The curse of Gawker strikes again—and this time you can count me as one of its minor victims. There I was, on Thursday lunchtime, trudging stiffly but happily back to the press center out at Bethpage, having just walked roughly five miles with Tiger Woods and Rory McIlroy for a piece I was going to write for our sports blog as a mini-break from the election. Then came the message to call my editor: Nick Denton and his minions had posted nine hundred and fifty pages of internal financial documents from Bain Capital, replete with all sorts of revelations about its activities in the Cayman Islands.
Sorry, Rory and Tiger, I couldn’t hang about for your post-round interviews. I didn’t have time either to write my piece, although I’m sure it would have combined the wit of P. G. Wodehouse with the expertise of Herbert Warren Wind and the touch of Dan Jenkins. (Yes, I’m being sarcastic.) I had to get home, crank up the Web browser, and put on the green eyeshade. Serves me right, I guess. A couple of years ago, I wrote a mischievous little post about Gawker’s own links to the Cayman Islands, in which I pointed to Felix Salmon’s revelation that the Web site’s parent company had recently located to the Caribbean tax haven and asked why a smallish media company would choose to organize its finances like a hedge fund or a money-laundering operation. I knew Denton would get me back eventually, and he did, albeit inadvertently.
Twelve hours later, and I confess I still haven’t read all nine hundred and fifty pages, which consist of financial statements and letters to investors from twenty-one investment funds of various kinds that Romney and his family have invested in over the years, most but not all of them connected to Bain Capital. I have skimmed through most of the documents, read a few in detail, and looked at the instant assessments of other reporters and pundits. With the proviso that the trove turns out to be genuine—it certainly looks genuine—and that I may well have missed something, here is what I reckon:
1. As far as I can see, there are no bombshells to report. To that extent, I agree with what Dan Primack, a senior editor at Fortune, where I write a monthly economics column, and Business Insider’s Joe Weisenthal both wrote on Thursday. We already know, from Romney’s 2010 and 2011 tax returns, his financial disclosure forms, and from reporting by Bloomberg News, Vanity Fair, and other media outlets, that Bain Capital domiciled many of its investment funds in the Cayman Islands, and that the primary reason it did so was to allow its investors, Romney included, to defer, reduce, or avoid certain taxes. The documents confirm this picture and add many new details.
2. Despite the lack of a single earth-shattering scoop, the documents are interesting and well worth posting online. Here I disagree with those who say that they have little or no news value. There are several reasons why the managers of private-equity funds and hedge funds don’t make documents like these publicly available, and why they ask the investors who receive them to sign confidentiality agreements. They don’t want to give away their secrets to their competitors. They also don’t want the public to know in any detail how they make their money, and the (legal) lengths they go to in order to minimize the taxes paid by their partners and investors. Anything that makes the world of hedge funds and private equity a bit less opaque is to be welcomed. And then, of course, there is the Romney angle.
3. The documents provide a wealth of previously unseen information about how Bain Capital operates, and, by extension, how Romney created and manages his fortune. It is true, as Primack points out, that Bain Capital’s Web site provides a list of companies it has invested in, and that Sankaty Advisors, a Bain Capital affiliate that manages some of the debt funds Romney invested in, also has a Web site, albeit one that is largely inaccessible without a login code. But these documents go far beyond that.
Here, for example, is an audited 2009 financial statement from Sankaty Credit Opportunities IV, L.P., a fund in which Romney’s I.R.A. had more than a million dollars invested in 2011. And here are two 2010 letters to investors from a sister fund run that Romney also invested in. Given Romney’s low tax rate and his reluctance to release any more tax returns, any news organization worth the name would have seized upon the documents and mined them for stories. So kudos to Denton and to John Cook, the Gawker reporter who evidently had the unenviable task of going through the pile and deciding what was newsworthy. This isn’t WikiLeaks, but it is a significant “get.”
4. The documents raise questions about some of Romney’s statements. Last month, he told an interviewer that the reason Bain Capital bases so many of its investment funds in the Cayman Islands is to “allow foreign investors to invest in U.S. enterprises and not be subject to taxes outside of their own jurisdiction.” The documents show that the Bain Capital funds also utilize a number of financial dodges that enable some of their U.S.-based investors to avoid, defer, or reduce taxes owed on the income generated by the funds’ underlying assets. These tactics include setting up shell corporations, often called “alternative investment vehicles” or “blocker corporations,” wherein investors can shield their money, and carrying out transactions called “equity swaps,” which some experts regard as scheme to minimize taxes on dividend payments.
Again, there is nothing illegal about these tactics, and some of them help prevent tax-exempt U.S. investors, such as charitable endowments, from paying taxes they don’t need to pay. But the documents suggest that Romney wasn’t telling the whole truth in suggesting the only reason firms like Bain Capital use the Cayman Islands is to help foreign investors. C’mon Mitt. You can do better than that.
5. The documents don’t solve the mystery of why Romney won’t issue any more tax returns. We all know the main reason he has such a low tax rate: it is because almost all of his income is investment income, and, thanks to George W. Bush (and, to a lesser extent, Bill Clinton), taxes on investment income are scandalously low: fifteen per cent. Moreover, as a longtime equity holder in Bain Capital itself, Romney has benefitted tremendously from the so-called “carried interest exemption,” which allows the managers of hedge funds and private-equity funds to categorize many of the fees they charge their investors as investment income. The Cayman Islands connection doesn’t have anything much to do with this, and it probably doesn’t explain why Romney is so reluctant to open up. (In another development on Thursday, he offered up a new explanation to Parade magazine: he doesn’t want to make public the size of his charitable gifts to the Mormon Church.)
6. Another mystery that remains unsolved is how Romney accumulated between $20.7 million and $101.6 million in a tax-advantaged I.R.A. A story on the Web site of ABC News attempted to tie it the fact that some of the funds Romney invested in used blocker corporations to hold large sums of money, but I don’t get it. The issue remains this: given the modest contribution limits to retirement funds, Romney’s I.R.A. must contain some assets that have risen enormously in value since he obtained them. What are they?
7. One of the most interesting questions of all is how Gawker got hold of these documents. Did Cook or another Gawker reporter dig them up? Did they arrive in a brown paper bag? (It must have been a large one.) We don’t know, and Gawker isn’t saying. A number of the documents could have come from an investor in Bain Capital. But there are also financial statements and memorandums from hedge funds that have nothing to do with Bain Capital, but which are linked to Romney through his investments in a Goldman Sachs “fund-of-funds” which, in turn, made investments in them. (Here are a couple of documents from Viking Global Equities, a big hedge fund based in Greenwich.) Clearly, somebody has been doing a lot of research into Romney’s investments. Was it, perhaps, somebody connected with the Obama campaign or another organization affiliated with the Democrats? We may never know. But coming just a few days before the start of the Republican Convention, the timing was certainly unfortunate, shall we say, for Romney.
Photograph by Melina Mara/The Washington Post/Getty Images.
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