Carlyle Group's Smoking Tobacco Investment

Claren Road, a hedge fund owned by the Carlyle Group, made big money buying lowly rated state tobacco bonds, then worked deals with state finance officers to boost their value.  ProPublica reported Claren's deal with New Jersey garnered $92 million for the state and over $100 million in profits for Claren Road.

This echoes the Great Eskimo Tax Scam, which preceded Carlyle's founding.

In 1984, a law was passed allowing native corporations in Alaska—that is, Eskimo owned companies created by Congress to manage native lands—to sell their losses to businesses looking for tax write-offs. The Marriott executives, working with David Rubenstein at Shaw Pittman, discovered the Eskimo clause and vigorously bought the losses to offset gains. The adventure has become known in some quarters as the Great Eskimo Tax Scam.

More recently, a Carlyle affiliate pursued Florida "wetlands credits."  PEU's know how to wring out profit, on the backs of people.  In fact, it's an American tradition.

PEU Dry Powder in for a LeBron-like 2015

Bloomberg reported:

For The Carlyle Group and its peers, there are mounds of cash waiting to be deployed in 2015. Blackstone’s so-called dry powder stands at $42 billion, Apollo Global Management LLC’s is $34 billion and KKR’s is $18 billion. Carlyle’s is $56 billion.

Carlyle was the busiest private equity underwriter (PEU) in 2014.  It will be interesting to see how Carlyle's energy investments do in the current era of $55 a barrel oil.  Carlyle lost its mortgaged backed security fund in spring 2008 during a time of imploding real estate loans.  It rolled up Blue Wave Partners, a hedge fund that same spring, at large losses for investors.

PEU's count on valuations cycling.  They mine affiliates for cash via annual management fees, deal fees, added debt for dividends and then the final cash explosion, an IPO or sale of the firm.

It's interesting how many politicians cross back and forth from the PEU world.  Those in office understand their role of servicing the greed and leverage boys.  Dry powder must be deployed.

Thus industries must alternatively be stressed, then favored.  Carlyle and company don't like mobilizing their cash hoards on high priced assets. 

Catering to Banksters

FT reported former Fed Chief Paul Volcker's reaction to the postponement of financial reform that required banks to divest risky, illiquid investments from units that have federal backing::

“It is striking, that the world's leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can't manage the orderly reorganisation of their own activities in more than five years.”

It's about the big money boys.  No one else is in the room.

Carlyle's DD Rap Jam LLC

Business Insider reported Carlyle Group co-founders David Rubenstein and Daniel D'Aniello rapped a holiday message for investors:

It takes a lot of brains to do what we do,
Looking for a way to make some dough for you.
Energy, commodity, we do it all,
So pick up the phone and give us a call.
Corporate mezzanine, private equity,
Carlyle Group is the place to be.
We’re global, we’re mobile, we’re aiming to please.
Only goal in mind: serve the LPs

Take dat unitholders...

Dodd Frank Toothless for PEU's Until 2017

BBC News reported on the sweet hand Congress and regulators continue giving taxpayer backed banks:

The new extension applies to other types of "legacy covered funds", according to a release on the Fed's website, which include "having certain relationships with a hedge fund or private equity fund".

Dodd Frank's PEU tooth may come in by mid-2017.

Carlyle, Warburg Could Have Captive Rating Agency

Reuters reported:

A private equity consortium of Carlyle Group LP and Warburg Pincus LLC is in advanced talks to acquire privately held credit rating agency DBRS Ltd for more than $500 million, according to people familiar with the matter.

After final bids were submitted this week, Carlyle and Warburg Pincus have so far prevailed in the auction for DBRS, which also attracted Canadian private equity firm Birch Hill Equity Partners Management Inc, the people said on Friday.

No exclusivity has been awarded to any bidder and the outcome could still change, the people cautioned. Carlyle and Warburg Pincus are in the lead partly because they have a global footprint that can help DBRS expand further internationally, one of the people said.

The Carlyle Group has been known to bleed affiliates for dividends by floating debt.  How might a captive rating agency help Carlyle's cause?  

Carlyle junk:  never too hot to loan.  Might this be DBRS new mantra?

This Week's Signs of Political Elder Abuse

It was a rough week for America's retired seniors.  First, PPACA architect and physician Ezekial Emanuel suggested people over age 75 should stop taking any life extending medications.  He framed it as his personal decision before talking about "population based" medicine.

“It is really about what you are doing to contributing and enriching the world.  I want people to stop focusing on just more years, focusing on quality,” Emanuel says.

Older people can die early to save other people money.  This leads to the second abuse of retirees.  Kansas Governor Sam Brownback cut funding for the Kansas state employee pension.

The governor cut state contributions to KPERS $40.7 million for the next six months, dropping the employer contribution rate to 9.5 percent from 12.1 percent.

Read more here: http://www.kansas.com/news/politics-government/article4413431.html#storylink=cpy

This reduction does not impact the pension liability, so theoretically the state of Kansas will make up the shortfall over time.  Then again, maybe not.

The third harming of retirees came from Congress and it jeopardizes any pension promise.   Congress considered and passed:

A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans.

The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets.

