The billionaire founder of private equity major Vista Equity Partners, Robert Smith, has avoided indictment for tax fraud by the US Department of Justice after agreeing to pay $139m and to co-operate with a government probe into Texas billionaire Robert Brockman.
Brockman has been charged in what is believed to be the biggest tax fraud in the US, accused of a $2bn scheme which saw him avoid paying tax on capital gains from his commitments to Vista Equity Partners funds.
The 79-year-old Brockman’s alleged conspiracy saw him hide capital gains from his investments over a 20-year period, by creating a complex network of offshore companies and trusts and filing false tax returns, the US Department of Justice said.
Brockman, through Point Investment, committed $300m to Vista’s first private equity fund – Vista Equity Fund II – as its sole investor, and increased that commitment to about $1bn in 2004, the DoJ said. He later committed capital to subsequent Vista funds.
Smith has entered into a non-prosecution agreement with the DoJ for his involvement from 2000 through 2015 “in an illegal scheme to conceal income and evade millions in taxes by using an offshore trust structure and offshore bank accounts”, the DoJ said.
It said Smith admitted his involvement in the illegal scheme and has agreed to cooperate with ongoing investigations and to pay back taxes and penalties in full.
US attorney David Anderson said, “It is never too late to do the right thing. It is never too late to tell the truth. Smith committed serious crimes, but he also agreed to cooperate.
“Smith’s agreement to cooperate has put him on a path away from indictment.”
According to the agreement Smith formed the Excelsior Trust in Belize, and a shell company, Flash Holdings, in Nevis in 2000.
Smith used third-parties to conceal his beneficial ownership and control of the Excelsior Trust and Flash Holdings – but in reality controlled both offshore structures and made all substantive decisions regarding Flash Holdings’ operations, transactions, income, investments and assets, the DoJ said.
Smith used Flash Holdings to hide his interest in private equity investments, and has admitred that he formed these foreign entities in order to use them to avoid the payment of US taxes, it added.
It said Smith willfully did not report to the IRS over $200m of partnership income through the scheme.
The DoJ statement reveals that Smith admitted he used about $2.5m in untaxed funds to purchase and renovate a vacation home in Sonoma, California, and other untaxed funds to purchase two ski properties and a piece of commercial property in France.
In 2011 and 2012 Smith used approximately $13 million of untaxed funds to build and make improvement to a residence in Colorado and to fund charitable activities at the property.
Smith has agreed to pay approximately $56m in taxes and penalties stemming from the unreported income and another $82m in penalties stemming from his concealment of his offshore bank accounts.
He has also agreed to abandon his protective claims for a refund totaling about $182m that were filed with the IRS, partly consisting of charitable contribution deductions.
Last year Smith announced he would pay off the roughly $40m college debt of the class of 2019 at Morehouse College.
Copyright © 2020 AltAssets