Robert Smith of Vista Equity ties up with DOJ in tax probes



Robert Smith, the billionaire chief executive of Vista Equity Partners, has signed a $ 140 million settlement with the Department of Justice, ending a lengthy criminal criminal investigation, according to people familiar with the case.

As part of the settlement, Mr. Smith will enter into a non-economic settlement, the people said. He will accept liability for additional taxes and will not file the foreign bank account report properly but will not be prosecuted. He said he would agree to abide by certain conditions set by the government, the people said.

The agreement includes a fine of $ 85 million, tax of about $ 30 million and interest of about $ 25 million. It is one of the largest agreements known by an American taxpayer to resolve issues related to undeclared offshore accounts.

The agreement is the result of four years of criminal interrogation by officials of the Tax Division of the Justice Department and the US Attorney’s Office for the Northern District of California. The issue of whether Mr. Smith failed to pay US taxes on more than $ 200 million in assets from Caribbean entities established by the sole investor in Vista’s first private-equity fund. The flow of these assets into the charitable foundation created by Mr. Smith ceased.

Much was at stake in the case of Mr. Smith and Vista, which previously told investors that it was not the subject of investigation.

Institutions investing in private-equity funds increasingly focus on corporate governance when deciding whether to invest their money. According to fund lawyers, based on the language in Vista’s fund documents, the firm’s current investors may have the power to convict Mr. Smith of the crime.

America’s wealthiest black man, with assets of more than $ 5 billion, Smith founded Vista in 2000 when he was in his late 30s with $ 1 billion from a charitable trust set up by the family of Houston businessman Robert Brockman .

Keynote speaker of Morehouse College’s commencement ceremony, Robert F. Smith, said he would pay off about $ 40 million in college debt for the Class of 2019. Photo: Steve Shaffer / Atlanta Journal-Constitution / Associated Press

Vista’s commitment to the youth fund was tied to how Mr. Smith had the right to direct a portion of the profits to an offshore entity structured as a charitable trust, according to a person familiar with the matter. Mr. Brockman had the power to seize control of the offshore unit at any point until the fund went down, the person said.

The Vista chief paid taxes on the portion of the profits that were directly distributed to him, but did not pay taxes at the time on the portion that was directed to the offshore structure, the person said. The Department of Justice claimed — and Mr. Smith has finally agreed — that he should have paid tax on those assets.

The money in the offshore unit was eventually funded by the Fund II Foundation, a charity called Mr. Made in 2014 in Smith. The Foundation has made significant contributions to support scholarships for minority students interested in science, engineering and mathematics, research on breast cancer among black women and the birth and family homes of Martin Luther King Jr. It supported Mr. Smith’s recently announced student independence initiative to reduce the debt burden of students in historically black colleges and universities.

Bloomberg News reported that Mr. Brockman is the subject of a major investigation into possible US tax fraud.

The cases are the latest in the government’s historic crackdown on undisclosed offshore accounts by US taxpayers. In 2008, Department of Justice prosecutors took on banking giant UBS Group AG

In court, Swiss-bank piercing the veil of secrecy. In 2009, UBS settled with a prosecution and agreed to pay $ 780 million.

In 2014, Credit Suisse Group AG

Paid 2.6 billion dollars and pleaded guilty to helping Americans file false tax returns.

Between 2009 and 2018, more than 56,000 US taxpayers with offshore accounts at risk of criminal tax prosecution entered the Internal Revenue Service Limited-Amnesty Program and paid more than $ 11.1 billion.

Of that, more than $ 500 million came from 150 individuals whom prosecutors successfully pursued to hide money abroad. Some defendants also received prison sentences. To date, foreign banks and asset managers have paid more than $ 6 billion in connection with encouraging secret offshore accounts.

Based in Austin, Texas, Vista has more than $ 58 billion in cumulative capital commitments and more than 450 employees in five offices across the country. The firm has posted huge returns by doing hundreds of deals for software companies, aiming to improve using proprietary playbooks.

Mr. Smith does not hesitate to deploy his considerable wealth. He owns a $ 59 million penthouse in Manhattan and two homes in Malibu, California. He has made a splash with his personal philanthropy, particularly when he said last year that he would pay off college debt for the entire 2019 graduating class of Morehouse College, the historic Black men’s college in Atlanta.

Write Maryam Gotfried at [email protected] and Dave Michaels at dave.michaels.wsj.com

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