Congress included a bankster bonus feature.  Government insured banks will keep their derivatives franchises, which write and sell financial wagers.  How many bets will they make on pensions going under?  It's derivitable.

Thank heaven Congress is keeping billionaire, bankster and PEU taxes low.  America's politicians, for the most part,serve one class.  They regularly tell the rest to sod off.  For seniors that's could be an early six feet under.  

Frist Joins Carrick Capital as Senior Advisor

Carrick Capital announced former Senator and Dr. William H.Frist joined its stable of special advisors.  Frist already is a private equity underwriter (PEU) with Cressey and Co.  Carrick Carrick is an investment firm focused on fast growing software and technology-enabled services firms and it's targeting health care technology companies.  Thus the need for Dr. Frist's sage advice.  The company's press release stated:

“Healthcare technology services companies are a primary focus for Carrick. We see an opportunity to deliver better healthcare and address industry pain points through great business models and the application of innovative technology. Bill’s expertise and policy insights are invaluable to our portfolio companies that are serving this market,” added Carrick Capital Partners Co-Founder and Managing Director Marc McMorris. 

Those pain points are purposely designed by the U.S. Congress and regulators charged with implementing healthcare legislation.  Former Senator Frist knows of such legislative pain points.  Carrick invests more than capital.  It's betting its investment in Dr. Frist pays off.  I expect it will do so handsomely.

Uncle Sam to Backstop Bankster Derivatives & PEU Stakes

Bloomberg reported:

Goldman Sachs Group Inc. (GS) has $7 billion invested in private equity that it might have to sell at a loss. For Morgan Stanley (MS), it’s $2.5 billion. 

The big sums explain why Wall Street has been lobbying regulators to delay a July deadline for complying with the Volcker Rule, which restricts banks from investing in private equity as part of a ban on making market bets with their own capital. 

This makes it sound like bank money is invested in a myriad of private equity funds, as opposed to the bank having a private equity subsidiary within the holding company.   Banks frequently spin off and sell subsidiaries.  Why not their PEU divisions?

HuffPo noted the second barbarian run at Dodd-Frank's gate:

Wall Street lobbyists are trying to secure taxpayer backing for many derivatives trades as part of budget talks to avert a government shutdown.

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.

Four banks dominate the derivatives market, J.P. Morgan, Bank of America, Citi and Goldman Sachs.

Big banks may get to keep their PEU stakes and keep public backing for risky derivative trades. Time reported last year.

While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP.  

The risk underlying derivatives is they are sold for little to no money relative to the underlying bet.

Each actual dollar in the derivatives market is supporting between $35 and $70 of nominal value. Losses of only a few percent of face value therefore would be enough to wipe out even the best-capitalized derivatives traders. 

Leverage of 35 to one (potential risk to underlying fund) brings to mind Carlyle Capital Corporation which levered 36 to 1 (debt to equity).  CCC was the canary in the financial services coal mine imploding in Spring 2008, months before Lehman Brothers fall. 

The more things change the more they stay the same.  Same sponsors, same political system which requires huge fundraising to be elected.

Politicians Red and Blue love PEU.

Update 2-14-15:  The best bankster lament comes from across the pond.   "I’m sick of this stuff. I’m sick of hearing about rich people avoiding and evading tax. I’m sick of rich companies paying next to no tax and bleating that they are doing nothing illegal. And I’m sick of hearing about powerful people presiding over these malpractices and swanning ever onwards and upwards to yet more power and riches." 

Ukrainian Finance Minister is a PEU

Vice President Joe Biden recently visited Ukraine telling President Petro Poroshenko that he needed to form a new government "within days, not weeks."  Disclosure:  Biden's son Hunter sits on the Board of Directors of Burisma, Ukraine's largest gas producer.  Thus, it would be helpful to appoint Western oriented cabinet members.

Poroshenko's party proposed three foreigners (to his new cabinet):  Natalie Jaresko, a U.S. citizen, for finance minister, Lithuanian Aivaras Abromavicius for economics minister and Georgian Alexander Kvitashvili for health minister. Poroshenko granted them Ukrainian citizenship yesterday, hours before the parliamentary vote that approved the appointments.

Ukraine's new finance minister is a private equity underwriter (PEU), having co-founded Horizon Capital.  Jaresko served as President of Western NIS Enterprise Fund, capitalized with $150 million in U.S Government funds.

WNISEF is managed by Horizon Capital, a private equity fund manager that originates and manages investments in mid-cap companies with outstanding growth and profit potential in Ukraine and Moldova. 

The Lithuanian works at Swedish investment firm East Capital and the Georgian oversaw the large scale privatization of his country's health care system.  It sounds like a corporafornication paradise.

Update 12-5-14:  NakedCapitalism ran a piece on Jaresko.   The success Horizon Capital claims for its funds appears not to have been reported in the lossmaking years, 2003, 2004, 2005, 2006, 2008, 2009, 2010, and 2012. In the only two years which Jaresko managed in the black, 2007 and 2011, the net gains reported were $1.8 million and $401,662, respectively.

Update 3-26-17:   EPJ reported Jaresko has been named chief executive of the Financial Oversight and Management Board for Puerto Rico

Update 9-28-19:  ZeroHedge reported Hunter Biden and his partner Devon Archer received $3 million from Burisma.  The story mentions opportunistic USAID funding. 

