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Response to Demeter (Reply #41)

Thu Oct 25, 2012, 08:20 AM

42. The Case Against the Looters of the American Economy, and a Mission for Occupy Wall Street

 

http://truth-out.org/news/item/12255-the-case-against-the-looters-of-the-american-economy-and-a-mission-for-occupy

A little-known lawsuit advancing in federal court has the potential to change the moral and legal balance of power between private equity and the public good. But analysts say it may take the Occupy Movement to bring about needed regulatory reforms...The story begins in 2006 when the Department of Justice (DOJ) let it be known that it was conducting an investigation into possible antitrust violations within the private equity industry. While the DOJ has prosecuted private equity companies before under antitrust laws, these cases tend to apply to instances where a particular buyout deal would result in the monopolistic concentration of ownership within a market. For example, in 2008, federal prosecutors argued that if Bain Capital had been allowed to purchase a controlling stake in the media giant Clear Channel Communications then, "competition in the sale and provision of advertising on radio stations in [certain] markets would be substantially lessened or eliminated." This was pretty standard antitrust litigation for Justice Department lawyers. It did little to slow private equity's debt-financed takeovers and value extraction. Bain ended up buying Clear Channel in a club deal that included Thomas H. Lee Partners later that year. What was different about the DOJ's 2006 investigation into private equity was that federal prosecutors were said to be surveying the fundamental business practices of the entire industry with an eye to how virtually every other leveraged buyout was cheating shareholders, manipulating securities markets and illegally extracting value from public corporations.

It was rumored to be an investigation of sweeping scope into the industry's cartel-like organization through so-called club deals. The PE industry was worried; elite defense lawyers were mobilized to prepare a defense if necessary. After two years of rumors, but no suit announced, many observers began to conclude that the investigation was coming up short of the overwhelming evidence federal prosecutors often seek. Even so, counsel friendly to private equity advocated cosmetic changes to the industry. "Although it would be difficult for the DOJ to prove anticompetitive behavior, the recent inquiry should serve as a signal to private equity firms, such as KKR, to make changes," opined Jessica Jackson, a legal scholar sympathetic to the industry, in a 2008 Florida Law Review article. To defuse potential DOJ action, Jackson advocated greater transparency, written consortium agreements and lobbying and public relations investments to boost private equity's reputation, concluding that, "whatever the outcome, the DOJ probe might actually spur changes for the better."

Private equity's biggest firms breathed a collective sigh of relief when after several years no government action was filed and the investigation seemed to fizzle out. With the exception of increased public relations expenditures to combat bad press - the PE industry founded the Private Equity Growth Council, an industry lobbying association, in 2007 - mild changes advocated by reform proponents like Jackson were mostly set aside. One can only speculate about why the DOJ investigation evaporated...This wasn't the end of the inquiry, however. As is with many DOJ investigations, aggrieved individuals and plaintiff's lawyers took note that federal prosecutors were retreating, and therefore assembled their own case against the industry. In 2007 several individual investors filed suit against collusive clubs of private equity firms composed of Goldman Sachs Capital Partners, the Carlyle Group, Blackstone, TPG, and Permira Advisers.These firms are alleged to have stolen millions from shareholders in the leveraged buyouts of Freescale, a semiconductor manufacturer, and Kinder Morgan, a pipeline company. In 2008 the Detroit Police and Fire Retirement System filed its own lawsuit against the same firms, and other private equity titans, that together allegedly colluded in deals to privatize Neiman Marcus, Michaels Stores, the hospital corporation HCA, food services company Aramark, software designer SunGard, and PanAmSat, a satellite operator. These cases were quickly consolidated into what has become one of the most important federal antitrust class actions to advance in recent years, Dahl v. Bain Capital Partners.

In 2010 the judge hearing Dahl v. Bain, Edward F. Harrington of the Federal District Court in Massachusetts, allowed for a major expansion of the buyout deals being subjected to investigation and discovery, from 17 to 27. The plaintiffs recently concluded their survey of records of famous buyout deals produced by the industry's biggest players - more than 5 million documents according to a lawyer close to the case. Buyouts subject to investigation include Toys "R" Us, Harrah's Entertainment and the second largest buyout ever - the 2007 purchase of TXU for $44 billion - and even the Clear Channel deal mentioned above. The buyouts in question are nothing less than the crown jewels of private equity's corporate raids during the bull market of the mid-2000s.

Dahl v. Bain targets a dozen private equity groups as conspirators, including the giants of the industry, TPG, Blackstone, KKR, Goldman Sachs PIA, and Carlyle, which are in respective order the top-five largest PE firms, holding $221 billion under combined management....


SO MUCH MORE AT LINK!

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Tansy_Gold Oct 2012 OP
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hamerfan Oct 2012 #9
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LineLineLineReply The Case Against the Looters of the American Economy, and a Mission for Occupy Wall Street
Demeter Oct 2012 #42
Demeter Oct 2012 #46
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Demeter Oct 2012 #49
Po_d Mainiac Oct 2012 #53
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