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, Chief Public Integrity Section U.S. Department of Justice 950 Pennsylvania Ave., N.W. Washington, D.C. 20530 Dear Mr. Smith: On behalf of the more than 7 million members of MoveOn.Org Political Action (“MoveOn”), I respectfully request that the Department of Justice initiate an investigation into whether the Republican nominee for President, former Massachusetts Governor Mitt Romney, violated the False Statements Act, 18 U.S.C. §1001, for stating unequivocally, on his personal financial disclosure form filed in 2011 (SF 278), that he was “not involved in the operations of any Bain Capital entity in any way” after February 12, 1999. As explained in detail in the attached memo prepared by our counsel, there is substantial evidence that Governor Romney was in fact involved in the operations of Bain Capital entities after that date. Indeed, it is undisputed that Gov. Romney was the sole director, Chief Executive Officer and President of Bain Capital, Inc. at least through the middle of 2000. The notion that he occupied these positions with absolutely no involvement in the operations of Bain Capital Inc. is inconsistent with the requirements of applicable law and the reported facts concerning his relationship to Bain at that time. The purpose of requiring candidates to file a personal financial disclosure form, under the Ethics in Government Act, is to ensure that the electorate is fully informed about the financial interests and fiduciary and other positions of the candidates. For a candidate to make misrepresentations on that form is not only a federal crime but a serious breach of the public trust. There are significant unresolved questions about whether Governor Romney deliberately lied on his financial disclosure form. There is a very significant public interest in having them resolved one way or the other. For this reason, we request that the Department initiate an appropriate investigation into the circumstances outlined in the enclosed memo. Thank you for your time and attention to this important matter. Sincerely yours,
Justin Ruben Executive Director, MoveOn.org Political Action
September 26, 2012 MEMORANDUM FOR MOVEON.ORG POLITICAL ACTION FROM: SUBJECT: Joseph E. Sandler Potential Criminal Liability of Governor Romney Under False Statements Act
This memo, per your request, addresses the question of under what circumstances presumptive Republican presidential nominee and former Governor Mitt Romney (R-Mass) could face potential criminal liability for statements made in filings submitted to the U.S. Government. In summary, there is substantial evidence that Gov. Romney continued to be involved in the operations of Bain Capital entities after February 12, 1999. If that proved to be the case, Gov. Romney could be charged with violating the False Statements Act, 18 U.S.C. §1001, for stating the contrary on the personal financial disclosure form he filed in 2011, as a candidate for President, pursuant to the Ethics in Government Act of 1978 as amended. I. Factual Background
The facts giving rise to the questions about Gov. Romney’s statement on his personal financial disclosure form have been widely reported. In summary, the most relevant facts are as follows. The Ethics in Government Act of 1978 as amended, 5 U.S.C. App. 4 §101, requires candidates for President (and other federal offices) to file a form publicly disclosing certain information about their personal finances. The form required to be filed by a presidential candidate is Office of Government Ethics Form 278, the “Executive Branch Personnel Public Financial Disclosure Report.” On August 12, 2011, Gov. Romney filed his Public Financial Disclosure Report. One of the key explanatory notes in that Report, Note 9, states that: Since February 11, 1999, Mr. Romney has not had any active role with any Bain Capital entity and has not been involved in the operations of any Bain Capital entity in any way. (emphasis added). The categorical nature of this assertion has given rise to controversy and uncertainty about its truthfulness and about Gov. Romney’s intent in making it. On the one hand, Gov. Romney did appear to leave the day to day management of Bain in February 1999 to head the Salt Lake City Utah Olympics Organizing Committee. The Massachusetts State Ballot Commission made official findings in 2002 that Romney was employed by the Organizing Committee from 1999-2002 and that he was “actively employed” at Bain Capital only until January 1, 1999. Mass. State Law Ballot Commission, Thomson v. 1
