NEW YORK (Reuters) - TPG Capital was sued on Thursday by its former head of public affairs, who accused the private equity giant of ignoring his warnings that the firm may have violated securities regulations and defrauded investors out of millions of dollars as a result.
The whistleblower lawsuit, almost without precedent in the tight-knit world of private equity, was filed by Adam Levine, who had been an assistant White House press secretary under President George Bush in 2002-2003 and then worked at TPG from 2008 until the end of 2014. Levine says he was asked to leave the firm by senior executives after he raised concerns about TPG’s conduct, according to his lawsuit.
TPG, which has $65 billion under management and has, according to the lawsuit, been considering an initial public offering, said Levine’s assertions were “patently false and defamatory.”
“Mr Levine’s lawsuit today is nothing more than a meritless pleading designed to distract attention from Mr Levine’s own egregious and illegal misconduct,” said Marc Kasowitz, an attorney for TPG. He said Levine has stolen confidential and proprietary information from TPG and tried to extort millions of dollars from the firm by threatening a media smear campaign
TPG, co-founded in 1992 by Chairman David Bonderman, sued Levine in January, accusing him of downloading confidential documents including an internal email about TPG’s billing process and leaking them to the media, as well as demanding a seven-to-eight figure separation payment.
Levine said in his lawsuit that allegations he breached confidentiality agreements were false. He claims he is owed compensation by TPG.
Levine’s suit alleges that TPG, whose past deals have included the takeovers of Burger King, Metro-Goldwyn-Mayer and the biggest-ever leveraged buyout, the $32 billion takeover of Texas utility TXU, miss-billed expenses, was flouting compliance rules, and gave inaccurate information about its investment team.
According to the filing in the San Francisco/Oakland division of the U.S. District Court in Northern California, Levine said he raised concerns that TPG was engaged in practices that he believed “violated securities laws, rules and regulations,” but was brushed off by its executives.
The suit alleges that in response to some of Levine’s concerns, TPG partner and senior counsel, Clive Bode, said if San Francisco-based Levine were in the same room as him, he would “smack” Levine’s head into a wall and “knock some fucking sense” into him.
Bode also told Levine he would have “hunted” him down and “gutted [him] like a carp” if Levine had sent one particular email to Bode, according to the lawsuit. That email detailing some of Levine’s concerns had gone to other executives. Bode allegedly also told Levine that he would “fucking kill you” if Levine brought “Bonderman into it”.
Bode could not be immediately reached for comment.
Levine has contacted the U.S. Securities and Exchanges Commission to disclose the alleged violations of regulations at TPG, the suit claims. SEC spokeswoman Florence Harmon said the regulator declined to comment.
Levine is bringing claims under federal and state whistleblower laws, including the 2010 Dodd-Frank financial reforms, which created a private cause of action for whistleblowers whose employers retaliate against them for lawfully providing information to the SEC. His suit does not specifically address TPG’s case against him, which was filed in Texas.
The suit also alleges that one TPG fundraiser misrepresented when TPG’s Chief Investment Officer Jonathan Coslet started his job to make it seem that his investment record was better than it was, and alleges that TPG billed its portfolio companies with expenses that should have been charged to the business itself.
It also claims the firm was planning to expand its public affairs department by billing consultants time to portfolio companies rather than to TPG, which Levine argued was in breach of SEC regulations.
Private equity funds typically raise capital from investors and use that to buy companies. They aim to improve the value of those companies and sell them some years later at a profit.
Coslet could not be immediately reached for comment.
Fort Worth, Texas-based TPG claimed in its lawsuit that Levine referred to himself as a “weapon of mass destruction” and someone who could “bring TPG down in ten days”. TPG is seeking an injunction requiring Levine to return any of its confidential documents and electronic devices.
Levine says he was prompted to bring his concerns to TPG management after he attended a speech in May 2014 by Andrew Bowden, a director at the SEC’s Office of Compliance Inspections and Examinations (OCIE). In the speech, Bowden said that private equity funds routinely hide fees and overcharge investors.
Bowden said that an examination of advisers by OCIE showed violations of law or material weaknesses in controls over 50 percent of the time regarding how expenses and fees are handled. One example he highlighted was expenses being shifted to the client without proper disclosure.
Levine claims that bad practices highlighted by Bowden, such as private equity funds pushing expenses onto portfolio companies – and therefore onto the investors in its funds – when those costs should have been incurred by the management company itself, were “commonplace” at TPG.
Levine claims in the lawsuit that he is entitled to up to $738,761 for non-cash compensation owed to him, as well as general damages to recompense him for emotional distress. He is also seeking punitive damages.
Levine on Thursday separately filed a motion to dismiss TPG’s lawsuit against him. He argues that the Forth Worth division, Texas court where the suit was filed lacked jurisdiction.
Reporting by Megan Davies; Additional reporting by Jennifer Ablan, Greg Roumeliotis and John McCrank; Editing by Martin Howell