, he withdrew untaxed funds for his personal benefit from 2005 to 2013, according to a statement he signed with prosecutors on 9 October.
He spent millions of it to buy and renovate a vacation home in California to purchase two ski properties and a piece of commercial property in France and to make improvements to a residence in Colorado, the statement said.
Smith moved to Switzerland in 2010, when he used untaxed income to buy the winter homes in the French Alps.
Smith’s charitable donations and political connections didn’t play a role in the deal he got with the Justice Department, Anderson said.
“This non-prosecution agreement underscores the importance of cooperation with a federal criminal investigation,” Anderson said. “That’s the message we intend to send.”
—Laura Saunders contributed to this article.
Two weeks left to score early bird savings at TC Sessions: Space 2020
NASA just made history by landing a spacecraft on an asteroid. If that kind of technical achievement carbonates your glass of Tang, join us on December 16-17 for TC Sessions: Space 2020, an event dedicated to early-stage space startups. We’ve launched early-bird pricing, and $125 buys you access to all live sessions, plus video on […]
NASA just made history by landing a spacecraft on an asteroid. If that kind of technical achievement carbonates your glass of Tang, join us on December 16-17 for TC Sessions: Space 2020, an event dedicated to early-stage space startups.
We’ve launched early-bird pricing, and $125 buys you access to all live sessions, plus video on demand. Don’t procrastinate. Buy your pass now before the early-bird reenters Earth’s atmosphere (and prices go up) on November 13 at 11:59 p.m. (PT).
More ways to save: Go further together with early bird group tickets ($100) — bring four team members and get the fifth one free. We also offer discount passes for students ($50) and government, military and non-profits ($95). Looking for out-of-this-world exposure? An Early Stage Startup Exhibitor Package ($360) includes four tickets, digital exhibition space, a pitch session to attendees and the ability to generate leads. Bonus savings: Extra Crunch subscribers get a 20 percent discount.
TC Sessions: Space is an unrivaled opportunity to learn from, connect and network with boundary-pushing founders, investors and officials from NASA, the Aerospace Corporation, the U.S. Air Force and leading space companies spanning public, private and defense sectors.
We’ve packed the conference with outstanding presentations, fireside chats and interviews. Plus, you’ll find breakout sessions on specialized topics, audience Q&As with Main Stage speakers and the expo area for partners and early stage startups.
Here’s a taste of the topics but keep an eye on the agenda, because we’ll add more speakers and sessions in the coming weeks.
Asteroid Rocks and Moon Landings
Lisa Callahan, vice president/general manager of commercial civil space at Lockheed Martin Space, discusses all aspects of scientific and civil exploration of the solar system — from robots scooping rockets from the surface of galaxy-traveling asteroids, to preparing for the return of humans to the surface of the Moon.
Sourcing Tech for Securing Space
Lt. General Thompson is responsible for fostering an ecosystem of non-traditional space startups and the future of Space Force acquisitions, all to the end goal of protecting the global commons of space. He’ll discuss what the U.S. looks for in startup partnerships and emerging tech, and how it works with these young companies.
Bridging Today and Tomorrow’s Tech
Corporate VC funds are a key source of investment for space startups, in part because they often involve partnerships that help generate revenue, and because they understand the timelines involved. SpaceFund’s Meagan Crawford and Lockheed Martin Ventures’ J. Christopher Moran discuss how these funds fit in with more standard venture to power the ecosystem.
TC Sessions: Space 2020 takes flight on December 16-17, but we’re starting our early bird countdown right now. Great savings disappear in two weeks on November 13 at 11:59 p.m. (PT). Buy your early bird passes today and celebrate your savvy shopping with a tall glass of Tang.
Is your company interested in sponsoring TC Sessions: Space 2020? Click here to talk with us about available opportunities.
Leon Black offers more details on ties to Jeffrey Epstein – Update
Apollo chief executive raised the issue after questions swirled about his relationship with the late financier
Leon Black, the billionaire chief executive of Apollo, on Thursday, 29 October, offered a history of his ties to the late financier Jeffrey Epstein, his most detailed public account yet of a relationship that sparked renewed concern among his firm’s shareholders and fund investors in recent weeks.
Epstein was indicted last year on federal sex-trafficking charges involving underage girls.
On a call to discuss the private equity firm’s third-quarter earnings, Black said he wasn’t eager to speak publicly about his personal business, “but this matter is now affecting Apollo, which my partners and I spent 30 years building, and is also causing deep pain for my family.”
The Apollo chief reiterated that he paid Epstein millions of dollars annually to provide professional services to his family partnership and other family entities, “involving estate planning, tax, structuring of art entities and philanthropic advice” from 2012 to 2017.
He said there was substantial documentation of the work and that it was vetted by law firms, accounting firms and other advisers.
“There has never been an allegation by anyone that I engaged in any wrongdoing, because I did not,” Black said. “And any suggestion of blackmail or any other connection to Epstein’s reprehensible conduct is categorically untrue.”
Black also re-emphasised that Apollo never did business with Epstein, who died by suicide in jail in August 2019, the New York City medical examiner found.
The speech came after the three Apollo board members to who make up the New York firm’s conflict committee last week hired law firm Dechert to conduct an independent review into Black’s business with Epstein. Black said he asked for the review and is cooperating fully.
The moves were prompted by a New York Timesreport on 12 October that Black had paid Epstein at least $50m — more than previously known—in the years after Epstein was convicted in 2008 of soliciting prostitution from a teenage girl.
The article didn’t present any evidence that Black participated in inappropriate activity, but it sparked concern among some of Apollo’s public-pension fund investors and has weighed on the company’s shares.