Update 1-16-20:   President Trump will speak at the World Economic Forum in Davos, Switzerland next week.  The billionaire boys will attend.  Horizon Capital is sponsoring Davos' Ukraine House.  The Ukraine Venture Capital and Private Equity Association will meet at the Ukraine House   Ukrainian President Volodymyr Zelensky.will host the invitation-only meeting of the National Investment Council of Ukraine at the Ukraine House  

Update 3-1-22:  Biden partner Devon Archer was convicted of fraud for defrauding a Native American tribe.  Oddly, doing deals with Native Alaskans is how David Rubenstein got his Carlyle Group seed money.  

Update 8-1-23:  ZeroHedge reported Hunter's partner Devon Archer shed light on Vice President Joe Biden's influence on the Burisma board appointment.  Archer said the family's "brand" had value at a time when the firm was facing corruption allegations.

Pensions Sue Carlyle Group for Cobalt Losses

Courthouse News reported two pensions filed suit against Cobalt Energy and its PEU sponsors:

On the morning of August 5, 2014, Bloomberg reported that an anti-corruption organization had determined that Cobalt had made an apparent bribe to the Angolan government, because Cobalt had paid the Angolan government millions of dollars to support an Angolan research center that Cobalt could not confirm actually exists," the complaint states.

On Nov. 5, Cobalt disclosed that contrary to its previous claims that one of its Angolan wells was oil-rich, testing revealed the well contained neither oil nor gas.

PEU Report wrote about Cobalt numerous times with one post exploring possible bribes. 

Update 3-29-15:  A U.S. newspaper columnist reported "Tom Burgis of The Financial Times has a powerful new book, “The Looting Machine,” asserting that firms, including Goldman Sachs and Carlyle Group, backed an oil company called Cobalt in investing in oil operations in which Angolan officials secretly held stakes worth staggering sums."  It's not an assertion.  

Bring Us Your Rich

The United States will sell anything, including access to immigration visas for a $500,000 infrastructure investment.

The Pennsylvania Turnpike Commission is counting on 400 wealthy foreign investors, mostly from China, to provide $200 million for the $420 million project.

The rest of the money will come from federal and turnpike funds.

The heavily indebted Turnpike Commission is borrowing the $200 million from foreign investors under the federal Immigrant Investor Program that grants "EB-5" immigration visas to foreigners who provide at least $500,000 to U.S. projects that create 10 or more American jobs.

It's no longer:

"Give me your tired, your poor.  
Your huddled masses yearning to breathe free."

The America of 2014 is "Give me your investors, your wealthy.  Your landed gentry wishing to purchase access to our shores."  Who needs a receipt?

Update 12-13-14:  WSJ reported on rich foreigners purchasing visas via real estate investments

Corporate Boards: The Bayh Rotation

Senator Evan Bay and wife Susan have shifted their board directorships.  Mrs. Bayh served on nine boards while her husband was a public servant.  She's down to two boards, Emmis Communications and a newly bankrupt Dendreon (Chapter 11).  Mr. Bayh quickly grew his directorships to five, in addition to his private equity underwriter (PEU) slot with Apollo Group Management and influence peddler position with McGuireWoods:

Sen. Bayh serves on the board of directors for Fifth Third Bank, Marathon Petroleum Corporation, Berry Plastics Corporation, RLJ Lodging Trust, and McGraw Hill Education. He also serves on the advisory board for the Central Intelligence Agency (CIA).   

Evan's sun is rising.  Susan, once a corporate star of her own, may now be a satellite.

VP Biden Eats Carlyle Group Turkey

Boston Globe reported:

(Vice President Joe) Biden and his wife stayed at the home of Carlyle Group co-founder David Rubenstein and ate a Thanksgiving feast dinner prepared by Bill Puder, chef at Faregrounds restaurant on the island.

I'll venture the conversation drifted to Ukrainian gas and how Carlyle's energy infrastructure can help Europe free itself of Russian dependency.  USAID came forward to guarantee loans for companies developing energy in Ukraine, Moldova and Georgia.  One such firm has a young Biden on its board of directors.

What was under the PEU serving platter at Mr. Rubenstein's Abrams Point compound?  Fortunately, the last four Congresses pardoned carried interest taxation.  Now that's service.

Update 11-23-16:  Biden's back at Carlyle co-founder David Rubenstein's Nantucket home for Thanksgiving.  Airspace is restricted through Sunday.   

Update 11-22-22:  Biden is back at the PEU Rubenstein compound on Nantucket for yet another Thanksgiving.  He stayed there in 2021 and possibly in 2019.

"60 Minutes" Omits LaHood's Infrastructure PEU Job

60 Minutes reported:

Ray LaHood: Our infrastructure is on life support right now. That's what we're on.

Few people are more aware of the situation than Ray LaHood, who was secretary of transportation during the first Obama administration, and before that a seven-term Republican congressman from Illinois. He is currently co-chairman of Building America's Future, a bipartisan coalition of current and former elected officials that is urgently pushing for more spending on infrastructure. 

