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Well if you're an employee (or insider-investor) in Bain Capital, you use this little-known accounting trick called Co-investing.

What is a Co-investment?


Equity co-investment -- Wikipedia

An equity co-investment (or co-investment) is a minority investment, made directly into an operating company, alongside a financial sponsor or other private equity investor, in a leveraged buyout, recapitalization or growth capital transaction. In certain circumstances, venture capital firms may also seek co-investors.
[...]

Call it silence-investing in a sure-fire Leverage Buyout -- Do you want in?  Think of it as "carried interest" for the little people ... those with a Bain connection, that is.


Bain Gave Staff Way to Swell IRAs by Investing in Deals

by Mark Maremont, Wall Street Journal -- Mar 29, 2012

[...]
In one particularly successful deal, Bain increased the equity value of a company it had acquired by 36-fold in 20 months. But some Bain employees saw a 583-fold increase over the same period on IRA money they invested in the special share class of that company. Being in an IRA, the gain could then be rolled over, without initially subtracting taxes, into fresh Bain deals, for years of compounding.

Bain's co-investment arrangements, not previously reported in detail, offer a possible explanation of the large size of Mr. Romney's IRA: between $20.7 million and $101.6 million, according to his finance disclosures. It is unusual for such an account, a vehicle devised to help workers save for retirement and one to which contributions are limited, to grow so large.


Aren't there investment caps to what a person can put in their "tax-free" IRA accounts?

Yes -- for most "little" people, they are.  For Investment Equity people, not so much ...  You see, when's it's LBO Loot -- there's a different rule book.


Massive Romney IRA Still Sparks Unanswered Questions

D.M. Levine, huffingtonpost.com -- 07/17/2012

[...]
It’s a whopping sum by most standards [Romney's $20.7 million to $101.6 million parked tax-free in his IRA]; according to the nonprofit Employee Benefit Research Institute, the average IRA held $67,438 in 2010.

There are limits to the amount of money individuals can contribute to their IRAs. Before Romney was elected Massachusetts governor, federal law capped annual pre-tax IRA contributions at $2,000 and annual 401(k) retirement contributions at $30,000 with a company match as the Journal notes. Cohan reported that Bain used what’s known as a SEP-IRA during Romney's time as head of Bain, which has a slightly higher yearly maximum contribution of $30,000.

Given these contribution limits, experts are scratching their heads about the rapid growth of the account in the decade since Romney officially left the private equity firm Bain Capital.


      $67,000 vs
$20,000,000+

Yup that is an IRA stumper ... How'd they do that?


Maybe the IRS should look into such "magic" IRA's?


Well here's the 1%-er secret for how to stash those "skyrocketing" millions, tax free, no less.

Call it the Corporate Raider's Loot re-distribution plan ...


[WJS continues ...]

Even if the companies had only one share class, Bain frequently gave them two classes, usually called Class L and Class A, according to former employees, Bain internal documents and securities filings. Because Bain controlled the companies, it had flexibility in assigning values to the classes.

Class L shares, akin to preferred stock, were safer and had a higher initial value. They had priority if the company paid dividends, and holders of these shares were the first to receive proceeds from a sale or liquidation. The shares also accrued interest, often at 10% to 12%.

[...]
But once Class L shareholders got their money, Class A shareholders received the bulk of additional gains, often as much as 90% of them, according to the documents and former employees. In successful deals, the A shares could skyrocket.

Bain employees who achieved big payouts had skin in the game, with their investment money at risk. Still, the chance to co-invest with Bain was considered so attractive, former employees say, that they sometimes borrowed from relatives or friends to do so.

"I was just co-investing every dime I could get my hands on," said Sarma Melngailis, who was a Bain associate for a short time in the late 1990s. She said she even borrowed on her credit card to fund co-investments. She said co-investing "turned out to be a very good idea."


Quick mortgage the farm, Bainees -- and plow those funds into those Class A Co-investment stocks.  And deposit those Class A shares in your Bain SEP-IRA, just like Mitt.

Buy low, low, low.  Cash out high on the hog.  583-fold high.

