January 25, 2012 7:32 PM
Romney, Ropes, and Bain and the Ties that Bind
Posted by Victor Li
Tuesday was a very busy day for Ropes & Gray chair R. Bradford Malt.
No surprise there. After all, Malt makes the investment decisions for the blind trusts created by Republican presidential hopeful Mitt Romney for himself, his wife, and the Romney family. Malt also oversees the Romneys' philanthropic arm, the Tyler Charitable Foundation, and does all the family's tax planning. And for those associated with Mitt Romney, Tuesday was all about taxes.
So when Romney—reeling from a shellacking at the hands of Newt Gringrich in the South Carolina GOP primary and under growing pressure to release his tax returns—dropped more than 500 pages detailing his income, tax payments, and charitable giving over the past two years, the embattled candidate's campaign put Malt front and center to guide reporters through the often arcane material.
It was Malt who explained, for instance, that Romney was not evading his U.S. tax obligations by investing in funds based in well-known tax havens like the Cayman Islands. Malt noted that the investments in question aren't held in "offshore accounts" but routed through funds set up in the Caymans. The distinction, he said, is critical because though offshore accounts can serve as tax shelters, Romney pays the same taxes on his Cayman-based funds as he would if they were set up in this country. "These entities are not evading one dime of taxes," Malt told reporters in a conference call.
The Romneys tax returns also showed that, Romney had a Swiss bank account as of 2010, but but not as of 2011. Malt said during the conference call that the account was "fully legal, fully disclosed" and was closed in early 2010. "The income earned on that account is taxed just as any other domestic or other bank account owned by the blind trust," Malt said during the call, while acknowledging that the account "might or might not be inconsistent with Gov. Romney's political views."
Malt's prominence in explaining Romney's financial affairs underscores a simple fact: No law firm is more closely tied to the presumptive Republican frontrunner than Ropes, largely because of its work for Bain Capital, the private equity firm that has become a somewhat complicated credential for Romney.
Malt, Ropes & Gray, and Bain Capital declined The Am Law Daily's requests for comment. The Romney campaign did not respond to a request for comment.
Malt, a partner in Ropes's corporate department since 1987, and Romney, who helped found Bain in 1984, became acquainted when Ropes first began doing deal work for the private equity firm in the 1980s. In a 1995 feature article about the top lawyers under age 45, The American Lawyer reported that Romney and Bain turned to Malt for roughly half-a-dozen leveraged buyouts a year and had sent Malt nearly $6 million in business in 1994.
"Brad," Romney said at the time, "could take out your liver, if he needed to save your life, and you'd never even know it."
When Romney was elected governor of Massachusetts in 2003, he asked Malt to help him place his assets into a blind trust, a device often used by politicians to shield them from knowledge of—and responsibility for—investments as a safeguard against conflict-of-interest allegations.
As the steward of the trusts, Malt spends a lot of time making sure Romney's investments are consistent with his stated priorities. For instance, as Romney moved to oppose abortion, Malt has had to divest any assets in pharmaceutical companies that produce drugs related to birth control or abortion.
For someone handling a presidential contender's money, not doing so could prove embarrassing. Consider that, though not directly related to Romney's personal finances, a recent Huffington Post report generated some buzz by highlighting the fact that one of the highest-performing companies in which Bain had invested, Sterycycle, is a top target of the most extreme antiabortion groups. The reason: Sterycycle disposes of medical waste, including aborted fetuses, from Planned Parenthood and abortion clinics.
Likewise, when Romney recently began to talk tough about China and the country's currency manipulation, Malt moved to unwind any potential bets in Chinese currency by international investment funds that are part of most balanced portfolios.
Romney's tax returns and financial disclosure documents suggest Malt has done a good job of investing on his behalf over the years. The Wall Street Journal reported last week that Romney's individual retirement account, which holds stakes in 13 investment entities run by Bain, could have as much as $101.6 million in it. According to Romney's financial disclosure form, the candidate reported between $5 million to $25 million in interest from BCIP Trust Associates III—a Cayman Islands partnership.
