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* Gov. Pat Quinn tried to simplify the fairly complicated Lason Inc. story during the debate yesterday…
[Quinn said] Rauner should be held responsible for whatever has gone wrong at businesses affiliated with his former investment firm. “You have to be accountable,” Quinn said. “You just can’t run out the door, collect the money, and leave vulnerable people suffering because of your neglect.”
* From a January 20, 2014 Tribune story…
A few months after praising its performance [as a great example of how his venture capital firm built businesses], Rauner resigned from its board of directors just as the company’s high-flying stock began to crater. Lason imploded amid allegations by investors and criminal investigators that top executives cooked the books to boost the company’s value.
Neither Rauner nor his partners at the venture firm GTCR were accused of any wrongdoing. The firm netted at least $32 million from its investment by selling almost all of its stock before the earnings scandal became public. However, records show, other investors and lenders lost about $285 million as a result of the systematic accounting fraud, and three top executives went to prison.
Mike Schrimpf, a spokesman for the first-time candidate, said Rauner and GTCR had cooperated with authorities years ago in the criminal investigation of Lason. Neither Schrimpf nor Rauner would discuss in detail the nature of Rauner’s interactions with investigators or what he did at Lason.
“I don’t know, that was a long time ago,” Rauner said Thursday in a brief encounter with a Tribune reporter. “Sounds like the stuff you want to ask about is stuff that Mike’s told you about, and I probably don’t have that much to add.”
* Lason Inc. was indeed a disastrous fraud. But, as noted above, Rauner got himself off the board and profitably cashed his firm out of the company just before it crashed and burned. Here is a timeline distributed by the Quinn campaign…
1995: GTCRauner buys 54 percent of Lason a record management services for the Big Three American automakers, for $10 million. With Rauner at the helm. Lason3nitiates a spree of acquisitions of more than 60 competitors. (SEC Filing, 1996)
1996: Just months after he was fined $200,000 by the Securities and Exchange Commission, in a case involving insider trading, William Rauwerdink is hand-picked by Bruce Rauner as Lason’s Chief Financial Officer. [Chicago Tribune 1/20/2014]
1997: Under Rauner’s oversight, Rauwerdink initiates “Tailwind,” an accounting fraud scheme so vast it would be compared to Enron. As part of the fraud, financial data from newly-acquired companies would be used to vastly inflate earnings by up to 65 percent. [SEC Release, March, 2008]
1999: Rauner is still serving on the executive committee of Lason, alongside two of the three executives who eventually were convicted. That committee was responsible for its accounting policies, including Tailwind. [Chicago Tribune 1/20/2014]
August 1999: Rauner praises Lason, and is quoted in The Wall Street Transcript, saying, “We spend a lot of time living with our companies on a week-to-week basis, understanding what’s going on, and being in the flow of information, so we can be helpful and knowledgeable about the operation.” Of Lason, Rauner says: “They represent the essence of what many of our companies do.” [The Wall Street Transcript,8/09/1999]
October 1999: Lason fabricates $13 million in earnings in a press release. [Chicago Tribune 1/20/2014]
Nov. 12, 1999: Rauner abruptly departs the Lason board, 6 months before Rauner’s term is set to expire. [Chicago Tribune 1/20/2014]
Dec. 17, 1999: Lason finally acknowledges that earnings were off, after a precipitous stock drop that was blamed on “unfounded rumors.” The reality: it was fraud. [SEC Release, March, 2008]
2001: Lason files for bankruptcy. [SEC Archives, 2002]
2003: Three Lason executives, including Rauwerdink, are federally charged with the crimes. [SEC, 5/13/2003]
2007: Rauwerdink is sentenced to four years and is ordered to pay $285 million in restitution. [Crain’s Detroit Business6/07/2007] In sentencing Rauwerdink, a federal judge said that “greed and avarice” prevailed at Lason “at the expense of Lason’s shareholder’s, banks, employees and customers.” [CFO, 6/11/2007]
Primary 2014: Rauner deflects questions about Lason and his culpability in the massive fraud, saying, “I don’t know. That was a long time ago.” [Chicago Tribune 1/20/2014]
* Rauner said before he ran for governor that his firm’s chief strategy was finding the right CEO before moving into a new industry. They usually wouldn’t make the move if their preferred candidate wouldn’t agree to do it. And Rauner served on that company’s executive committee. This is as close to a “Rauner’s personal fingerprints” story as we may get.
But finding a way to make it easy to understand and turn it into an effective slam is quite another matter. We’ll see if the Quinnsters are up to the task.
posted by Rich Miller
Wednesday, Sep 10, 14 @ 12:10 pm
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We have been hearing about this since April 2013 at this point.
If the Governor does not have the sound bites down cold by now, he may not be able to.
