The Dark Side of Mitt Romney's Bain Days

New revelations about Mitt Romney and his Bain Capital company. Recent SEC documents disclosed shows that Mitt Romney retained 100% ownership and listed as CEO, Chairman and President of Bain Capital far beyond the 1999 date his campaign has said, it was as late as 2003.

Romney holds up Staples as his shining star of building a business. But there is a problem with this claim.

Let me explain how venture capital investments and private equity investments differ: The first venture capital investment deal for Mitt and Bain Capital was the Staples deal. It was a traditional Venture Capital investment that mean the investors are in it for the long haul and allowing the current management of the company to remain. Bain's and thus Mitt's position was a minority investor and had absolutely no control of Staples. The VC stays out of the management of the company and may only work with the management about improving operations and how to expand it's market to reap the profits the VC is looking for. So Staples is not a fair example of the overall operation of Bain Captial under Mitt. 


Bain shifted its focus to a new type of Private Equity model of finding under performing companies and instead of strengthening them for the long term, they bleed off cash by leveraging the companies assets with huge loans to use to purchase the company, thus not using any of their own money, and then part of the loan money they take as fees which turn to millions of dollars in profit for Mitt and his investors, if any. The business model is to then reduce costs, which means laying off workers, but still having inventory to sell to generate revenue. The balance sheet will then look fabulous; high revenue with very small expenses to produce that revenue. They will then sell the company on the value of that balance sheet. The new owners will then realize when inventory is depleted that they are unable to fulfill orders and lack labor to create more product. But they have no assets free from incombrances to use as collateral to borrow against to hire more employees to keep the company going. Now the loan payments on the loans Bain took out against its assets are now the responsibility of the new owners and lack of capability to produce the goods or service forces them into bankruptcy. It is a great legal con game Mitt created. So the closure of the company will occur far later than with Bain and Mitt own and operated it for that short period of time.

Why is this important?

Because Romney is making claims of creating hundreds of thousands of jobs and avoiding the huge loss of jobs and outsourcing of jobs by Bain Captial under his watch. So the truth is finally coming out. Both in when he actually left control of Bain and the companies that went bankrupt because of him.

Here are just a few of the companies that lost jobs under Mitt Romney:

– GS Industries – 750 Jobs Lost: In a series of ads earlier this year, the Obama campaign hit Romney over Bain Capital’s purchase of GS Industries, a steel company that closed its Kansas City plant and eliminated 750 jobs in February 2001. The Romney campaign responded by claiming that Romney had left Bain Capital well before 2001, and was therefore not tied to the collapse of the GS. Bain Capital and its executives, including Mitt Romney, earned at least $12 million on the initial investment.

– KB Toys – Up to 3,500 Jobs Lost: During the primary season, Newt Gingrich’s 30 minute documentary on Romney and Bain Capital spent a significant amount of time focused on KB Toys, a retail chain bought by Bain in 2000. At the time, the Romney campaign, with an assist from fact-checking groups like PolitiFact, pointed to the calendar. As these new filings show, Romney was still very much at Bain Capital when they purchased KB Toys, and profited mightily when the company took out crippling loans to pay Bain Capital an $83 million dividend.

– Dade International – 1,700 Jobs Lost: Months after Romney claims to have left the company, Bain Capital received a $242 million bounty for its stake in the medical supply company. Romney profited substantially from the deal. In 2002, Dade International filed for bankruptcy, costing more than 1,700 people their jobs. At the time, Romney was the 100 percent owner of Bain Capital, the new documents show.

–DDi Corporation – 275 Jobs Lost: In 1996, the circuit board manufacturer was bought by a group of investors, with Bain Capital in the lead, for more than $40 million. By December 1999, DDi closed a Colorado plant and fired 275 workers. Bain Capital, with Romney still listed as Chairman and CEO, then proceeded to take DDi public, raising $170 million during the company’s IPO in 2000. Over the next few months, Bain began selling off its stock, raising almost $100 million, more than doubling its investment. The stock plummeted shortly thereafter.

There are many more that lost jobs because Mitt outsource them to other countries, but kept the company going and then selling them off. 

It is not clear when, but about the time Mitt was handing over management of Bain to some of his pals at Bain, there was a modification in their investment focus by shifting more into traditional Venture Capital deals and into pull purchase of viable companies, like Clear Channel radio and television stations and many other companies that they are investors in. Some of these they manage, some they are a majority investor and others they are a minority investor.

From what I understand is that his pals who are now in charge of Bain Capital are paying Romney on contract for his 100% ownership. Thus he gets a fixed amount each year for payment of its value and he also has a deal that he still gets commissions of any deals they do. A very nice departure package. 

Now what is also interesting is that how they structured these investment deals is that the moneys that Bain and Romney received were considered capital gains, NOT ORDINARY REVENUE TO THE COMPANY like other businesses. There are and have been several types of capital gains which can reduce the tax liability considerably. Mitt would have paid at best 20% on his capital gains and since 2003 15% or less, depending on the type of investment the money is coming from.

Further, Bain placed these capital gains into off shore investment deals that avoids US taxes and can then be discounted as "Liquidated Value Capital Gains" when drawn out for personal use, thus reducing the amount of the capital gains he actually received. For example: If you have 10 million invested in one of the shelters and you are earning say 10%, the initial 10 million is considered capital gains, but deferred because it is off shore. The 10% additional gain is considered "Liquidated Value" from the original 10 million still sitting there. After time with each 1 million dollars received, it reduces the original capital gains value by the 1 million dollars. So over 10 years, it has zero capital gains value, even though the total 10 million is still in the investment and now no longer taxable at all. So he received 20 million dollars and paid only 5% tax on only 10 million, because it was taxed at the liquidated value tax rate. I'm not clear on what happens to the 1 million he would receive on the 11th year and thereafter, since the original value is now zero, on paper that is. He probably rolls it over into another similar investment off shore and pays the 5% tax on the return just as before.

Now under current tax laws all that he has done is legal and that is why he states that his "blind trust" has paid all the taxes he is required to pay. He is correct in that statement. But the other point is that when you have a country in an economic depression, do we want a president that worked the system so well that he reduce his tax liability that funds the very nation he wants to be the leader of and is desperate need of tax revenue to keep it going? What kind of moral example is that to the nation?

We have had many very wealthy presidents, none were so blantanly obvious and gross about shielding their income from taxes. Most took the normal deductions and business gains and losses as everyone else. But Romney has cross the line and exceeded that normalcy to an extreme which leaves a question of how loyal is he to his country?