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Criminal Tax Cheat Robert Smith of Private Equity Firm Vista Gets a Pass for Conduct Worse Than Apollo’s Leon Black, Now in Epstein Doghouse

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Criminal Tax Cheat Robert Smith of Private Equity Firm Vista Gets a Pass for Conduct Worse Than Apollo’s Leon Black, Now in Epstein Doghouse


Neil Weinberg and David Voreacos published an in-depth account at Bloomberg of how private equity baron Roger Smith escaped being indicted for criminal tax fraud despite having concealed over $200 million in income. The very short version is that Smith and his allies got to Attorney General William Barr, both through Barr’s former firm Kirkland & Ellis, where Smith’s private equity firm spends $80 million a year in legal fees, and astonishingly getting the national security apparatus, for reasons not specified, to petition for Smith.

Why the Robert Smith Non-Prosecution Agreement Stinks

Even though America has long been known to have a two-tier justice system, this article lays out how Smith bought his way out of trouble, or at least the normal bad outcomes. As the story states,

But the decision to let Smith walk away unscathed by criminal charges doesn’t sit well with some former prosecutors, who said it illustrates how the richest Americans can maneuver the justice system in their favor. “This case sends a message that wealthy people will be treated differently than not-so-wealthy people,” said Paul Pelletier, a former Justice Department fraud section supervisor now in private practice who wasn’t involved in the case. “People of lesser economic means normally don’t avoid getting charged when they cooperate. The magnitude of the tax fraud here is enormous.”

Smith, who has a $7 billion net worth and is best known for having paid off the student debt of the 2019 graduates of Morehouse College, paid $139 million, admitted to guilt, and agreed to cooperate in the criminal tax fraud case against Texas software billionaire Robert T. Brockman, where the Feds allege $2 billion in tax evasion over 20 years. Brockman put Smith’s Vista in business as the sole investor in its first fund, via a $1 billion capital commitment.

Before we get to the details of the aggressive influence-peddling deployed to keep Smith from being indicted, bear in mind why it’s certain Smith got off easy.

First, the IRS unearthed that Smith’s hidden income, estimated at $200 million, via external means, perhaps starting with Suspicious Activity Reports from Smith’s banks. That means that “more than $200 million” is pretty certain to be the minimum amount of money Smith stashed away from the taxman’s eyes. If Smith had been indicted, prosecutors would have done discovery on Smith’s accounts and probably on those of individuals and companies whose dealings with Smith could possibly have been part of his schemes.

Second, the pretense here is that Smith is or will be an important witness in the Brockman case. But that indictment looks to have been pretty fully developed without any help from Smith. Indeed, any help Smith will provide could likely have been obtained by subpoenas and depositions. In reality, Smith “cooperating” is a gimmie with respect to the Brockman case, since Smith looks like a co-conspirator and may have been deemed liable in that prosecution as it advanced. Bloomberg notes:

He agreed to…cooperate for five years with prosecutors on investigations, including their case against Brockman, whose web of opaque Caribbean entities was used to hide $2 billion in income earned from Vista.

So while the prosecution may gain from having Smith take the stand against Brockman, it’s not apparent that his testimony or additional input would add much. By contrast, they’ve given up the ability to add charges for having been a collaborator/co-conspirator of Brockman’s.

The Feds look like they did much better in the bad old days in dealing with mobsters. Remember Whitey Bulger, the Boston gang boss? The FBI let him stay on the streets for years because Bulger was turning in valuable information on the competition. From Wikipedia:

James Joseph “Whitey” Bulger Jr. was an Irish-American organized crime boss and FBI informant who led the Winter Hill Gang …On December 23, 1994, Bulger fled the Boston area and went into hiding after his former FBI handler, John Connolly, tipped him off about a pending RICO indictment against him….

Although adamantly denied by Bulger, the FBI admitted that he served as an informant for several years starting in 1975. Bulger provided information about the inner workings of the Patriarca crime family, his Italian-American Mafia rivals based in Boston and Providence, Rhode Island. In return, Connolly, as Bulger’s FBI handler, ensured that the Winter Hill Gang effectively went ignored.

In other words, despite the terrible optics, it looks as if the FBI did get important intelligence from Bulger. By contrast, does anyone think that the Department of Justice would reopen its agreement with Smith if his “cooperation” proves to be fruitless?