Romney Dkt. No. 02-05 et al. (June 25, 2002). Further, in several Bain Capital documents from 2000 and 2001, Romney is not listed as one of the “key investment professionals” involved in investment management. (Dan Primack, “Documents: Romney didn’t manage Bain funds,” Term Sheet, Fortune, July 12, 2012, available at http://finance.fortune.cnn.com/2012/07/12/mittromney-bain-exit/.) On the other hand, there is significant evidence that Gov. Romney may have indeed continued to be “involved in the operations of” certain Bain Capital entities well after February 1999: A. Ownership and fiduciary positions with Bain entities. Public filings confirm that Gov. Romney continued, after February 1999, to hold key fiduciary positions with Bain entities. On May 2, 2000, a group of Bain entities filed a Form 13D with the U.S. Securities and Exchange Commission (SEC). The group included a number of partnerships referred to as the “BCIP Entities.” The Form stated that, “Bain Capital Inc., a Delaware corporation (‘Bain Capital’) is the sole managing partner of the BCIP entities. Mr. W. Mitt Romney is the sole shareholder, sole director, Chief Executive Officer and President of Bain Capital and thus is the controlling person of Bain Capital.” (Form 13D at 8). This means that Bain Capital Inc. had the legal authority and responsibility for managing the investment vehicles referred to as the BCIP Entities, and that Gov. Romney, as the sole shareholder of Bain Capital, Inc., had the ultimate authority over such management. Although Gov. Romney did not sign that form, he did sign six other filings with the SEC made on behalf of investor groups consisting of several Bain entities and himself: Pirod Holding Form 13D filed April 13, 1999; VMM Merger Corp. Form 13D, filed Jan 3, 2000; Bain Capital Fund Form 13 G filed Feb. 14, 2000; Bain Capital Fund VI Form 13G filed Feb. 13, 2001; and Bain Capital Fund VI Form 13G filing on Feb. 14, 2001; Bain Capital Fund VI Form 13 G filed Nov. 12, 1999. Some of these forms signed by Gov. Romney himself affirm that he continued to hold key fiduciary positions in Bain entities. For example, a Form 13G was filed on behalf of several Bain entities and Gov. Romney individually on February 14, 2001. This filing describes the “persons” filing the form (all of which were Bain partnerships or corporations except for Gov. Romney himself), and identifies “W. Mitt Romney…an individual, as the sole stockholder, Chairman of the Board, Chief Executive Officer and President of BCI [Bain Capital Investors VI] and BC [Bain Capital Inc.].” B. Authority and control as owner of Bain entities. SEC Forms 13D and 13G are filed to disclose publicly the acquisition of beneficial ownership of over five percent in a
publicly held company. In the filings noted above, a number of Bain entities had each acquired more than five percent and filed the form together. In some cases other Bain entities which had each acquired less than that amount were included in the filing because they could be deemed to have, under complex SEC rules, acted together as a “group” to acquire, collectively more than five percent as a result of the their association with Bain Capital Inc., the management company. (Form 13G p. 13). Gov. Romney signed and filed these forms personally, together with the Bain entities, not because he personally acquired any stock but because he continued to control the Bain entities that had acquired the stock, and was therefore deemed to be the “beneficial owner” of much of the stock acquired. See SEC Rule 13d-3, 17 C.F.R. §240/13d-3(a). For example, on February 14, 2001, a number of Bain entities filed a Form 13G to indicate they had acquired more than five percent of the ownership of a company called Chippac, Inc. The “reporting persons” included Bain Capital Fund VI; Bain Capital Partners VI (“BCP”); Bain Capital Investors VI (“BCI”); BCIP Associates II (“BCIP”); BCIP Associates II-B (“BCIB”); BCIP Associates II-C (“BCIP-C”); BCIP Trust Associates II (“BCIP-T”); BCIP Trust Associates II-B (“BCIPT-B”); Bain Capital, Inc.