Tell your bestest friends -- it's a chance of a lifetime. You too can own the spoils of an LBO!


[HuffPost continues ...]

But there are a few specific theories that attempt to explain the account's growth [Mitt's IRA].

The first is that Romney acquired stock from his Bain investments -- specifically high-risk, high-reward shares that had a low initial value (and thus didn’t violate the contribution limits) but paid off when the companies became more profitable. If he filled his IRA with these stocks, that could account for some of the exponential growth, as Cohan notes.

“Even though the contribution limits are small, if the stock growth is tremendous, you could possibly get up to something close to [$100 million],” said Yin, adding “though it still seems amazing to me.”


Nice work Tax Loophole -- if you can get it.


Welcome to the world of Co-investing -- the Bain Capital way:

Put in $10,000  and wait for it to balloon  

to  $5,830,000  ... Once the LBO reaches its foregone conclusion. (Mitt, he knows Where Jobs Go, remember?)


Ah the magic of Co-investing interest. Compounded like chapter eleven clockwork!

Put in $25,000  -- and just wait for those $25,000,000+  Co-investing Gains.


Max out those Credit Cards Bain Partners, you won't regret it, as long as Private Equity firms continue to get a free pass, as the best of the American entrepreneurial way.


Bain may be "inventing something" -- but what it "creates" hardly qualifies as job creating -- "extreme wealth" creation for the insider few -- is the main "opportunity" these Raiders know how to create.





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Comment Preferences

  •  Got any connections like that Jamess? (3+ / 0-)

    I think I could pool together that amount from a few friends, especially with that return!!!

    •  I wish ... (3+ / 0-)
      Recommended by:
      GoGoGoEverton, cotterperson, KenBee

      No instead, I got to drag myself

      to my thankless job.


      and hope I don't get one of those Bain pinkslips, with the paycheck this week.


      thanks GoGoGoEverton, for the feedback.


      What is necessary to change a person is to change his awareness of himself.
      -- Maslow ...... my list.

      by jamess on Mon Aug 06, 2012 at 07:02:22 AM PDT

      [ Parent ]

    •  It's important to realize what this is. (3+ / 0-)
      Recommended by:
      Sylv, semiot, KenBee

      This is nothing like the straightfoward investment of buying Apple in 1998 at $12 and watching it soar 50x.

      This is very much akin to buying stock in a company just before you announce a major contract being signed with them. You have material insider information that is not generally known.  I'd really like to know why this isn't considered insider trading.

      -7.75 -4.67

      "Freedom's just another word for nothing left to lose."

      There are no Christians in foxholes.

      by Odysseus on Mon Aug 06, 2012 at 08:47:16 AM PDT

      [ Parent ]

  •  Also if this diary should be "communitized" (2+ / 0-)
    Recommended by:
    Glen The Plumber, jamess

    if not wrecklisted!

  •  Wrecking Ball Capitalism (4+ / 0-)
    Recommended by:
    cotterperson, Sylv, semiot, jamess

    at it's finest -- or worst.  Depends on who you are how you view it, doesn't it.

    "If you tell the truth, you'll eventually be found out." Mark Twain

    by Steven D on Mon Aug 06, 2012 at 07:12:38 AM PDT

  •  There are other ways of doing it... (5+ / 0-)
    Recommended by:
    cotterperson, howd, Sylv, semiot, jamess

    But you hit it on the head with share class.

    You can create your own two-share-class company, domestic (in an IRA) or offshore (you're creating the company so you do what suits YOU!)  

    You can declare that capital gains distributions are assigned to say, Class B and non-cap-gain distributions are assigned to Class A.

    Let's say I invest $100k from self-directed IRA into a company (Company A) I created myself.  The sole purpose of Company A is to invest the money that I put into that company into other companies. Company A issues me 100,000 "A" shares for $0.99 each and 100,000 "B" shares each worth $0.01 - but that $1,000 comes from my ROTH IRA!

    Company A now has $100,000 to work with and it decides to invest in Bain Capital, which magically earns me 583-fold and not only am I filthy rich but I pay NO TAXES AT ALL because the cap distributions are inside a Roth IRA!