Third, and this is the part to be incensed about:

Smith’s team would get what they wanted: a stay-out-of-jail card. It would take weeks to negotiate the details of the agreement, which allowed Smith, 58, to remain at the helm of a firm that manages more than $73 billion for public pension funds and other wealthy investors. He’s free to carry on with alifestyle that has included homes in France, New York City, Colorado, California wine country, Austin, Texas, and North Palm Beach, Florida. And he can keep playing starring roles at institutions such as Cornell University, which named an engineering school after him in 2016, and Carnegie Hall, where he became chairman that year.

Here we have Smith, who has admitted to eyepopping levels of criminal behavior, yet is still treated as a citizen in good standing in the investment world, and in particular, a trustworthy steward of other people’s money. In addition, pretty much everyone is pretending that Smith’s misconduct has nothing to do with Vista. And there is plenty of reason to doubt that. Vista is clearly deeply intertwined with Brockman, who has been charged with the biggest tax evasion case evah.

The Bloomberg story describes how Brockman staked Vista’s first fund with $300 million and then invested another $700 million.1 Brockman imposed conditions that Smith recognized were consistent with an intent to evade taxes. From Bloomberg:

Smith concluded that Brockman was structuring the deal to prevent the IRS from learning about his investment. But he saw the proposal as a unique opportunity and went along, according to the statement. He even worked with one of Brockman’s lawyers to set up entities to help him dodge his own U.S. tax bill, he admitted.

Brockman hid $2 billion of income from Vista. It seems difficult to believe that Vista didn’t cooperate with Brockman in some manner for his chicanery to have worked as long as it did.

It also appears that Smith wasn’t as clever as he thought he was. He married in 2005 and his wife divorced him in 2013. During that time, the couple had purchased several properties with hidden funds. Apparently Smith’s offer in the divorce wasn’t generous enough; his ex ratted out his unreported foreign accounts, capturing the attention of the IRS.2

By contrast, consider the fate of Leon Black of Apollo. Black has shown himself to have extraordinarily poor judgment in deciding to use convicted child sex abuser Jeffrey Epstein as a financial jack of all trades. Black has been caught out paying implausibly large fees to Epstein. Black hasn’t given an explanation of what all that money ($158 million in fees, an additional $20 million in outstanding loans) was for, at least one that makes much sense. The idea that a savvy money man would egregiously overpay for tax advice, even if it really was super duper tax advice, is hard to swallow. The blackmail thesis looks all wet. People who know Apollo are extremely confident that Black didn’t share Epstein’s recreational interests, save for high end art. 2

Yet despite the cottage industry of speculation of “Why did Leon Black pay so much to Epstein?” no one has found any shady activity, let alone a crime. And even though it’s a really bad look, it’s not a crime to hang out with felons, even former pedophiles.

In other words, if all the smoke around Leon Black is good reason for pension funds like the UN and the Public School Employees’ Retirement System to stop investing with Apollo, why is Vista getting a free pass for actually admitted criminal conduct by its founder and CEO, who unlike Black, remains the helm?

Why the Arm-Twisting to Get the Robert Smith Non-Prosecution Agreement Was Even Stinkier

Why don’t we start with: How many people get to have their minions lobby the US Attorney General personally on their behalf?

As we indicated above, this result appears to have come about via lots of pressure being applied thought various high powered lawyers, including through then Attorney General William Barr’s former firm, Kirkland & Ellis, as well as a successful effort to end-run the IRS by (bizarrely) enlisting the spook agencies.

The only positive part of this story is that all of Smith’s public image burnishing (notice his gift to Morehouse College students occurred after he knew he was in tax trouble) looks to have had no impact on getting Smith a break. It was all the inside game. First on the lawyer front, from Bloomberg:

Smith began assembling a team of prominent attorneys after his tax problems surfaced in 2013. They included former Acting Attorney General Mark Filip and former Obama White House Counsel W. Neil Eggleston at Kirkland & Ellis, where Barr had worked before going to the Justice Department. Charles Rettig, then in private practice and now IRS commissioner, was engaged, as were former Commissioner Fred Goldberg and Mark Matthews, a former deputy commissioner…

Vista had long counted on Kirkland, one of the world’s largest law practices, as its main legal adviser. The private equity firm, which buys and sells enterprise software companies, generates annual billings for Kirkland of about $80 million, according to people with knowledge of the matter. Its chief operating officer, David Breach, who’s also the firm’s top lawyer, had been a partner at Kirkland. The firm represents some of the biggest corporations and private equity companies, including Blackstone, Carlyle Group and KKR. Filip, who works out of the Chicago office, has helped negotiate settlements for BP and Boeing. Another partner, Norm Champ, a former head of the Securities and Exchange Commission’s investment management division, was involved in discussions about whether Smith could remain at Vista given the serious nature of the findings, two
people familiar with the matter said.