Comment by Formerly Known As... Wednesday, Sep 10, 14 @ 12:17 pm
I feel for Quinn on this, because without any knowledge or experience with business in his entire long life - trying to describe what Rauner did here would be for him, like trying to describe how a blue ribbon committee he established actually lead to a successful conclusion.
Next up - Rauner takes a his turn and describes for us how the Illinois government funds and then builds, a highway bridge.
Laughter all around!
Comment by VanillaMan Wednesday, Sep 10, 14 @ 12:22 pm
Too many words, voters won’t be paying attention long enough to take it in.
Comment by mcb Wednesday, Sep 10, 14 @ 12:29 pm
The most interesting part is the Nov/Dec 1999 entries. Very curious.
What’s missing are the dates and percentages of the stock sales.
Comment by MikeMacD Wednesday, Sep 10, 14 @ 12:38 pm
– The firm netted at least $32 million from its investment by selling almost all of its stock before the earnings scandal became public.–
Such luck.
In a classic pump-and-dump, “almost all” almost always looks better than “all” when a member of the board jumps ship. A little sting can be like an inoculation to inconvenient questions and prying eyes.
– However, records show, other investors and lenders lost about $285 million as a result of the systematic accounting fraud, and three top executives went to prison. –
Such misfortune.
Apparently, the other investors and lenders lacked the, um, “insight” that Rauner had from being on the board of directors.
Comment by wordslinger Wednesday, Sep 10, 14 @ 12:38 pm
When Vman deflects, you know Quinn is on to something. He needs to be concise and keep hammering away with this one.
Comment by Ducky LaMoore Wednesday, Sep 10, 14 @ 12:44 pm
Reminds me of the song The Gambler. Rauner knows when to hold em, fold em, walk away, and run.
Comment by js Wednesday, Sep 10, 14 @ 12:46 pm
Hey, it was a long time ago. He doesn’t have to be accountable for his actions if it was a long time ago. Give the guy a break. It was a long time ago.
Comment by Slow Down Wednesday, Sep 10, 14 @ 12:48 pm
It is appalling, but we live in a country where, I believe, none of the major perpetrators of the housing bust which resulted in ordinary Americans
losing trillions of dollars of wealth has even been indicted much less gone to jail. In fact, Wall Street is doing better than ever and entry salaries are rising again. I just don’t see this 90’s era financial scandal being a deciding factor for many voters. Not to say that Rauner’s plutocrat image won’t have some effect, but not sure this would add to it in a major way.
Comment by Cassandra Wednesday, Sep 10, 14 @ 12:49 pm
Perhaps Obama could have the SEC investigate why an insider sold most of his stock just before the fraud was made public. Martha Stewart went to prison for less.
Comment by A Jack Wednesday, Sep 10, 14 @ 1:01 pm
—
1997: Under Rauner’s oversight, Rauwerdink initiates “Tailwind,” an accounting fraud scheme so vast it would be compared to Enron.
—
To my financially unsophisticated eyes, this 1997 entry seems like the smoking gun. I’d never vote for Rauner — but if I read about this in a newspaper (or in a profile piece in, say, The New Yorker) — and understood Rauner to be at the helm while Tailwind was conceived and (apparently) implemented — then that’s all she wrote.
Rauner can’t plead ignorance here — or get away with a “that was a long time ago.” He was in charge and Tailwind was concocted during his tenure. To me, at least, this means that he obviously knew what was going on — and approved of it.
He only departed once he realized that others caught on — and that he was close to getting himself publicly outed for his complicity.
Seems like all they would need is to talk with folks who were directly impacted by Tailwind. The name itself is great, actually — and very telling.
Comment by Frenchie Mendoza Wednesday, Sep 10, 14 @ 1:24 pm
==- VanillaMan - Wednesday, Sep 10, 14 @ 12:22 pm:==
What is your experience with business or blue ribbon committees? Why should I believe your comparisons have any validity?
Comment by Precinct Captain Wednesday, Sep 10, 14 @ 1:37 pm
Believe it or not, some people blogging here know a thing or two thousand, about both.
Hearing Quinn attempt to explain a Rauner business deal is like hearing George Bush ordering Chinese take-out in Rio de Janeiro.
Comment by VanillaMan Wednesday, Sep 10, 14 @ 1:51 pm
–Hearing Quinn attempt to explain a Rauner business deal is like hearing George Bush ordering Chinese take-out in Rio de Janeiro.–
You didn’t understand it? The chronology is straightforward. What’s confusing you (just in this case)?
Comment by wordslinger Wednesday, Sep 10, 14 @ 1:57 pm
=== Of Lason, Rauner says: “They represent the essence of what many of our companies do.” ===
Yep.
What’s so hard to understand about that?
So it’s not a sound bite, but it’s a pretty good pull quote. Put it in the right ad, and voters will pay attention.
