Remembering Thomas H. Lee, a Veteran of Private Equity

Tom Lee is dead at 78

Thomas H. Lee, a pioneer in the trillion-dollar business of private equity, has died, his family confirmed yesterday. (The New York Post reports that he was found dead in his Manhattan office of what appeared to be a self-inflicted gunshot wound.)

During his four-decade career in leveraged buyouts, Mr. Lee struck enormous takeovers, including some hugely profitable ones, and helped define the industry as a major force on Wall Street. Forbes recently estimated his net worth at about $2 billion.

Mr. Lee founded his buyout shop in 1974, drawing on an inheritance and a family loan, after working at L.F. Rothschild and First National Bank of Boston. What was then known as Thomas H. Lee Partners helped develop the traditional playbook for leveraged buyouts: borrowing huge sums of money to buy a company, then cutting costs and improving the bottom line before selling it again.

It was a model that was best exemplified by Mr. Lee’s signature deal, the 1992 takeover of Snapple. His firm bought the beverage maker for $135 million — with just $28 million coming from its own coffers — before selling it to Quaker Oats two years later for $1.7 billion.

The firm’s other notable deals include both successes and failures. One success was the takeover of Warner Music in 2003 with partners like Edgar Bronfman Jr., the heir to the Seagram’s liquor empire. “I can see the headline now — ‘Lee Does Crazy Deal,’” Lee cracked that year, alluding to the initial bewilderment that greeted the transaction. But Thomas H. Lee eventually earned a 34 percent internal rate of return from it.

The failures include the firm’s takeover of the commodities brokerage Refco, which filed for bankruptcy after disclosing that its C.E.O. had hidden $430 million in debt.

Mr. Lee left his namesake firm in 2006, and the company later renamed itself THL Partners. (“We are profoundly saddened by the unexpected passing of our good friend and former partner,” THL said in a statement.) But Lee continued to invest through a second venture, Lee Equity Partners. (In 2014, he said he called himself “Tomcat,” because he had “nine different lives.”)

He was also a prolific philanthropist, giving money to institutions including Lincoln Center, the Museum of Modern Art, the Whitney Museum of American Art and the Museum of Jewish Heritage.

Mr. Lee is survived by his wife, Ann; five children, including two from a previous marriage; two brothers; and several grandchildren.

HERE’S WHAT’S HAPPENING

The West imposes fresh sanctions on Russia. On the first anniversary of the invasion of Ukraine, the U.S. and Britain announced new measures aimed at individuals, groups, banks and defense companies, while the E.U. and Japan planned more restrictions. The Pentagon added that it would spend $2 billion to supply Kyiv with new drones and defense systems, while NATO and the European Commission rejected China’s call for a cease-fire.

The White House is said to have weighed a bigger payroll tax to fund Social Security. Biden administration officials have discussed raising payroll taxes for wealthy Americans to cover a funding shortfall, according to The Washington Post. The White House will present its budget proposal next month.

The Justice Department reportedly plans to block Adobe’s $20 billion deal for Figma. Prosecutors are readying a lawsuit seeking to bar the tech takeover, according to Bloomberg. It’s the latest sign of a more muscular approach to antitrust enforcement.

A federal judge scales back his Starbucks labor ruling. Judge Mark Goldsmith, who previously imposed a national injunction barring the coffee chain from firing any U.S. employee for participating in collective organizing, said his order was too broad. It will now apply only to a single store in Michigan.

Ozy’s C.E.O. is arrested and charged with fraud

Carlos Watson, the founder of the digital start-up Ozy Media, was arrested yesterday and charged with multiple counts of fraud. His arrest comes a little more than a year after The Times reported on a crazy scheme to raise money that involved Ozy’s then-chief operating officer, Samir Rao, pretending to be a YouTube executive on a call with Goldman Sachs.

Mr. Watson’s lawyer, Lanny Breuer, said he was “deeply disappointed with the events of today.” If Mr. Watson is convicted, he faces a mandatory minimum sentence of two years in prison and a maximum of 37 years.

According to the S.E.C.’s complaint, Ozy began running out of money in 2017. As the company tried to raise more cash, the complaint says, it misled potential investors and acquirers, lenders and potential lenders about its financial performance and audience numbers:

• In December 2018, Mr. Watson received updates that the company’s revenue for the year would be less than $11 million. But he and Mr. Rao told investors that Ozy had generated roughly double that amount.

• At the end of 2019, Ozy sent a fake contract with a TV company to a bank to help secure a loan, despite the protests of its own chief financial officer. The C.F.O., who was not identified in the complaint, quit in protest. “This … is illegal,” she emailed Mr. Watson. “This is fraud. This is forging someone’s signature with the intent of getting an advance from a publicly traded bank.”

• Ozy discussed selling itself to a media company for up to $225 million in stock, based on false financial data and a misleading description of its TV contracts. As part of that proposed deal, Mr. Watson pushed for a $35 million cash payment for himself, Mr. Rao and others.