( “BC”); PEP Investments Pty Ltd. (“PEP”); and Mitt Romney. The filing explains that: Mr. Romney may be deemed to have the shared power to vote and to dispose of (a) 4,380,459 shares of Class A Common Stock held by BCIP, BCIP-B, BCIP-C, CIPT and BCIPT-B, in his capacity as sole shareholder of BC [Bain Capital Inc.], representing 6.4% of the outstanding Class A Common Stock, (B) 16,303,750 shares of Class A Common Stock held by BCP, in his capacity as sole shareholder of BCI, representing 23.8% of the outstanding Class A Common Stock, and (c) 465,512 shares of Class A Common Stock held by Sankaty High Yield Asset Partners, L.P,… In total, these shares of Class A Common Stock held by Mr. Romney constitute approximately 30.9% of the outstanding Class A Common Stock (emphasis added). In other words, Gov. Romney had to file this form personally, not because he owned any of the stock personally, but because he ultimately controlled a series of Bain entities that in turn had acquired and controlled, collectively, more than 30% of the common stock of the target company. No one other than Gov. Romney, at the top of the ownership chain of all these entities, ultimately controlled what stock these Bain entities acquired in other companies. . C. Admissions and Actions Inconsistent With Abandonment of Active Role. In addition, Gov. Romney reported on the financial disclosure forms he was required to file in 2001 and 2002 as Governor of Massachusetts under the laws of that state, that he earned a salary of
$100,000 each year from Bain Capital as a “Former Executive” and as an “Executive,” respectively. (Glenn Kessler, “Weighing the evidence on Romney’s departure from Bain: A response to readers,” The Fact Checker, The Washington Post, July 14, 2012, available at http://www.washingtonpost.com/blogs/fact-checker/post/weighing-the-evidence-on-romneysdeparture-from-bain-a-response-to-readers/2012/07/14/gJQAcIrXkW_blog.html). A proxy statement (Form 14A) issued by Staples, Inc. for a shareholders meeting to be held on June 11, 2001 lists Gov. Romney as a director of the company and represents that “Mr. Romney has been a general partner and the managing partner of each of Bain Capital Partners and Bain Venture Capital, both general partners of venture capital limited partnerships, since September 1984 and October 1987, respectively.” Under federal securities laws, these representations must be accurate, and information is collected from the filing company about its directors through a questionnaire sent to those directors. If Gov. Romney provided false information to Staples that would cause Staples, in turn, to file a false Form 14A proxy statement, that would itself be aiding and abetting the making of a false statement, a criminal violation of the False Statements Act. In a July 19, 1999 press release issued on behalf of Bain Capital, Inc. about the departure of two executives quotes Gov. Romney as follows: “Bain Capital CEO W. Mitt Romney, currently on a part-time leave of absence to head the Salt Lake City Olympic Committee for the 2002 Games said, ‘[The executives] have each made very significant contributions to the growth of our business, and have played important roles in furthering its success. . . . While we will miss them, we wish them well and look forward to working with them as they build their firm.” The press release characterizes Gov. Romney’s absence from Bain as only a “part-time” engagement and in quoting him as saying “we . . . look forward to working with them…” certainly makes it seem as if Gov. Romney was continuing to play an ongoing, active role as Bain’s CEO. Gov. Romney also spoke for Bain in at least one press release in July 1999. (Id.). Finally, although Gov. Romney’s retirement agreement with Bain was retroactively backdated to 1999, it was not actually concluded with Bain—meaning the formal terms of Gov. Romney’s departure from Bain were not finalized—until 2001. G. Kessler, “Do Bain SEC documents suggest Mitt Romney is a criminal?,” The Fact Checker, Washington Post, July 13, 2012, available at http://www.washingtonpost.com/blogs/fact-checker/post/do-bain-secdocuments-suggest-mitt-romney-is-a-criminal/2012/07/12/gJQAlyPpgW_blog.html). II. Legal Analysis
Under federal law, it is unlawful to “knowingly and willfully . . . make or use any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry” in any matter within the United States government’s jurisdiction. 4