Comment by olddog Wednesday, Sep 10, 14 @ 2:00 pm
Easy story: Rauner hires a CFO for his company, Lason. The CFO been found guilty of insider trading at another company. Rauner is on the committee that oversees the accounting practices. The books get inflated. Rauner sells out before the company files for bankruptcy. Two executives of Lason go to prison for fraud. But Rauner knows nothing because ‘it was a long time ago’.
That is a simple commercial.
Comment by zatoichi Wednesday, Sep 10, 14 @ 2:13 pm
==- VanillaMan - Wednesday, Sep 10, 14 @ 1:51 pm:==
Classic avoidance, ‘believe me because I say so.’
Comment by Precinct Captain Wednesday, Sep 10, 14 @ 2:20 pm
Didn’t Rauner have a duty to alert the SEC that accounting shenanigans were taking place?
Comment by Soccermom Wednesday, Sep 10, 14 @ 2:37 pm
So Quinn says you have to be accountable… please Governor explain how you took responsibility for this death when your administration failed?
McCann was not the only victim at Graywood Foundation. State records obtained by CBS 2, which date back to 2003, reveal 33 cases of Graywood staff abusing residents. Those cases included sexual abuse, physical battery and alleged coercion of residents to attack each other.
Even worse, in 2008, a resident named Dustin Higgins was murdered by staff. That death prompted an internal memo from the Illinois Department of Human Services Inspector General. The memo warned that Graywood residents were at risk amid an increase of serious allegations of abuse and neglect.
Lois McCann wants to know how the facility was allowed to continue operating with all of these findings.
“All those cases were founded, substantiated, and yet my son is dead because (DHS) did nothing about it,” she said.
State records also reveal regulators knew Graywood’s substantiated abuse rate was double the state average, yet DHS failed to close it down.
“The Department of Human Services failed,” Lois McCann said.
http://chicago.cbslocal.com/2011/03/21/state-ignored-evidence-vs-group-home-before-residents-death/
Comment by 4 percent Wednesday, Sep 10, 14 @ 2:47 pm
==Didn’t Rauner have a duty to alert the SEC.==
He’s as surprised as you that the company cratered days/weeks after he sold his shares…almost as surprised that (his spokesperson) Mike’s response wasn’t seen as sufficient.
Comment by Jocko Wednesday, Sep 10, 14 @ 2:55 pm
“an accounting fraud scheme so vast it would be compared to Enron”
In that they were both accounting frauds. Every accounting fraud scheme involving a public company gets compared to Enron.
Comment by Chris Wednesday, Sep 10, 14 @ 2:56 pm
===We’ll see if the Quinnsters are up to the task.===
Why don’t they just go ask the DPI for some help? They obviously do a great job of doing hit pieces for Madigan. This would be a piece of cake for them.
Comment by Go For It Roy Wednesday, Sep 10, 14 @ 2:58 pm
And Quinn is willing to be held accountable for any business/community organization affiliated with the state, right? And,dare I say it, Obama should be held responsible for federal contractors and rogue agents at the IRS?
Comment by Fed up Wednesday, Sep 10, 14 @ 3:09 pm
–And Quinn is willing to be held accountable for any business/community organization affiliated with the state, right?–
Did you hear about that NRI thing?
Geez, read the chronology. You don’t see any “responsibility” for Rauner there?
Rauner had majority ownership of the company, hand-picked a known crooked CFO. ran the show with him and other crooks on the executive committee, praised their work, then abruptly cashed out at a fat profit a month before the scheme began to unravel.
Comment by wordslinger Wednesday, Sep 10, 14 @ 3:20 pm
“I don’t know. That was a long time ago.”
“We spend a lot of time living with our companies on a week-to-week basis, understanding what’s going on, and being in the flow of information, so we can be helpful and knowledgeable about the operation.”
The above quotes can be used or paraphrased for Quinn attack ads.
If Rauner said he was intensively involved in his companies’ operations, how is it that the nursing homes and long-term care homes were abysmally run?
Why is it that Rauner didn’t know or remember what was going on when bad stuff was happening?
The ads can write themselves, using Rauner’s own words.
Comment by Grandson of Man Wednesday, Sep 10, 14 @ 3:21 pm
“But finding a way to make it easy to understand and turn it into an effective slam is quite another matter. We’ll see if the Quinnsters are up to the task.” Bingo Rich. Spot on.
Comment by Amalia Wednesday, Sep 10, 14 @ 5:24 pm
Make it simple? Doesn’t look that tough to me.
‘Massive’ fraud; guy with large interests in company sells off ‘just in time’.
Wow. Wonder how he was smart enough to do that; after he CHOSE to invest in the first place. amazing.
And the ‘I didn’t know; it wasn’t my fault’ reminds of John Belushi in the Blues Brothers.
Comment by sal-says Wednesday, Sep 10, 14 @ 7:11 pm