More ominously, Bain Capital got caught up in a scandal that struck at the core of its success: allegations that stock analysts puffed up their advice on the very companies with which their banking arms were doing business.
According to federal prosecutors, during the mid to late ’90s, firms with both an investment-banking and a research-analysis business — such as Lehman Brothers, which Bain Capital frequently used to finance its buyouts — provided inflated stock ratings from the latter to companies that gave their business to the former. Ten investment firms, including Lehman Brothers, ultimately paid a total of $1.4 billion under a 2003 settlement with the SEC.
In one instance documented by the SEC, a Lehman Brothers analyst admitted issuing a “1-Buy” rating for the stock of Bain Capital–owned DDi, when he believed that the shares were actually overpriced. Lehman Brothers’ investment bankers were handling DDi’s transactions, and, according to federal prosecutors, DDi and Bain Capital managers were “pushing hard” for the positive stock rating from Lehman’s research arm in exchange for the business.
Bain Capital — and Romney personally — made a profit on DDi, selling their shares in 2000. The stock crashed, and was virtually worthless by 2003. Early this year, Bain agreed to pay $4 million to settle a class-action lawsuit alleging that it had deceived the stock purchasers through its prospectus.
Lehman paid an $80 million fine to settle charges that included the DDi case. Romney has also claimed ignorance in that case. But Bain Capital continued to use Lehman Brothers, and still does. Lehman Brothers executives and employees have contributed more than $50,000 to Romney’s presidential campaign, and that number should soon climb: who did the Romney camp just announce will serve as a national finance co-chair for his presidential campaign? Stephen Lessing, a Lehman Brothers director who led the firm’s lobbying effort in response to this scandal.
Intersecting Rings
Romney’s business career ended in 1999, when he accepted the post of CEO of the Salt Lake Organizing Committee (SLOC) for the struggling 2002 Winter Olympics. But he utilized the same strategy of drawing on his network of wealthy contacts that he used at Bain Capital — and is using to build his campaign.
And while in Salt Lake, he still had powerful levers at his disposal. Although he claimed to have severed his ties to Bain Capital, SEC documents show that Romney retained 100 percent operational ownership of the company and its subsidiaries through 2001 (his campaign insists this was just a paper formality) and maintained his financial stake in Bain’s portfolio of companies.
Romney has insisted that he had no thoughts of politics when taking on the Winter Olympics in 1999, but there have been reports to the contrary — including a comment by David D’Allesandro, CEO of John Hancock, in the Boston Globe’s recent seven-part profile, saying that Romney appealed for Hancock’s Olympic sponsorship by saying that his own political career depended on a financially successful Winter Games. D’Allesandro, an ally of Romney’s in Boston, initially threatened to withdraw his company’s sponsorship after the International Olympic Committee (IOC) bribery scandal, but, after Romney joined the SLOC, re-signed. It was not the only such instance.