Sam Bankman-Fried’s expanding legal problems

The FTX founder Sam Bankman-Fried faces four more criminal charges — in addition to the eight counts filed last year — after prosecutors accused him and two unidentified former executives of using tens of millions of dollars of customer money to fund an “unlawful political influence campaign” in Washington.

Mr. Bankman-Fried is accused of conspiring to defraud the Federal Election Commission. Prosecutors say he Mr. Bankman-Fried of using two unnamed former executives and other employees of his collapsed cryptocurrency exchange as straw donors to “try to purchase influence over cryptocurrency regulation in Washington, D.C.” Straw donors make contributions in someone else’s name to avoid limits on individuals or companies.

Prosecutors say customer money was also used by FTX and Alameda Research, its sister crypto trading firm, to fund venture investments and charitable contributions, and for Bankman-Fried’s personal enrichment.

Mr. Bankman-Fried was a familiar presence in Washington, and anyone who met with the onetime paper billionaire is under scrutiny. Gary Gensler, the S.E.C. chair, who is leading a crypto crackdown after FTX’s collapse, told New York magazine that he met Bankman-Fried twice, including last March to discuss an “alternative trading system” that FTX wanted permission to launch with the stock exchange IEX — a request that Mr. Gensler promptly rejected. “I indicated to them they could take their slide deck down on the second slide,” he said.

Prosecutors are questioning Mr. Bankman-Fried’s bail conditions. He pleaded not guilty to the original charges and is under house arrest at his parents’ home in California. But the federal judge overseeing the case has indicated he could jail him over his behavior, after prosecutors asked for Mr. Bankman-Fried to be barred from using encrypted apps and to have limits imposed on his communication with current and former FTX employees.

Mr. Bankman-Fried is expected to return to court in New York soon to be arraigned on the new indictment. A spokesman for him declined to comment on the new charges.

“We hope that the European industrial base will succeed, but it’s up to Europe to do some of the work … We’re not going to do that all for them.”

— John Podesta, a White House senior adviser, defending President Biden’s $370 billion clean-energy initiatives, part of the Inflation Reduction Act, in an interview with The Financial Times. European leaders have accused Biden of luring clean-energy investment from the continent to the U.S.

Setting a new mission for the World Bank

In nominating Ajay Banga, the former C.E.O. of Mastercard, to become president of the World Bank, the Biden administration isn’t just picking a veteran financial executive. It’s also looking to refocus the institution on climate change.

Mr. Banga brings plenty of management bona fides. The son of an Indian army general, he worked at multinational companies throughout his career, including Nestlé and Citigroup. He was C.E.O. of Mastercard from 2009 until he retired two years ago, and is currently a vice chairman of General Atlantic, the private equity firm.

At Mastercard he made climate change a signature issue: During his tenure as C.E.O., the company announced the creation of the Priceless Planet Coalition, a group of about 100 firms that make corporate investments to preserve the environment.

That’s a marked difference from the current president of the World Bank. David Malpass announced this month that he would step down by June, a year before his term expires. Mr. Malpass, who was picked by former President Donald Trump, was criticized by environmental advocates for not focusing on the World Bank’s climate agenda.

At a Times event in September, when asked if he accepted the scientific consensus that burning fossil fuels contributed to rising global temperatures, Mr. Malpass said, “I’m not a scientist.” That set off a P.R. firestorm, and he apologized.

Mr. Banga isn’t assured of getting the role, since other member countries of the World Bank must confirm his nomination. That said, the U.S.’s nominee usually ends up being picked.

THE SPEED READ

Deals

• KKR named Nate Taylor and Pete Stavros to the new roles of global co-heads of private equity, with broad oversight of the firm’s $165 billion core business. (WSJ)

• Unions representing workers at JetBlue and Spirit Airlines are split over their employers’ plan to combine in a $3.8 billion deal. (NYT)

• Two former Barclays bond traders sold their collection of 72 Bored Ape Yacht Club NFTs for about $9.25 million, for a reported return of 700 percent. (Bloomberg)

Policy

• The Justice Department accused Google of deleting written communications that could be used as evidence in its antitrust lawsuit against the tech giant over its search business. (Insider)

• Canadian privacy regulators are investigating TikTok’s collection and use of personal data. (Reuters)

• Kazuo Ueda, the Bank of Japan’s next chief, said the central bank should be “creative” with monetary policy, signaling that he isn’t in a rush to overhaul the B.O.J.’s bond-buying program.. (FT)

Best of the rest

• The British government will more tightly regulate soccer clubs, including through closer vetting of potential new owners and preventing teams from joining breakaway leagues. (CNBC)

• A reporter used an A.I.-generated replica of his voice to get past his bank’s voice-verification security system. (Vice)

• The daughter of the right-wing billionaire Charles Koch is betting on an unusual venture that involves “self-investigation.” (NYT)

• You can call those almond, oat and soy drinks “milk” now. (NYT)

• It’s true: The upcoming season of “Succession” will be its last. (New Yorker)

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