60 Minutes failed to mention LaHood's two other jobs that deal with infrastructure.  LaHood is Senior Advisor to Meridiam Infrastructure, a private equity underwriter (PEU) specializing in infrastructure and  Senior Advisor to law firm DLA Piper.

DLA Piper announced that former US Department of Transportation Secretary Ray LaHood has joined the firm as a senior policy advisor in the Washington, DC, and Chicago offices. Joan DeBoer, Secretary LaHood’s former chief of staff, will also join the firm as a policy advisor.

NextCity reported:

LaHood joined law firm DLA Piper as a senior adviser earlier this year. (The term “lobbyist” was not used, but DLA Piper does occasionally dabble in lobbying for transportation projects. Legally, LaHood is not allowed to lobby the Department of Transportation, but Congress — which he used to be a member of, as a representative from Illinois — is fair game.)

Back to the 60 Minutes interview with LaHood:

Steve Kroft: Why? How did it get this way?
Ray LaHood: It's falling apart because we haven't made the investments. We haven't got the money. The last time we raised the gas tax, which is how we built the interstate system, was 1993.
Steve Kroft: What has the resistance been?
Ray LaHood: Politicians in Washington don't have the political courage to say, "This is what we have to do." That's what it takes.
Steve Kroft: They don't want to spend the money? They don't want to raise the taxes?
Ray LaHood: That's right. They don't want to spend the money. They don't want to raise the taxes. They don't really have a vision of America the way that other Congresses have had a vision of America.

Actually, Congress has a PEU vision for America.  They don't want to tax the billionaires who fund their campaigns and will likely employ them post "public service."  Those billionaires expect a rotating scorched earth for them to buy assets cheap (using levered debt), apply their financial machinations, fluff up the affiliate (often with government subsidies), then resell it for a multiple of their original equity investment.

That's the bipartisan vision Congress and the White House have for America.  Politicians Red and Blue love PEU.  America's traditional watchdogs seem to be protecting the PEU class, not the general public.

Japan's Shame: Looming PEU Boom

The Carlyle Group's David Rubenstein said Japan is now ready for private equity and its financial machinations which cause distortions. 

“I think we are going to find more opportunities in Japan than before,” said Mr. Rubenstein, who is raising a new fund to invest in the country. “I do think that Japan will see a bit of a mini boom in private equity investing as the government encourages more and more private-equity deals.” 

Japanese culture has historically been the antithesis of private equity.   This should cause great shame to Japan's leaders.

Clinton Seriously at Bilderberg

Politico quoted Vernon Jordan, on taking Bill Clinton to Bilderberg meetings in 1991:

“He left law school and came back to the South … He could [have gone to] Wall Street … [but] he came from Yale to home to do something about race.” – Vernon Jordan, longtime Clinton friend.

“I would say, that’s the next president of the United States,. They said, ‘Jordan, you been drinking? You been smoking?’ I said, mark my words.”

WaPo stated in 1998:

After all, it was Jordan who first introduced then-Gov. Clinton to world leaders at their annual Bilderberg gathering in Baden Baden Germany in 1991. Plenty of governors try to make that scene; only Clinton got taken seriously at that meeting, because Vernon Jordan said he was okay. 

Sixteen years ago Vernon Jordan symbolized insider access and corporate cronyism:

Between Jordan and his wife, 17 directorships give the couple an annual income of more than $800,000, in addition to the reported $1 million he makes at his law firm. 

President Bill Clinton helped stoke such cronyism by privatizing government functions, like security checks.  Now Western governments protect the Bilderberg crowd with virtually impenetrable security.  The Clintons should reappear before the Bilderberg Group since it likes to sniff U.S. Presidential candidates.  The corporate Bush's will likely be there, as well.  Bilderbergers love royalty, even the American cracker kind.

Update 11-20-14:  Vernon Jordan is Senior Managing Director of Lazard Freres, the investment bank sending U.S. corporations overseas for tax elimination purposes.   President Obama's latest Treasury appointment is Lazard's Antonio Weiss.

DaVita Settlement Omits Role of Two Former CMS Chiefs

DaVita reported in a SEC filing:

Under the Settlement Agreement, the Company will pay $350 million plus accrued interest from February 8, 2014, at the rate of 2.25% per annum to the United States, plus a civil forfeiture of $39 million (together, the “Settlement Payment”). In addition, the Company has agreed in principle to a settlement of certain state Medicaid claims in the amount of $11.5 million plus interest.

Under the Settlement Agreement, the United States agrees to release the Company from any civil or administrative monetary liability arising from allegations that the Company caused the submission of claims to the federal health care programs that were ineligible for reimbursement due to certain violations of the Anti-Kickback Statute in connection with certain of its dialysis center joint venture arrangements. Additionally, under the Settlement Agreement the United States and the relator agree to dismissal of the civil action filed by the relator under the qui tam provisions of the False Claims Act, and the OIG agrees, conditioned upon the Company’s full payment of the Settlement Payment, to release its permissive exclusion rights and to refrain from instituting proceedings to exclude the Company or any Company affiliates from participating in Medicare, Medicaid or other Federal health care programs.

The Settlement Agreement reflects the Company’s disagreement with the United States’ claims and contains no admissions of facts or liability on the part of the Company.

The United States has also informed the Company that it has declined to proceed with any criminal charges in connection with this matter. 