18 U.S.C. § 1001(a). Whether Gov. Romney is exposed to criminal liability as a result of the statement made on his 2011 Form SF 278 turns on four elements: 1) whether the statement was false at the time it was made, 2) whether Gov. Romney knew the statement was false and made it intentionally, 3) whether the statement was material to the decisionmaking of the relevant agency; and 4) whether the matters in regard to which the statements were made were within the jurisdiction of the executive, legislative or judicial branch. United States v. Selby, 557 F. 3d 968, 977-78 (9th Cir. 2009); United States v. Puente, 982 F. 2d 156, 158 (5th Cir. 1993). A. Falsity of Statement Gov. Romney would face potential criminal liability for the SF278 statement only if that statement, when made, was in fact false. 18 U.S.C. § 1001(a); United States v. Yermian, 468 U.S. 63, 64 (1984). In this case, the categorical statement that Gov. Romney, after February 1999, was “not involved in the operations of any Bain Capital entity in any way” indeed appears to be false and at the least, its veracity is a question that clearly warrants further investigation. First, it is indisputable that Gov. Romney was the sole director, Chief Executive Officer and President of Bain Capital, Inc. at least through the middle of 2000, as reported on the Form 13D filed by that company in May 2000. Despite the suggestion in some media reports that these titles may be meaningless, the inconsistency between his positions and his flat denial of any active role in any Bain entity is not so easily explained away. At the time, Bain Capital Inc. was a Delaware corporation. Under Delaware law, directors and officers have identical duties of care and loyalty under Delaware law. Gantler v. Stephens, 965 A.2d 695, 708-09 (Del. 2009). Directors and officers breach their duty of loyalty by failing to attend to their duties in good faith, which is evidenced by a "sustained or systematic failure of a director to exercise reasonable oversight." Guttman v. Huang, 823 A.2d 492, 506 (Del. Ch. 2003) (internal quotations omitted). The duty of care requires that officers and directors make informed business decisions. Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 366 (Del. 1993); Smith v. Van Gorkom, 488 A.2d 858, 872-73 (Del. 1985) (citation omitted). To be sure, it is possible under Delaware law for the bylaws of a corporation to be structured to define the role of certain officers and directors to be passive such that they would not be held liable for company problems. See 8 Del. C. §§ 141-42; In re Walt Disney Co. Derivative Litigation, 907 A.2d 693, 754-55, 773-76 (Del. Ch. 2005). It does not seem possible, however, for the sole director of a company to be relieved of the basic duty to exercise oversight over corporate affairs and operations, since such a structure would effectively mean the corporation had no directors—a clear of violation of Delaware law. See 8 De. Code Ann. §141(b)(“The business and affairs of every corporation…shall be managed by or under the direction of a board of directors….”). As sole director, Gov. Romney had a legal duty to oversee the affairs of Bain Capital. Moreover, Gov. Romney was explicitly identified as the sole 5
“controlling person” of Bain Capital Inc. and indirectly, of multiple Bain entities in several SEC Form 13D and 13G filings, which contradicts any claim that his fiduciary positions were passive or meaningless. Second, while Gov. Romney’s exact role in the acquisitions of other companies reported in the SEC filings Forms 13D and 13G filings he signed is unclear, it is important to note that Gov. Romney was not signing those forms in his capacity as a figurehead executive of any Bain entity, but as the sole shareholder of Bain entities—including Bain Capital, Inc.—a position which conferred on him alone the ultimate power to make those acquisitions, to vote the acquired stock, and to dispose of it. Although Gov. Romney may deny having exercised that power, that ultimate responsibility and authority over tens of millions of shares of stock of other companies, and his awareness of the acquisitions evidenced by his signing of the forms, is clearly inconsistent with his flat disavowal of “any” involvement in the “operations of any Bain Capital entity in any way.” Finally, there is no way to know the extent of his other communications and dealings with Bain Capital managers and employees after February 1999. B. Intent in Making the Statement The false statement must have been made knowingly and willfully, such that Gov. Romney knew his statements were false and made them intentionally. 