by John Galt
January 15, 2012 12:30 ET
The American people have been exposed to a litany of misinformation by the mainstream media, financial press, and Republican candidates about the political advertisement title “When Mitt Romney Came to Town” produced by the Winning the Future SuperPAC (click www.kingofbain.com to watch in full). The mainstream media, who desires to have Mitt Romney as the Republican candidate for President against their man, Barrack Obama, has mysteriously come to the defense of the former Massachusetts Governor and CEO of Bain Capital by focusing on the factual inaccuracies of the production and falsely championing their belief in the American capitalist system. The financial media is aghast that one of their own is under attack for being exposed as a participant in activities of similar ethical lapses as the major financial institutions engage in on a daily basis. Lastly the Republican Country Club community is disturbed that the PAC would dare to attack a fellow Republican in such a manner on an issue near and dear to the heart of those who believe in “free markets.”
Oh the hypocrisy of it all. First, the mainstream media rarely if ever attacked the proclamations made in attack ads by Romney, Gingrich, or RNC operatives against Congressman Ron Paul, I would probably have a heart attack from the shock. Mitt Romney and his collection of PACs engaged in numerous attacks in Iowa and New Hampshire against Gingrich and Paul and the mainstream barely batted an eye. Yet this same mainstream media that acted shocked regarding the attacks against Romney and Bain Capital have to be held in the lowest of regard as they were also the same group accepting advertising dollars from the very banksters that caused the financial system to implode in 2007 through 2009. Thus saying their bias is for the almighty dollar and not the truth says more about their perspective of vulture capitalism versus the reality of the American worker. To say that I have experience with the practices alleged to have occurred while Mitt Romney was the CEO of Bain Capital will be a decision I leave for the reader to decide, keeping in mind that the following story is true, the names and corporations involved are kept discreet to protect the innocent and in the hope that those involved can someday re-engage in litigation against the parties involved.
At the turn of the last decade, I had an opportunity to offer my services as a management consultant to a small company in this area. The corporation had a unique niche where the management consulting varied from government compliance issues to streamlining corporate structures to increase efficiency and reduce expenses. During the evolution of this company, a program was developed then submitted for patent approval which would save companies engaged in regulatory submissions to various Federal agencies millions of dollars and thousands of man hours versus the methodology of the time. The idea was so promising the owners of the company at that time wished to cash in on their good fortune and the employee’s hard work and created an Employee Stock Ownership Program (ESOP) which would pay the workers off quite handsomely once the product was distributed not just within the United States, but worldwide.
The production of programs in question moved forward and attracted quite a bit of attention in the business community which could use the product while expansion plans moved slowly forward to accommodate future demand were underway. The expansion was going so well, investors were contacting the ownership on an almost daily basis, almost begging the company to accept outside investment. In the end, a “venture capital” firm in West Central Florida wormed their way into the hearts of the ownership and seized the day by pouring millions of dollars into the pockets of the owners who yielded their shares of the company to the investors on the condition they walk away after one year, thus leaving the ESOP shares at the mercy of the investors. The program and company at first seemed quite safe, but in less than 9 months events would prove otherwise.
After the contracts were signed, handshakes completed, and financial work completed the new owners took the office staff and families out to an extremely expensive restaurant in the area and promised great things for the future of those employees vested in the ESOP and how the company would grow and expand. Shortly thereafter, this small company of about twenty-five office staff and between twenty to thirty field employees rapidly doubled than tripled in size. Although the level of work to be completed was the same, huge investments were made in marketing, new office space, furniture, office electronics, and exorbitant expenditures to entertain current and potential clients including golf outings, fishing trips, and vacations for the client’s families. The problem was quite obvious and the cash flow from ongoing jobs and new contracts was swamped by an over three to one ratio due to the spending by the “new” ownership.
The old owners remained on the job consulting the new management but due to the contractual agreement, would not and could not discuss the condition of the company or the approach to existing accounts which were being exposed to a barrage of marketing calls for the new product, even though consultants were on site already testing the new program at some of their facilities. The company began to flounder due to the negative cash flow and some of the new peripheral employees were laid off due to a lack of work but soon the trend of firing those workers vested in the ESOP began. This process caused a great deal of stress within the company and began to raise questions about the entire buy out and the financiers behind the move. Then came the date which gave the vultures the excuse they needed to make their move, one which caused recriminations for years and destroyed the livelihoods of numerous employees for years to come.
On September 11, 2001, the terrorist attacks created the financial excuse for many corporations to file for bankruptcy and clean up their balance sheets. In addition to this shock to the economy, the company I am describing elected to pull the trigger on their final plan. By the end of November all but two employees who were vested in the ESOP were terminated. The downsizing was completed when the company fired all of the original consultants in the field and reduced the company’s operations to those working with a potential suitor which was heretofore unknown to everyone, and those programmers working on upgrades to the patented software. The consulting division was no longer part of the business and the software division and those personnel were fired. As this occurred, questions began to arise about the financials of the company and thus legal counsel was sought by several former employees. What was discovered in that process explains why my exposure to vulture capitalism left me with a sour taste for people like Romney and the practices Bain Capital allegedly engaged in on a much large scale.
The employees discovered that the previous owners pocketed millions of dollars from their sale of the company via a financial accounting gimmick which locked their shares at a fixed price while the new owners were allowed to reset the valuation the stock held by the employees at a much lower level. Complicating the matter, as this was a private corporation, was the fact that the new management group headed by the investors paid themselves salaries far in excess of the old owners and in fact paid themselves and selected officers of the company (under contract it turned out) bonuses on a monthly basis further depleting a company which was formerly a cash cow loaded with reserves. To make matters worse, it was discovered that the two former owners reportedly did not pay any capital gains or income tax on their earnings during this period thanks to the accounting gimmicks.
The legal battle was short lived however as the lawyers would not accept the case without a large retainer as it was too risky to take the case on a contingency basis due to the firepower of the investment company’s legal team. When the Internal Revenue Service was contacted about the ESOP abuse, their answer from the field investigations office in Fort Lauderdale was that they have literally thousands of these cases and the small amounts involved, under twenty-five million dollars, did not justify the expense of an investigation. To add insult to industry they said that without the copies of the books from the company before it was acquired and after, there was not much they could do and the personnel involved in the accounting department probably should have taken copies of all the financials home with them, that’s right stealing them, so they would have a ‘basis’ for an investigation. Then the I.R.S. told the employees to call the Department of Labor who offered the classical bureaucratic response to fill out a form, send the data to them, and they would “see what they could do.” The end result was the rape and pillage of a perfectly profitable company where the owners pocketed millions, the investors pocketed tens of millions from the sale of the assets to a multinational corporation, and the former employees ended up with hardly anything.
The final check from the ESOP settlement, once valued at north of $400,000 was a whopping $1.89 to most of the vested employees. We never cashed that check but kept it as a reminder to be vigilant for corruption and liars in the future and to never be suckered again by the scum and wolves who offer you a martini, a handshake, and their “friendship” and then end up playing the role of betraying one’s trust. Thus why my experience with vulture capitalism leaves me withe a somewhat jaded view of Mitt Romney and his experience at Bain Capital. The American people had best take a long hard look at his record of shifting moral and Constitutional views and opinions but most of all they had best decide if this is an issue of trust.
America had best wake up and look at Romney’s entire record, before President Judas is sworn into office and sells our nation out to globalist interests to further his personal power and wealth at the expense of our nation’s future.