The behavior in question occurred with two ex-Medicare Chiefs sitting on DaVita's Board of Directors.  Both William L. Roper, M.D. and Nancy-Ann DeParle were appointed to the DaVita board in May 2001.   Roper served on the Board compliance committee and DeParle on the audit committee.

In March 2004 the board established two new standing committees, a public policy committee and a clinical performance committee. The public policy committee consists of Ms. DeParle and Dr. Roper, with Ms. DeParle serving as the chair. 

I believe DaVita expected these two to block for the company and its numerous violations, illuminated in the legal complaint.   After ignoring its internal compliance handbook over a decade's time the company said:

We are proud of our commitment to compliance over our 15-year history. We have worked incredibly hard to get things right and it is our belief there was no intentional wrongdoing. 

The legal complaint reads intentional wrongdoing of the repeating kind.  That I believe.   It occurred under the fiduciary oversight of two former Medicare Chiefs and neither the Department of "Just Us" nor the media shared this basic fact. 

PEU Barons Right to Carried Interest

What if private equity underwriters gathered to document their concerns to public officials?  A similar gathering of the powerful and influential occurred in 1215 and it produced the Magna Carta:

Magna Carta was written by a group of 13th-century barons to protect their rights and property against a tyrannical king. It is concerned with many practical matters and specific grievances relevant to the feudal system under which they lived. The interests of the common man were hardly apparent in the minds of the men who brokered the agreement. 

The document stated:

Common pleas are not to follow our court but are to be held in a certain fixed place.

Today's Greed-a-Carta would say something like:

Only the common are to pay publicly stated rates of taxes.  Members of the PEU court are to have access to preferred taxation rates known as carried interest.

King John signed the Magna Carta to quell a rebellion.  PEU Robber Barons have no need to rebel, given they sponsor and control the system.  However, the common person may be at their wits end from Congress' catering to the greed and leverage boys for well over a decade.

Monumental PEU Seeks National Security Firms

Digital Journal ran the following commercial for PEU Monument Capital:

Monument Capital Group Holdings seeks investment into companies featuring four essential characteristics: 1) proven management teams; 2) positive cash flow; 3) non-lethal products and services with technologically competitive advantages; 4) capacity to meet the high demands of national security advancement worldwide.

Eliminating breaches in national and global security and improving national infrastructure security are paramount to governments and citizenry worldwide. In a rapidly changing security environment -- in which biosecurity, data security, cyber security, border security, maritime security and infrastructure security are both crucial and ever-evolving -- it is imperative that the private sector provide the highest possible level of technology the world has to offer. Monument Capital Group Holdings provides the financial backing for that technology to be developed, implemented and deployed, thereby ushering in a new set of national and global security defenses. 

Monument Capital Group Holdings provides valuable investment capital for technology companies with an international focus. Technological advancements are made around the world, and Monument Capital Group Holdings partners with companies worldwide in an effort to ensure its portfolio is at the leading-edge of those advancements. The international range and depth of investment and security technology experience possessed by Monument Capital Group Holdings' executive team and its Advisors ensures that that balance is struck with maximum benefit.

It didn't say Monument Capital's founders and advisors reads like a Carlyle Group franchise.  One has to love that Monument Capital Senior Advisor James A. Baker, III can talk about issues of national security without disclosing his financial conflicts in that arena.  It's Meet the Putz!

Conflicted Governor Rauner: Rahm's Mentor

Private equity underwriter (PEU) Bruce Rauner won the Illinois Governorship and made the news for taking political donations from executives at firms that manage state pension funds.  Doing so is against the law, but when do laws apply to the greed and leverage boys or their sponsored politicians?  Pretty much never.

PEUs exploded after the new millennium, becoming ubiquitous under Presidents Bush and Obama.  Rauner mentored ex-Congressman Rahm Emanuel, steering him into investment banking.  Emanuel went on to serve as President Obama's Chief of Staff and Chicago Mayor.

Here's what the PEU virus delivers:

Illinois Governor-elect Bruce Rauner accepted more than $140,000 worth of campaign donations from executives affiliated with firms in which Illinois pension systems have investments, according to documents reviewed by the International Business Times.

  But back to public pension money and Rauner's conflict:

Financial disclosure documents show he still retains ownership stakes in 15 GTCR entities. Though Rauner said he retired from the firm in 2012, SEC documents show he retains a partnership stake in at least one GTCR subsidiary. The two state pension systems he will now oversee as governor list GTCR as managing state money.

It gets more twisted when one considers Rauner's GTCR is also a big investor in health care, which taxpayers fund through state Medicaid programs.  Rauner has layers and layers of conflicts.

President Obama's health deformer Nancy Ann DeParle retained an unknown stake in CCMP Capital Partners, receiving several distributions from CCMP affiliates while clearing the health care table for her PEU ilk.  Someone in the White House assurred the public that all of DeParle's conflicting assets had been divested.  They weren't all declared, especially her PEU residual stakes.

Add that Rauner's GTCR is running from a $110 million verdict for nursing home negligence and things get more disturbing.  Welcome to our PEU world, where politicians Red and Blue love PEU.

Update 12-19-14:  Rahm showed his addiction to financial industry contributions by exempting Chicago pensions from ethics coverage.

