No Harm, No Foul?
Lawyers for Hank Morris, the former political operative and placement agent facing criminal charges from a pay-to-play scandal in New York, said that the charges should be dropped because there was no economic harm done and therefore the case doesn’t meet a key benchmark for prosecution under state securities law, Reuters has reported.
Attorney General Andrew Cuomo has accused Morris of violating the Martin Act, a New York securities law, by exploiting his ties with the former state comptroller, Alan Hevesi, to obtain millions of dollars from investment firms seeking business from the
“Mr. Morris’s alleged ‘fraud,’ as far as we can tell, was to exploit a purported de facto public position for his personal benefit, without disclosing the resulting alleged conflict of interest or alleged breach of duty. That is simply not conduct prohibited by the Martin Act,” Morris’s lawyers William Schwartz and Laura Grossfield Birger stated in a court motion filed in March. “The entire Indictment should be dismissed,” they wrote.
PE Causes Fewer Defaults, Not More
Private equity-backed companies experienced defaults at a much lower rate than comparable businesses during the latest recession, according to a new report by the Private Equity Council, a trade group of 12 of the largest buyout shops. Take that, industry critics! The study looked at 3,200 companies in the United States acquired between 2000 and 2009 by U.S.-based private equity firms and held through the dark days of 2008-2009. The survey found that the annualized default rate for those companies was 2.8 percent during the recession of 2008-2009. Businesses not owned by private equity firms, but with a similar debt structure, on the other hand, had a default rate of 6.2 percent. The report, which defines “default” as a missed payment or bankruptcy filing, contradicts “the suggestions of critics who argue that ‘overleveraged’ portfolio companies have or will default at rates that are several times higher than those of similar businesses,” said the Private Equity Council’s report. The study also found the following:* Many of the transactions that ended up defaulting employed little or no leverage, contrary to what one might think. Some of the investments that did default were “all equity” investments in precarious companies, some bought out of a bankruptcy. * Many of the defaults occurred in troubled sectors, such as the media and automotive industries, suggesting that forces outside the control of buyout shops led to them.
The Washington, D.C.-based council advocates for the private equity industry by developing and distributing industry-related information. Its members include some of the biggest names in private equity, including The