“Romney closed over a thousand plants, stores and offices, and cut employee wages, benefits and pensions. He laid off American workers and outsourced their jobs to other countries. And he and his partners made hundreds of millions of dollars while taking companies to bankruptcy.”
-- Stephanie Cutter, Obama campaign memo titled “Romney’s Economic Record: Profit at Any Cost,” Jan. 13, 2012
The game of numbers between the Obama and Romney campaigns is getting a bit silly. Romney started it by making the untenable claim that he helped create more than 100,000 jobs, a figure that included jobs created by companies long after Romney’s involvement had ended in the businesses. (In the recent debate, he modified his statement to make it a tad more accurate.)
Now, apparently believing that’s what good for the goose is good for the gander, the Obama campaign has upped the ante by blaming Romney for job losses and bad deals that took place after he stopped working at Bain Capital in early 1999 in order to run the Salt Lake City Olympics. As we will demonstrate, they use a technicality to accomplish this.
We will examine the statement that Romney “closed over a thousand plants, stores and offices.”
First of all, note that the statement starts with “plants” and then pads it with “stores and offices.” As far as we can tell, there are only handful of plants on this list – Ampad (two), GS Industries (two), Dade Behring (three). The big number on this list comes from store closings -- in particular 600 stores shut down by KB Toys after it filed for bankruptcy protection in 2004.
The Bain Capital deal with KB Toys certainly looks a bit fishy. Bain paid $300 million for KB Toys in December 2000, but only put in $18.1 million in cash, borrowing the rest. Then, less than two years later, KB Toys took out bank loans to fund executive bonuses and dividends to Bain totaling more than $120 million. In 16 months, Bain had easily quadrupled its investment.
When KB Toys filed for Chapter 11 bankruptcy protection in early 2004, largely because of a price war with Wal-Mart, creditors alleged that the dividend deal had weakened the company. They sued various Bain entities and executives to get some of the money back. (KB Toys eventually emerged from bankruptcy proceedings in 2005 but then fell victim to the economic crisis in 2008 and was liquidated.)
But what does this have to do with Romney? After all, Bain had invested in KB Toys almost two years after he left to run the Olympics.
The problem is that Romney did not legally extricate himself from Bain Capital until shortly before his Olympic tenure ended. (A 2002 Boston Globe article said he retained a key financial interest until August of 2001.) So a 2002 statement he filed with the Massachusetts State Ethics Commission on his financial interests lists ownership of various Bain entities, some of which appear to intersect with the funds that invested in KB Toys.
The document says that Romney is “a passive, limited partner [with] no management capacity” in many of these funds, and so it appears he certainly profited from the KB Toys transaction. But the controversial payout took place in 2002, after he formally left Bain.
In the Massachusetts document, Romney is also listed as 100 percent owner of “Bain Capital Inc.” But there is less than meets the eye here. Bain Capital Inc. was the management firm, which was paid a management fee to run the funds and actually made virtually no profit, since it existed to pay salaries and expenses. After Romney formally left Bain in 2001, a new entity called “Bain Capital LLC” took over the management function.
By virtually all accounts, Romney was focused on Olympics in the 1999-2002 period. Yet because Romney had not legally separated from Bain, his name is littered across Securities and Exchange Commission filings concerning Bain Capital deals during this period. The crazy quilt of private-equity structures, in some ways, makes his ownership appear even more ominous, as the filings list hundreds of thousands of shares controlled by Romney.
Even so, it is a real stretch to claim that Romney — himself! — “closed” these stores. No evidence has emerged that he was involved in the KB Toys transaction. Indeed, when creditors sued over the dividend payment, they named six Bain-controlled entities and three Bain executives who had served on the board of KB Holdings.
Given that the plaintiffs’ lawyers will try to list as many possible defendants to try to force a settlement, one can be certain Romney would have been named if there had been any hint of his involvement. But he was not named, despite the SEC filings suggesting his control of the shares.
In other words, creditors apparently had determined Romney was only a passive investor.
While the creditors made many allegations about Bain’s behavior, the lawsuit appears to have been settled very quietly with no press attention. Ironically, the man who led the creditors’ case was Norman Eisen, now President Obama’s ambassador to the Czech Republic.
In what appears to be a reference to the case, Eisen’s law firm biography claims he brought “one of the first complaints targeting abuses by the burgeoning private equity industry” and that his “suit against the private equity firm produced a rapid and significant settlement for the creditors.” (Eisen did not respond to an email seeking comment.)
Without those 600 stores closed by KB Toys, that nice, round “1,000” quickly begins to shrink.
Obama campaign deputy press secretary Kara Carscaden defended in the figure in a lengthy statement:
“Romney has asked Republicans to nominate him based on his record as a ‘job creator.’ But his job at Bain wasn’t about job creation, it was about wealth creation, which is why many of his investments in companies resulted in bankruptcies, laying off workers and outsourcing jobs. That’s also why the number of jobs he claims to have created has been a moving target – it can’t be substantiated. Yet, Romney continues to broadly assert that he created jobs, no matter how large or small his role was in relation to a specific investment or whether those jobs were created while he was an investor. So, if Romney is claiming credit for jobs created at Staples long after Bain was involved, then using the same standard he should take responsibility for jobs lost and factories closed no matter the size or timing of the investment. The fact is that Romney still owned Bain when it bought KB Toys, which went bankrupt and closed hundreds of stores. Romney made money off that failure -- but since he has never released his tax returns, we don’t know how much.”
The Pinocchio Test
Two wrongs don’t make a right. Just because Romney exaggerated claims about job creation does not mean that the Obama campaign can tag him with store closings in which he appears to have played no role. The financial filings suggesting Romney still had some measure of control at Bain from 1999-2001 gives the Obama campaign opportunities to raise doubts, but the fact that Romney was not named in the KB Toys suit is an important factor in our ruling.
Romney’s record when he was running Bain is certainly fair game, but any deals made after 1999 just shouldn’t count.
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