Update 3-15-15:  Governor Rauner was a top donor to 2014 state election campaigns, using his PEU fortune to fund/buy his election.  Polticians Red and Blue love PEU.  PEU Bruce Rauner is on the Red team. 

The Bonus Conundrum

Bloomberg reported:

American Realty Capital disclosed last week that accounting errors were intentionally concealed at the New York-based company, leading to the resignation of two executives and sparking an FBI investigation and a review by the Securities and Exchange Commission. 

The Wall Street Journal reported today that the errors were tied to bonuses. The mistakes resulted from incorrect accruals relating to bonus payments made to management and other employees, according to a person the newspaper didn’t name. 

Bonuses caused management to lie, cheat or steal to garner the prize, which leads us to our next story where financial traders did just that in rigging foreign exchange and gold.  Their punishment?  200% bonuses!  Zero Hedge reported:

FINMA has also instructed UBS to limit bonuses for traders of foreign exchange and precious metals to 200 percent of their base salary for two years.

Which means that clearly nobody is going to jail, however the punishment is far more harsh: riggers will have a bonus of ONLY 200% their base salary for two years to look forward to!  The horror, the horror.

If management wants to distort something, do the following:

1.  Construct a complex extrinsic reward system
2.  Give it time. 
3.  Kaboom!

That's what will eventually happen with the greed and leverage boys.  Party like it's 1929!

Update 5-17-22:  German Allianz SE agreed to pay $6 billion and plead guilty to securities fraud for its Structured Alpha funds.  Reuters story stated "managers also inflated fund results to boost their pay through performance fees."

The Sore is Private Equity

Carlyle co-founder David Rubenstein told fellow billionaire Ron Baron at an investor conference:

"In other words, if you have a sore ... you eventually figure out how to live with the problem."

"It's an illness we've been suffering from," he continued. "If we could get rid of this sore, could get rid of this problem, I think the economy would do better." 

Rubenstein referred to dysfunction in Washington, but his words equally apply to private equity.  The rise of private equity corresponds with the decimation of America's middle class.  Many believe the relation is not just correlation. but cause and effect.  Ironically, Carlyle Group is investing in companies that sell to China's rising middle class

Since 2000 PEU greed and leverage spread to other public and nonpublic companies.  By manipulating debt and equity companies dressed up earnings per share, ensuring executives got their absurd executive incentive compensation.

Every industry expects Washington to provide preferred legislation, backstop their failures and enhance their profits.  Washington in turn expects donations, which the big money boys provide.  Mr. Rubenstein is correct about the sore and he is one infectious agent.

Rubenstein Gift to Rebuild Slave Quarters

Carlyle Group co-founder David Rubenstein's $10 million gift to President James Madison's Montpelier estate will fund the restoration of the site's former slave quarters.  Madison is considered the father of the U.S. Constitution.  WaPo reported:

About $3.5 million will go to archaeological and other work on a small complex of slave cabins, a kitchen and two smoke­houses that stood just south of the mansion.

Experts believe about 30 people — "house slaves" and their families — occupied what were relatively comfortable structures. The plan is to reconstruct the buildings and furnish the complex.

The plantation's "field slaves" lived in more spartan cabins of logs and mud near where they worked, said Montpelier's director of archaeology, Matthew Reeves.

Madison, although troubled by slavery, at one point owned 118 slaves. It is said he talked more on the subject of slavery than on any other.

Rubenstein said at a recent event, "Without the Bill of Rights the Constitution would not be what it is."  He did mention the terrible exception for slavery.  Rubenstein joined likely Presidential nominee Jeb Bush and Supreme Court Justice Samuel Alito.

He commented on the Bill of Rights, saying all people "could be equal" but "we're not there yet."  Mr. Rubenstein will loan the Constitution Center copies of the 13th amendment, which abolished slavery. 

Mr. Rubenstein closed with his belief President George H.W. Bush would be a founding father if the Constitution were written today.  What exception would the landed gentry write in today?  Might it be corporate free speech rights, destruction of the right to privacy, even carried interest taxation?

Slavery is the remnant the powerful gifted to themselves.  They would do similarly today.  It's fitting Rubenstein's gift recreates slave quarters.

Carlyle's PEU Dividend Recapitlizations

The Carlyle Group held its Q3 earnings call.  Items of note included:

We took advantage of access to cheap credit to complete over $700 million in dividend recaps from the third quarter in companies such as PPD in the United States; Emeos [ph], Twin Set and Marle in Europe; 7 Days Group in China; and Tsubaki Nakashima in Japan.

In addition to Booz Allen (over $60 million dividend payment to Carlyle) and excluding the aforementioned recaps, we realized approximately $300 million in additional proceeds from dividends and operating proceeds across the portfolio.  

Sometimes when we do a recap, we don't actually think of that as a realization.

That's the recap on recaps.  Overall Carlyle is set to win in whatever world its sponsored officials create:

It is important to note, however, that our business model allows us to take advantage in any economic environment. If the equity markets appreciate, we will continue to exit. But if the equity markets fall, we will find more compelling investment opportunities, and we are under no obligation to sell.