    Anyone can do this with real estate in an IRA - create an investment company that invests in RE.  The IRA holds no RE, only shares of the company that owns the RE.

    A friend of mine had offshore "inventory holding companies" that bought store inventory at wholesale prices into the holding company.  The holding company then sold the inventory to his "store" at near-retail prices.  The retail store made practically no profit since all the profit was held by the offshore inventory company and he paid no taxes on the profits.

    There are lots of ways to do it but when you have millions to start with, you can end with millions more.

    •  In Other Words (2+ / 0-)
      Recommended by:
      Sylv, jamess

      If your are a rich SOB, you can make up the rules however you want that will benefit you the most.  And if you do get caught doing something illegal, simply pay, er, exercise your 1st Amendment rights and buy, er, contribute to a politician's campaign or Super PAC.

      Poor man wants to be rich. Rich man wants to king. And the king ain't satisifed until he rules everything. B.Springsteen

      by howd on Mon Aug 06, 2012 at 07:42:23 AM PDT

      [ Parent ]

    •  IRS rules would seem to disallow that. (1+ / 0-)
      Recommended by:
      KenBee

      IRS.gov: Publication 590

      Prohibited Transactions
      Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person.
      Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant,and any spouse of a lineal descendant).
      The following are examples of prohibited transactionswith a traditional IRA.
      · Borrowing money from it.
      · Selling property to it.
      · Receiving unreasonable compensation for managing
      · Using it as security for a loan.
      · Buying property for personal use (present or future) with IRA funds
      I'd really like to know how investing IRA funds into a company that you make managerial decisions for escapes the Self Dealing prohibitions.

      -7.75 -4.67

      "Freedom's just another word for nothing left to lose."

      There are no Christians in foxholes.

      by Odysseus on Mon Aug 06, 2012 at 08:54:56 AM PDT

      [ Parent ]

  •  You kow - the more I read about the (2+ / 0-)
    Recommended by:
    KenBee, jamess

    complexities of how Bain Capital works and the huge sums of money that RMoney has accumulated, the more I realize that a dimwit like Mitt couldn't possibly be smart enough to plot this on his own.  What he has is a recognizable name (mostly thanks to the efforts of daddy) so he may serve as merely a figurehead leader at Bain or any of the other boards or committees upon which he has served (i.e. SLC Olympics). His little group of really smart trusted advisors are the real brains behind the making of Mitt.  They assume he is the handsome, easily manipulated, soulless, puppet that will make them all more rich and powerful - not too much different than the Bush/Cheney/Rove thing we just got rid of in 2008.

    Gravitation cannot be held responsible for people falling in love. - Einstein

    by moose67 on Mon Aug 06, 2012 at 08:21:47 AM PDT

  •  it is all about valuation and contingencies (1+ / 0-)
    Recommended by:
    jamess

    these things must be valued on the date of their contribution to an IRA...

    So  - valuing cash is simple.. I put 30,000 in cash in an IRA. easy, and clear.How about a stock that is traded on an exchange? also easy .. just look up the value on the date of the contribution.

    what about an interest in a partnership.. how easy ios that to value on a specific date?? not so much.. but still yet, if straight up, not so bad..

    how about a back-end intensest  after certain things have happened?? now we are getting somewhere..

    So here's the thing/.. you create a financial instrument or partnership agreement where my take comes on the back end after all sorts of complicated seeming things have to happen first.. only you know those things are highly likely to happen even though they seem otherwise..

    To value that today, one would say it is unlikely all those things re going to happen, or at least it is virtually impossible to tell before hand.. so those back-ended potential payouts have very little value until at least some of  those contingencies go away..

    and that happens AFTER it is in his IRA. So all the value comes after contribution... and the tax lawyers are happy to take this argument into a court..it is fairly well established with case law precedent and that is how it works - the plan has a good likelihood of winning in court.. once it passes the threshold of "more likely than not" the attorneys can sign on to the plan, and then Romney's can argue in goof faith he had a fair filing position when he filed his returns this way.

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