TPG To Strip Manager Embroiled In College Bribery Scandal Of Shares Worth Millions Of Dollars
As Lori Loughlin and Mossimo Giannulli plead not guilty in the hopes that their ‘we didn’t think we were doing anything wrong’ defense manages to win over a jury of their not-quite-peers, private equity firm TPG Capital has taken the unprecedented step of stripping a former employee who was embroiled in the scandal of assets worth tens of millions of dollars.
According to Axios, after a brief internal investigation, the firm is moving to strip former fund leader Bill McGlashan of shares in some of the firm’s funds, despite the fact that some of McGlashan’s shares in the funds’ – in some cases, funds that he himself helped manage – had already vested. The firm has decided to deny McGlashan all unvested and vested interests in four TPG growth funds and one TPG rise fund.
In a letter to employees obtained by Axios, TPG details how it hired law firm Ropes & Gray and accounting firm Ernst & Young to conduct an investigation into McGlashan to see if his actions impacted the firm, or whether any other employees might be involved.
Though it didn’t find any other evidence of wrongdoing (aside from the criminal charges that McGlashan is now facing), the investigation discovered six expenses totaling $25,000 that were either erroneously charged to McGlashan’s fund, or were charged in error.
The investigation found:
- No evidence that any other TPG employees were aware of, of involved with, McGlashan’s alleged misdeeds.
- Two other TPG employees hired Rick Singer, the college bribery scheme’s mastermind, but it was for legitimate college counseling services. A different employee discussed such services via phone with Singer, but didn’t hire him.
- In March 2017, McGlashan introduced Singer to TPG colleagues for the purpose of a potential investment opportunity. This was prior to McGlashan’s alleged illegal activities with Singer, and TPG passed on the deal.
- No evidence of fraud related to McGlashan’s financial dealings with TPG or its funds. It did, however, discover six expenses totaling nearly $25,000 that were either charged in error to the funds or lacked proper documentation. The firm has reimbursed that money to the funds.
Private equity funds typically keep anywhere between 20% to 30% of the investment profits, which are divvied up among the fund managers.
But TPG argued that the payouts it will withhold from McGlashan are needed to pay for the hiring and training of new employees, as well as to incentivize others who worked with McGlashan to stay on. Axios pointedly noted that the company isn’t saying that the money is to compensate for reputational damage.
Axios warned that the decision could backfire on TPG by making other employees question whether any perceived infraction could result in a similar punishment being doled out to them (McGlashan, like Giannulli and Loughlin, has pleaded not guilty). McGlashan will retain his interest in the company itself, but that’s likely worth less than the value of the funds.
Bottom line: Expect a lawsuit, as McGlashan will likely press to retain at least his vested interests in the funds.