Imploding debt markets pose the biggest threat to Carlyle and their bloated ex-affiliates.  The Fall 2008 financial crisis saw Carlyle making capital calls, over $650 million alone to CalPERS.  A financial meltdown, where the big money boys no longer trust one another to make good on their debts or bets, can happen again, it will.  The question is when.

Behemoth Carlyle Loses Taste for Public Water

While our Goliath federal government caters to private equity underwriters (PEU's) at numerous turns, two small municipalities have taken on The Carlyle Group's Park Water.  Missoula, Montana and Apple Valley, California loaded an eminent domain stone in their sling. 

Missoula's stone has considerable velocity and is ready to launch at Carlyle's three eyed monster, which has an eye for each Carlyle Group co-founder.  The Missoulian reported:

The city of Missoula can afford to bond for as much as $102.63 million to buy Mountain Water Co. based on current rates, according to Barclays Capital. 

Note that $103 million is what Carlyle paid for Park Water and its three divisions in 2011.  Barclays suggests that Carlyle get its money back from the sale of one division, Mountain Water.  Rest assured, Carlyle had four years to pull management fees and dividends from Park and its three subsidiaries.  From numbers released in the Mountain Water case this will amount to $15 million, $10 million in management fees and $5 million in dividends by year end.

One of the other two divisions of Park Water appears ready to give Carlyle another headache. Victorville, California's Daily Press wrote:

A study commissioned to explore various financing options for the town’s purchase of Apple Valley Ranchos Water Company was released last week. 

The Apple Valley Town Council authorized the release of its “Financial Feasibility Analysis for the Acquisition of the Apple Valley Ranchos Water System. 

The town is pursuing the purchase of AVR in order to gain local control over the town’s water resource and stabilize the ever-rising rates the town has experienced over the last decade, according to a news release.

Here's a hint as to how complex Park Water's corporate structure actually is.  This comes from the Apple Valley press release:

The Carlyle Group, an investment firm based in Washington, D.C. and the current owner of AVR, has said Park Water Company, of which AVR is a part, is on the market and for sale. An announcement of a potential sale came in late September from Algonquin Power & Utilities Corp., a Canadian company, which said its regulated utility business, Liberty Utilities, agreed to acquire Western Water Holdings LLC — the holding company of Park Water under the Carlyle Group. Park Water Company also includes the Mountain Water Company in Missoula, Montana and Park Water Company in southeast Los Angeles. 

Two of Park Water's three divisions are challenging The Carlyle Group.

Carlyle is used to being catered to by local, state and the federal government.  Each is to bring government business for affiliates, preferred taxation for PEU profits or millions in economic development incentives.  How dare they try to buy Carlyle assets for less than a three, four or five bagger!

The Carlyle Group found this so distasteful it will exit public infrastructure.  WaPo reported:

Seemingly tired of the back and forth, Carlyle is exiting business of bridges, water and highway stops after eight years. It’s going into energy infrastructure instead.

I hope a stone lands in at least one the Carlyle monster's three eyes before it packs up its weapons and moves to territory where it's easier to crush local opposition.  Energy fits the PEU bill.

Update 7-12-18:  Carlyle faces a bad faith lawsuit from the City of Missoula.  Might the PEU boys offer another puffery defense?

Update 7-21-19:  Our hot summer finds Carlyle thirsty for more water deals via a joint venture with VICO Infrastructure

Update 6-16-20:   Missoula's bad faith lawsuit against Carlyle has been delayed due to the coronavirus pandemic.  The city's attorneys say they have evidence of Carlyle Grouo fraud and malice.  If so, Carlyle will not want a public trial. 

Conan's Loss & Albright's Argentine Burn

ABC News reported on the Twitter interchange between Conan O"Brien and former Secretary of State Madeline Albright.

Madeleine Albright proved to be a good sport when Conan O'Brien cracked a joke on Twitter that name-checked the former U.S. secretary of state. 

On Thursday afternoon, the TBS late-night host quipped, "I picked out my Halloween costume. I’m going as 'Slutty Madeleine Albright."

Albright, 77, rose up to the challenge and tweeted a joke of her own, at O'Brien's expense, saying: "I'm considering going as hunky Conan O'Brien - but that might be too far fetched." 

O'Brien got a kick out of Albright's response. He responded, "YES - My first twitter war with a former Secretary of State! You're next, George P. Shultz!"

Albright then made it clear that she's not one to be messed with: "Never get into a word war with a diplomat," she warned. "We talk even more than comedians."

Another reason not to war with Madeline is her propensity for threatening others with a five point plan.  Albright shared a hedge fund's plan for destabilizing Argentina in her role as lobbyist for the firm.  I'm not sure which Madeline Albright is scarier, Conan's Halloween outfit or the international arm twister on behalf of the greed and leverage boys. 

Madeline is all about power.  Disrespect her and a price will be paid. I hope it's not another 500,000 Iraqi children.

Carlyle, JP Morgan, China & Corruption

WSJ reported:

After years of expansion (in China), some are scaling back. Carlyle Group , the alternative asset management company, is laying off about 10 people working on its China growth fund, according to people familiar with the matter. It closed the growth fund’s Chengdu office last year and is going to trim the growth-fund team in its Shanghai office and consolidate it with the Beijing team.  A spokesman at Carlyle declined to comment.

