The last thing the private equity industry needs is another scandal. Former Bain exec Mitt Romney’s presidential run is thrusting the whole industry into the limelight, and as we speak several firms are being probed by New York Attorney General Eric Schneiderman.That said: Here’s the new scandal people are paying attention to…
Peter Lattman and Eric Lichtbau of the New York Times report that Court documents reveal that private equity firms, including Bain Capital, may have colluded to suppress the prices of companies they intended to buy.
That could be improper bid-rigging.
This information was included in a lawsuit brought by shareholders in Boston. They say this manipulation of price cost them billions in the sale of around two dozen companies including Neiman Marcus, Toys R’ Us and Lowes and AMC movie chains and more from 2003 to 2007. Note that these deals came out after Romney left the, but in the world of politics, the ongoing drip of negative news about Bain doesn’t help.
It’s a class action suit.
The case centres 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.
E-mails cited in the lawsuit indicate that another private equity firm, TPG, said it had discussed the HCA acquisition with executives for Bain and K.K.R. and had decided not to bid on the company because “our relationship with them, K.K.R. and Bain, was more important.”
Lawyers for Bain say that this is just an attempt to hurt Mitt Romney’s campaign. Romney’s campaign says all of this happened long after he left Bain anyway.
Either way, according to the NYT, prosecutors say that there are more embarrassing e-mails to come. That should be interesting.
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