In addition to attorneys from Kirkland, there were lawyers from Caplin & Drysdale, a leading U.S. tax shop, and Skadden, Arps, Slate, Meagher & Flom. Smith also retained Kenneth Wainstein, who previously led the Justice Department’s national security division. Reid Weingarten, one of the country’s top white-collar trial attorneys, was prepared to try the case if Smith were indicted…

In July [2020], Smith’s team made a direct appeal to Barr, according to people with knowledge of the matter.

But now we get to the really dodgy part. Recall that Smith had started lawyering up in 2013 about his tax mess. And as we can see, it was tons of lawyers. What possibly could have changed or been unearthed in late 2019, an eternity later, to get the spooks all worked up? Recall than any tax case would presumably involve abuses from 2013 and earlier; one would hope Smith was smart enough not to add more fuel to his fire after then.

So it’s hard to make any sense of this:

As Justice Department tax prosecutors pushed closer to an indictment in late 2019, another issue came into play—Smith’s connection to a national security matter—according to people who heard about the discussions. The people, who don’t have security clearances, said they didn’t know the specifics, whether it involved Vista or how Smith might have been of assistance to the government.

A schism between tax prosecutors and national security officials led to months of wrangling.

Note that late 2019 was around the time that Smith’s lawyers told him the Feds had enough evidence to file criminal charges. This smells of Smith (or perhaps Vista) having actively sought out an intel state investment or contract and having chosen to do it through on of his pockets of hidden money. In other words, for something this big to come up so late in the game screams of Smith and his allies creating this entanglement. Given that Brockman was in even more hot water (his lawyers had been worried back in 2011 about blowback from Smith’s pending divorce), he could even have played a role.

Sadly, private equity limited partners and the press have all too little interest in this sordid episode. At least when common criminals cut a plea deal, their immunity from prosecution is conditioned on their cooperations. I sincerely doubt that Smith’s non-prosecution agreement has any teeth.

Balzac explained why Black and Smith wound up with different results, despite Smith (so far) being the only one caught out in criminal conduct. Balzac did not say, “Behind every great fortune lies a great crime.” He said something more nuanced and accurate:

The secret of a great fortune made without apparent cause is soon forgotten, if the crime is committed in a respectable way.4

Smith has maintained a respectable veneer, if you ignore the Playboy centerfold second wife. Vista hews closely to Balzac’s formula, since its sudden rise is regarded as mysterious to a surprisingly large number of private equity pros.

By contrast, being a friend of Jeffrey Epstein, even if a truly innocent one, is outside the pale. Black should have had the common sense to know that even if his dealings with Epstein actually were entirely above board, it would be impossible to avoid guilt by association when the depth of their relationship came to light. There’s simply no good reason to get so involved with a depraved man when there had to be other options.


1 The Bloomberg article isn’t clear on this point, but other Vista watchers have told me they thought the $1 billion for Vista’s first fund came from a single source.

3 Smith had secret Swiss and British Virgin Islands bank accounts. Recall that when the US got Switzerland to agree to turn over information about accounts held by US citizens, it did allow for a tax amnesty: confess to what you’d hidden, pay the owed taxes and interest, and we won’t prosecute you. Smith tried to participate in the amnesty with respect to his illicit Swiss accounts but was denied because the IRS had already found out about them.

It also appears that a reason Smith might not have been able to pony up enough to buy his ex wife’s silence was that too much of his money was either illiquid or stashed away where he couldn’t get at it without waving a red flag in front of the IRS. But it may also be due to his new wife, with whom he’d already been involved, having expensive tastes. From Bloomberg:

In 2014, the same year his divorce was finalized, Smith turned to Brockman for a $75 million loan, according to prosecutors. The following year he married Hope Dworaczyk, Playboy’s 2010 Playmate of the Year and a Celebrity Apprentice participant. The couple’s seven-month-old son floated down the aisle on an artificial cloud created for their wedding at a hotel on Italy’s Amalfi Coast. John Legend entertained.

3 Another reason to doubt the Epstein as blackmailer thesis: a prosecutor pointed out that when the Feds served their warrant on him in 2005, they walked right into Epstein’s Palm Beach house. Epstein had no “muscle,” as in bodyguards. In addition. we know that the #2 of one of Milken’s raiders was threatened by gunfire in public (on Park Avenue, no less!) after that raider crossed Milken. Since Black was head of investment banking at Drexel when this occurred, it’s hard to think he would be clueless about how to signal “enough is enough”.

4 “Le secret des grandes fortunes sans cause apparente est un crime oublié, parce qu’il a été proprement fait.”

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