Almost half of the American firms surveyed believe foreign companies have been singled out in a string of pricing or anticorruption campaigns that have hit pharmaceutical, tech and auto companies recently, according to the American chamber. 

The Chinese told a different anti-corruption story.  Xinghau reported:

Since the 18th National Congress of the CPC in late 2012, the CPC Central Committee has been strictly governing the party, and improving the party's style of work, building a clean government and combating corruption, he said.

"All these efforts have gained the support of the general public," Wang said.

"This is just the beginning," he said, adding that the party's anti-graft campaign requires consistency, intensified supervision, discipline and accountability.

A clean government and a healthy and fair market offers the best soft environment for investment, he said.

Wang called for the overseas advisors to integrate international resources to give guidance for Tsinghua University's School of Economics and Management, and contribute to the development of China's education cause.

Advisors, including David Rubenstein, chairman of the Advisory Board and co-founder and co-CEO of the Carlyle Group, said they would continue to make positive efforts for China's economic and educational development.

Mass layoffs are prohibited in China, unless the firm has lost money for three straight years or been unable to pay employees for eight months.  I'll venture Carlyle's elimination of ten jobs isn't considered a mass layoff. 

One has to love that Carlyle is helping China with anti-corruption, which it's tainted ethical history.  Carlyle's gaffes include Synagro (bribes), Semgroup (bad energy bets), LifeCare (blaming doctors and FEMA for 25 patient deaths post Hurricane Katrina), Connecticut and New York pension fund (pay to play settlements in the tens of millions of dollars), Brintons (dumping pension onto public) and ARINC (banned from World Bank for bribery).

Add that J.P. Morgan CEO Jamie Dimon wants a safe harbor for influence purchasing and things get more interesting.  

I can envision Carlyle, J.P. Morgan and China holding hands in anti-corruption.  Can they ignore the facilitating payment or the employed ex-government official or well connected offspring.  They're staring everyone in the face. 

Carlyle's Global Jet Capital

AIN Online reported:

Global Jet Capital (GJC), a new source of leasing and lending options for business jet transactions, starts operations this week. The company has been launched with an initial $2 billion fund with the backing of three investment firms: GSO Capital Partners, The Carlyle Group and AE Industrial Partners.

The new venture’s backers have been evaluating the market for around the past 36 months. “We see an opportunity in the market because the traditional sources of financing, such as the banks, took a step back and others have placed significant hurdles in the lending process so that the provision of lease financing or debt financing has proved to be challenging,” he (Shawn Vick) said.

“[In recent years] many businesses and individuals who have a requirement for large cabin and long-range aircraft have had to use their own capital to buy these, and then find financing [after the purchase],” explained Vick. He believes that GJC has a “significant opportunity” to help clients finance their aircraft in a more flexible way and free up capital for their own businesses.

How many Carlyle sponsored jets will be at the Republican and Democratic National Conventions in 2016?  It's our PEU world, where politicians Red and Blue love PEU.

Update 3-17-21:  The Carlyle Group is bidding on Fly Leasing.

Carlyle's Investors Pay for Collusion Settlement

The epic shamelessness of private equity underwriters (PEU's) can be seen in The Carlyle Group's passing on the cost to investors for settling its role in illegal collusion with other PEU's on club deals.

Carlyle agreed to pay $115 million in the settlement. But the firm didn’t shoulder those costs. Nor did Carlyle executives or shareholders.

Instead, investors in Carlyle Partners IV, a $7.8 billion buyout fund started in 2004, will bear the settlement costs that are not covered by insurance. Those investors include retired state and city employees in California, Illinois, Louisiana, Ohio, Texas and 10 other states. Five New York City and state pensions are among them.

I've written about private equity for seven years and found numerous other fees and costs PEU's charged affiliates and investors.  Investors didn't collude.  Carlyle's management did.  NYT reported under Retirement (not DealBook):

Also blacked out in the Carlyle V agreement is a section on who will pay legal costs associated with fund operations. First on the hook are companies bought by the fund and held in its portfolio, the unredacted agreement says. That essentially makes investors pay, because money taken from portfolio companies is ultimately extracted from the funds’ investors.

But if for some reason those portfolio companies cannot pay, the Carlyle V document says, investors will be asked to cover the remaining expenses.

I wish the following were true:

“Fees are not trade secrets,” he said. “It’s entirely reasonable for us to know what we’re paying.”

Not in today's PEU world where politicians Red and Blue love PEU.

Wake Up Vietnam!

Toi Tre News, a Vietnamese news source, reported:

The Ministry of Finance has proposed that the government increase the proportion of investment by foreign investors in the Vietnamese stock exchange, Deputy Minister of Finance Truong Chi Trung said at his meeting with David Marchick, the managing director of the U.S.’s Carlyle Group on Friday.

Will Vietnam openly welcome private equity underwriters (PEU's). like Carlyle? 

French colonization of Vietnam had the goal of economic profit.  The Vietnamese either collaborated with the French or remained poorly paid laborers. Collaborators joined the lower levels of the French bureaucracy, made a decent wage, and benefited from the partnership.

The PEU-ization of Vietnam has a similar aim.