Apollo’s shares rose briefly after Black’s statement but later fell about 1% in morning trading Thursday, 29 October.
Black, who co-founded Apollo in 1990, said he met Epstein around 1996 when Epstein was advising a number of prominent clients on estate-tax planning. The adviser had been named a trustee of Rockefeller University and served on the Council on Foreign Relations and the Trilateral Commission.
In his network were “luminaries I respected and admired, including several heads of state, heads of prominent families in finance, a US treasury secretary, accomplished business leaders, Nobel laureates, acclaimed academicians and noted philanthropists,” Black said.
The Apollo chief said he wasn’t aware of Epstein’s criminal conduct until it was reported in late 2006 that he was under investigation by state and federal authorities in Florida.
In 2007, Epstein signed a federal nonprosecution agreement, which has since been scrutinised, to resolve that investigation, pleading guilty the following year to two state prostitution counts. He spent much of his 13-month sentence outside prison.
After his release, Epstein went back to his financial-advisory work and once again began associating with prominent people from finance, academia, science, technology and government, Black said. He said he didn’t learn the extent of the further allegations about Epstein’s conduct in 2018 until after he had already stopped working with him.
“Like many other people I respected, I decided to give Epstein a second chance,” he said. “This was a terrible mistake. I wish I could go back in time and change that decision, but I cannot.”
Whether Black’s explanation and the independent investigation will be enough to satisfy the firm’s jittery investors remains to be seen. Working to Apollo’s advantage is the fact that big pension funds, which typically need to invest large sums of money, have relatively few options for where to do so. And Apollo’s funds have continued to offer them strong returns.
Any defections among investors could theoretically threaten the firm’s goal set last year of reaching $600bn in assets over the next five years. For now, growth in the metric is chugging along. The firm said that assets climbed to $433.1bn in the third quarter, up from $413.6bn in the prior quarter and $322.7bn a year earlier.
Apollo chief financial officer Martin Kelly said the firm’s assets were durable even if the independent review of Black has an impact on fundraising. He noted that 60% of Apollo’s assets are in permanent-capital vehicles—pools of money that don’t need to be constantly replenished—and 90% are either in permanent-capital vehicles or funds with five years or longer from inception.
Kelly said the firm expects some of its investors will pause new commitments until the independent review has been completed. But even if Apollo raises no additional third-party capital this year, its fundraising of $18.4bn from third parties through 30 September already falls within its typical annual range of $15bn to $20bn, he said.
“We have incredibly long and durable relationships with our clients,” Apollo co-founder Josh Harris said on the call. “We’re deeply in contact with them, and obviously they are awaiting the results of the review Leon discussed.”
In response to an analyst question about how long the review would take, Apollo said it hoped the process could be completed by the end of the year, but that it was in the hands of the conflict committee.
Apollo also reported lower net income and distributable earnings for the quarter. It posted net income of $272.4m, or $1.11 a share, down from earnings of $363.3m, or $1.63 a share, a year earlier. The decline was primarily driven by a bigger loss attributable to noncontrolling interests.
Fee-related earnings were a bright spot, climbing 30% year-over-year.
Apollo invested a net $20.9bn across its various investment platforms during the quarter, a metric that reflects investments in vehicles beyond traditional drawdown funds.
The firm said it would pay a dividend of 51 cents per share versus 50 cents a share for the third quarter of 2019.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
Alternative Investments/ESG: Brunel Allots £1.2B ($1.55B) Sustainable Mandate To Three Managers
The Brunel Pension Partnership has picked Ownership Capital, RBC Global Asset Management, and Nordea Asset Management to manage its new Sustainable Equities Fund of around £1.2 billion ($1.55 billion). Brunel is one of eight pooled Local Government Pension Scheme funds in the U.K.
Alternative Investments/ESG: Brunel Allots £1.2B ($1.55B) Sustainable Mandate To Three Managers
The Brunel Pension Partnership Limited (Brunel) launched a new Sustainable Equities Fund for local authorities’ pension funds.
The Brunel Pension Partnership has picked Ownership Capital, RBC Global Asset Management, and Nordea Asset Management to manage its new Sustainable Equities Fund of around £1.2 billion ($1.55 billion).
Brunel is one of eight pool Local Government Pension Scheme funds in the U.K.
The sub-fund mandate is on behalf of 10 local government pension scheme funds. They wanted a listed equity portfolio with a pronounced skew in favor of ESG considerations. The emphasis would be on companies with positive ESG performance rather than negative exclusions. (Institutional Asset Manager)
Multi-manager sustainable fund
Brunel shortlisted the three managers from 70 expressions of interest.
“The three managers we appointed share a broad investing style and a prioritization of sustainability, yet their approaches are also different enough to provide clients with the diversification they were looking for,” said David Cox, Head of Listed Markets at Brunel.
“We were delighted to find managers who share our understanding of sustainability, embedding it deep into their culture and investment processes,” says David Jenkins, Portfolio Manager for the Sustainable Equities Fund. “This portfolio, therefore, meets our aspiration to go beyond traditional Responsible Investing and ensure that the managers are engaged with the companies and are investing in them for positive reasons, not simply focusing on negative exclusions.”
The portfolio is significantly underweight to the GICS energy sector. It also features an aggregate carbon intensity that is significantly lower than its benchmark, the MSCI All Country World Index.
The selected managers will integrate ESG considerations into their whole investing process. Their focus will not be to manage ESG risks – rather to positively seek out exposure to companies on a sustainable path.
In the process, they would also generate a suitable financial return.
Related Story: Insurers Take a Fancy To ESG & Sustainability ETFs (Invesco)
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