Sunday, April 11, 2010

Carlyle Group Spreads: One Tentacle at a Time

Two local papers ran pieces on The Carlyle Group, a politically connected private equity underwriter (PEU). The Stamford Advocate story, "Fiscal Impact of Rest-Stop Contract Questioned by Lawmakers," concerned Carlyle's sweetheart deal with the State of Connecticut over 23 rest stops. The deal would help Dunkin' Donuts, a Carlyle Group affiliate, and Subway, franchised by Carlyle's joint venture partner.

The Galveston County Daily News ran "Port of Galveston Seeks Private Partners," mentioning Carlyle's proposal to the State of Virginia to run its port operations. The Galveston port previously courted private investors. It was in discussions with a Hong Kong firm when the Dubai Ports World brouhaha broke out. Those talks failed.

Oddly, while the nation stormed over ports sales, Carlyle sold two U.S. aviation firms, Landmark Aviation and Standard Aero, to Dubai Aerospace. Not a peep, as members of Congress rallied to Carlyle's defense.

Connecticut has a sordid history with The Carlyle Group. Carlyle cheated Connecticut pensioners with kickbacks. The Hartford Business Journal reported:

Carlyle a decade ago figured prominently in what was known as the “Silvester scandal,” in which it and other investment firms paid lucrative “finder’s fees” to associates of the corrupt former state Treasurer Paul Silvester to secure hundreds of millions of dollars in state pension fund investments.

Silvester, who was sent to federal prison after his conviction on federal racketeering and money laundering charges, testified that in connection with one such deal he had Carlyle pay a prominent lobbyist and major Republican fundraiser, Wayne L. Berman. Berman subsequently hired Silvester and his mistress after Silvester lost his 1998-election bid, but Berman fired them both as the FBI’s investigation of the scandal deepened.
Carlyle didn't change in cheating retirees the last decade. It and Riverstone Holdings, a joint venture energy partner, settled with the New York Attorney General for $70 million in combined compensation. But Connecticut made Carlyle promise they hadn't paid anybody off.

The Stamford article mentions "an evaluation of the deal done by Matrix Capital Markets Group (MCMG) and paid for by the state." Matrix describes the firm on their website:

Matrix has been advising private business owners and private equity-controlled companies
MCMG advises the "greed and leverage boys" in their ceaseless drive for more EBDITA. MCMG's specialty said nothing about ensuring governments get a fair deal. I'm sure Carlyle was pleased that Connecticut picked up the tab.

Texas has more exposure to Carlyle than Galveston's port. Carlyle's Vought Aircraft Industries took $35 million from Texas taxpayers in 2004, promising to deliver 3,000 new jobs by 2009. They sent those jobs to South Carolina, financing a Charleston plant with Texas money. 2010 arrived with Vought not employing company-wide, its Texas commitment of 6,300 workers. Texas gave Vought $1 million per job eliminated.

Like their Connecticut counterparts, Texas legislators were out of the loop when Governor Rick Perry rewrote the contract on Carlyle's behalf. Vought repaid a mere $900,000, 25% of the principal at zero interest. Carlyle plans to sell the final piece of Vought to Triumph. Previously, Boeing purchased two Vought divisions that had gunked up 787 Dreamliner production.

Yet, two more states warrant mention, Michigan and Louisiana. Carlyle affiliate Synagro Technologies bribed Detroit City Council woman, Monica Conyers, wife of Rep. John Conyers. The bribes happened under Carlyle Group ownership, which saddles affiliates with debt burdens, increased interest expense, high profit expectations and expensive management fees.

Carlyle's luck sank with Hurricane Katrina. Their LifeCare Hospital affiliate in New Orleans lost 25 patients in the storm's toxic aftermath. Carlyle lawyers tried to Joseph Hazelwood an ENT doctor and two non-employee nurses. Carlyle's legal defense doesn't mention LifeCare physicians and staff, those with a duty to care for patients, even in horrendous conditions.

Their innovative legal strategy claims patients became wards of the federal government when FEMA evacuation teams set up in New Orleans. This is patently laughable, like the White House Lessons Learned report.  Fran Townsend made no mention of the hospital with the highest patient death toll.

Recall the lobbyist who figured prominently in Carlyle's first pension scandal, Wayne Berman. He lobbied for LifeCare, along with Obama supporter Moses Mercado. Berman survived the Silverster taint, enough to get Carlyle Group lobbying business from 2005 to 2009.

Carlyle spent big money in 2007 on Berman and his associates. They lobbied hard on Carlyle's "quiet sale" of Standard Aero and Landmark Aviation to Dubai Aerospace. They convinced Congress to keep private equity's preferred taxation on carried interest. Wayne lobbied for Carlyle's purchase of huge nursing home provider, ManorCare. Berman kept Carlyle's LifeCare failures out of public hearings on the matter.

Wayne Berman must be tight with Senator Chuck Schumer, a frequent PEU water carrier. Schumer defended carried interest until the industry could find a workaround. He flipped on foreign ownership, calling the sale of 6 ports "outrageous," while buying over 50 U.S. airport services "not as much of a risk."

Local, state, or federal, Carlyle is interested in one thing, making lots of money. When PEU's are the answer to America's ills in healthcare, infrastructure and banking, our country is truly sick. Targeted 30% annual returns come on someone's back. Ask Dunkin' Donuts franchisees, New Orleans LifeCare hospital patients, or Texas taxpayers.

For those who believe the Blue Team is any better than the Reds, note the PEU receiving line at the Obama White House. PEU Nancy Ann Deparle reformed health care from the White House, via back room deals. Pay attention to the Virginia state health director, now #2 at the Obama's Center for Medicare/Medicaid. She changed Old Dominion health services based on a "privately funded study," one Governor Tim Kaine refused to make public. Kaine is now Chair of the DNC.

Every time you hear the flutter of a bird's wing, a PEU lands at White House or Capital Building. Red or blue backed, PEU's will get their green.

Update: Carlyle may soon ring the register on Dunkin' Donuts.

Update 3-16-11:  The Carlyle Group is one of two final bidders for Galveston's port operations.  It's a 75 year master lease deal.

Upddate 8-27-11:  Carlyle lobbyist Wayne Berman supports PEU Mitt Romney for the Republican Presidential nomination.  Backup might be Joh Huntsman, Jr., son of a PEU