Ropes, meanwhile, has feasted on a healthy diet of Bain deal work before and since Romney's departure for government. According to a February 2010 American Lawyer story, Ropes and Kirkland & Ellis have between them worked on almost 80 Bain deals worth a total of more than $168 billion since 1998. On its Web site, Ropes touts many of the multibillion-dollar deals that it has handled for Bain, including a $26 billion acquisition of Clear Channel Communications in 2008, the $3.5 billion purchase of The Weather Channel in 2008, and a $1.8 billion transaction for Gymboree Corporation in 2010. The firm also represented Bain-owned Dunkin Brands Group Inc., operator of Dunkin Donuts and Baskin Robbins, in its $460 million IPO last July.
In the run-up to the South Carolina voting, Romney came under fire for his 14-year tenure at Bain. While he has touted his success at the private equity giant as proof that he can fix the economy and create jobs, his rivals tried to cast the Bain experience in a negative light. Winning Our Future, a so-called Super PAC friendly to Gingrich produced a 30-minute attack-ad entitled "When Mitt Romney Came to Town." The film criticized Romney and Bain for taking over vulnerable companies, loading them with debt, collecting outsize fees, and sending jobs overseas or killing them altogether. "Mitt Romney was not a capitalist during his reign at Bain," the Super PAC states on its kingofbain.com Web site. "He was a predatory corporate raider."
Among the Bain deals featured in the ad is the 1992 leveraged buyout of American Pad and Paper (Ampad). The attack ad features former factory workers in Indiana who lost their jobs after their factory was taken over and then closed by Bain-owned Ampad in 1994. While Yahoo reports that Romney was running for Senate and on leave from Bain when the closure occurred, he and Bain nonetheless reaped more than $100 million from an initial investment of $5.1 million. Ampad later went bankrupt and is now owned by Esselte Corp.
Investors who bought stock in Ampad between June 1996 and December 1997 filed a putative securities class action against Bain in Dallas federal district court in 1998, claiming the private equity firm had driven the company into the red by saddling it with too much acquisition-related debt. The plaintiffs also claimed the company had falsified its financial results in order to drive up the stock price. The plaintiffs were represented by Marc Stanley of Stanley, Mandel & Iola, and disgraced Milberg Weiss Bershad Hynes & Lerach partner William Lerach. (Stanley and Lerach did not respond to requests for comment.)
Bain maintained in a December 2000 motion to dismiss that the plaintiffs' complaint lacked sufficient evidence to show that Bain exercised day-to-day control over Ampad. Dallas federal district judge Barbara Lynn agreed and dismissed the case in 2001. The U.S. Court of Appeals for the Fifth Circuit affirmed her ruling in September 2003. The lawyer who represented Bain in the suit: Ropes & Gray partner John Donovan. He declined an Am Law Daily request for comment.
Ropes's ties to Romney and Bain were in evidence in a somewhat unusual way early in the presidential campaign, when an associate with the firm, Cameron Casey, set up what turned out to be a phantom company. The company, W Spann LLC, gave $1 million to the Romney-backing Super PAC Restore Our Future. According to MSNBC, the company made the donation in April and folded in July. MSNBC also reported that W Spann LLC's mailing address was a midtown Manhattan office building, though records showed the building had no tenant by that name. Eventually, Ed Conard, a former top Bain official who had retired in 2007 came forward as the donor.
Romney has also dipped into the Ropes & Gray pool for a pair of former associates to help staff his campaign, according to P2012.org: deputy director of operations and senior advisor Louis Tavares and regional finance director Trent Christensen. Another Ropes alumnus, Sean Doherty became the first in-house lawyer for Bain Capital in 2005. Doherty, who declined to comment through a spokesperson, is currently Bain Capital's chief legal officer.
As it turns out, Romney is not the only GOP candidate with a Ropes connection. On Wednesday, Reuters reported that Gingrich hired retired Ropes partner Thomas Susman in 2000 as he was launching his consulting firm, the Gingrich Group.
Susman told Reuters that his job was to make sure the former House speaker's consulting work did not stray into lobbying. "The subject matter," Susman said, "was simply to advise him and his associates in his business what the lobbying laws were because he did not want to have to cross the line to register as a lobbyist in any of those jurisdictions."
The distinction is important because Romney has accused Gingrich of being an "influence peddler" and lobbying on behalf of Freddie Mac. Susman's statements suggest Gingrich was keen to steer clear of doing anything that could be viewed that way.
In this instance, it seems, Ropes may not have been so helpful to Romney.
Julie Triedman contributed reporting.
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