18 U.S.C. § 1001(a); Yermian, 468 U.S. at 64. That Gov. Romney may have recklessly disregarded or willfully ignored the falsity of the statements would also sufficiently establish this element. United States v. London, 66 F.3d 1227, 1241-42 (1st Cir. 1995); United States v. Puente, 982 F. 2d 156, 159 (5th Cir. 1993). It is not necessary for the individual making the statements to have acted with an intent to deceive. Yermian, 468 U.S. at 73; United States v. Gonsalves, 435 F. 3d 64, 72 (1st Cir. 2006); United States v. Hildebrandt, 961 F. 2d 116, 118-19 (8th Cir. 1992); United States v. Carrier, 654 F. 2d 559, 561 (9th Cir. 1981). Further investigation would obviously be required into whether Romney intentionally made false statement and knew they were false at the time he made them. Whether he did so will likely turn on his understanding of “active role” and “involvement in the operations” of Bain. Presumably, however, as sole director of Bain Capital at least through mid-2000, Gov. Romney was aware of his basic duty of care in overseeing the activities of the corporation. At the time of the filing of his Public Financial Disclosure in 2011, of course, Gov. Romney was actively trying to distance himself from post-1999 decisions and operations of Bain. If he made the categorical assertion knowing that it was an over-reach, the element of intent would clearly be established. C. Materiality of Statement
The false statements must be material. 18 U.S.C. § 1001(a); United States v. Gaudin, 515 U.S. 506, 509 (1995). A material statement is one that must have “a natural tendency to influence, or [be] capable of influencing, the decision of the decisionmaking body to which it was addressed.” Gaudin, 515 U.S. at 509 (internal citations omitted). The government entity to which the statement was made does not actually have to rely on it, have been influenced by it, or even have seen, read or heard the statement. Puente, 982 F. 2d at 159; United States v. Dick, 744 F. 2d 546, 553 (7th Cir. 1984); United States v. Diaz, 690 F. 2d 1352, 1358 (11th Cir. 1982). Lower federal appellate courts have also read the materiality requirement to be satisfied when the false statement has the tendency or is capable of influencing any “function” of the relevant agency. See, e.g., United States v. Moore, 612 F. 3d 698, 701-02 (D.C. Cir. 2010) It is well-established that a false statement on an Executive Branch financial disclosure form filed under the Ethics in Government Act is “material” within the meaning of this requirement. U.S. Department of Justice Manual, Title 9, Nos. 902, 913 (2012). The function of the Office of Government Ethics, to whom the financial disclosure is made, is to prevent conflicts of interest in the executive branch and provide for the filing, review and public availability of financial statements. 5 U.S.C. App. 4 §§ 402(a), (b). A court would likely find that making false statements as to the time period in which Romney was involved with Bain Capital would interfere with the function of the agency in gathering correct financial information in an effort to prevent real conflicts of interest. It does not matter if the statements actually affected the agency’s ability to perform its function under the specific facts of this case, as it only has to have the potential to affect the agency’s function. D. Matters Within Jurisdiction of Executive Branch The matter in which the statements were made must be within the jurisdiction of the entities to which the statements were made. 18 U.S.C. 1001(a); Bryson v. United States, 396 U.S. 64, 70 (1969). It is well established that, where an agency’s request for information is grounded in statutory authority, any information provided pursuant to that request is clearly within the jurisdiction of the agency. Bryson, 396 U.S. at 70. Gov. Romney’s public financial disclosure is information provided to the Office of Government Ethics pursuant to federal statute and each the agency’s statutory authority. 5 U.S.C. App. 4 §§ 101, 102. Thus, the jurisdictional requirement is met. CONCLUSION The facts known about Gov. Romney’s role in Bain Capital entities after 1999 strongly suggest that Gov. Romney made a false statement in violation of the False Statements Act in categorically asserting, in 2011, on his Financial Disclosure Form, that since February 1999, he had not been involved in the operations of any Bain Capital entity in any way. At a minimum, the facts call out for a full investigation by the U.S. Department of Justice. 7
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