Troubled firm Lason Inc. doesn't fit Bruce Rauner's story

Source: Chicago TribuneJan.儲存 20--Republican governor hopeful Bruce Rauner has shaped a campaign narrative as a business-savvy, detail-oriented Mr. Fixit in a state in dire need of fixing. But there's one investment in the venture capitalist's portfolio that diverts sharply from that storyline.Lason Inc., a Detroit-area imaging company, was a darling of Wall Street back in 1999 when Rauner hailed it as a great example of how his venture capital firm built businesses.A few months after praising its performance, Rauner resigned from its board of directors just as the company's high-flying stock began to crater. Lason imploded amid allegations by investors and criminal investigators that top executives cooked the books to boost the company's value.Neither Rauner nor his partners at the venture firm GTCR were accused of any wrongdoing. The firm netted at least $32 million from its investment by selling almost all of its stock before the earnings scandal became public. However, records show, other investors and lenders lost about $285 million as a result of the systematic accounting fraud, and three top executives went to prison.Mike Schrimpf, a spokesman for the first-time candidate, said Rauner and GTCR had cooperated with authorities years ago in the criminal investigation of Lason. Neither Schrimpf nor Rauner would discuss in detail the nature of Rauner's interactions with investigators or what he did at Lason."I don't know, that was a long time ago," Rauner said Thursday in a brief encounter with a Tribune reporter. "Sounds like the stuff you want to ask about is stuff that Mike's told you about, and I probably don't have that much to add."Records and a 1999 Rauner interview with a business publication suggest Lason started out as a classic example from the playbook of GTCR, a highly successful Chicago-based equity investment firm: Buy control of an overlooked company, hire sharp managers, drive the value up through expansions and then exit with a substantial profit.Rauner was one of two GTCR partners who took seats on Lason's board of directors to help drive its growth. Available records leave unclear just how attentive Rauner was, although he has boasted on the campaign trail in recent months of his hands-on involvement in the companies GTCR targets."We know how to drive results, we know how to get things done," he declared to Republican voters at one campaign stop in the fall. At another, he explained that "in business ... you're in there in person, you're working, figuring out what matters, and you're solving problems. You hit a snag on one issue, you figure a way around it or figure a way to solve the problem to get a result."A law professor at Wayne State University in Detroit who is familiar with the Lason case said such schemes typically count on directors not paying close attention to what's going on."If his (political) narrative is 'I'm a hands-on manager,' this is not a firm where you would want to say that," said Peter J. Henning, an expert on securities fraud and white collar crime. "If he was hands-on, he certainly might have gotten his fingers dirty."Henning said Lason might be recalled as "one of the worst accounting frauds ever" had it not been upstaged by similar scandals at much bigger companies -- Enron and WorldCom.GTCR has a broad record of success over three decades investing some $10 billion in about 200 companies as diverse as fast food, coin-operated laundries, funeral homes and business outsourcing services. Rauner, who amassed a personal fortune during his years as a partner at GTCR, personally served on the boards of dozens of the firms GTCR took over.Like others in the venture capital field, GTCR has suffered its share of soured investments. But Lason stands out.Rarely do companies crash and burn as spectacularly as Lason, a provider of records management services for the Big Three domestic automakers before GTCR took over and launched an aggressive growth strategy. The firm bought 54 percent of Lason in 1995 for $10 million, according to records of the Securities and Exchange Commission.Company reports filed with the SEC show that in his last year on the board, Rauner served on the executive committee with two of the company officials later convicted. That panel, according to the Lason filings, was empowered to "manage the business and affairs" of the company between meetings of the directors.Another GTCR partner, Joseph Nolan, also served on the Lason board and sat on its audit committee, responsible for "reviewing and evaluating Lason's accounting policies and its system of internal accounting controls." Nolan did not return Tribune calls for comment.Those Lason filings with the SEC state that in 1997 and 1998, Rauner was the only one of Lason's seven directors who did not attend at least 75 percent of the meetings of the board and assigned committees.In an August 1999 interview with The Wall Street Transcript, a subscription newsletter that features interviews with business leaders, Rauner hailed Lason as a "great company ... doing quite well," and went on to describe an ownership philosophy at GTCR steeped in the kind of hands-o迷你倉 involvement he now vows to bring to the governor's office if elected."We spend a lot of time living with our companies on a week-to-week basis, understanding what's going on, and being in the flow of information, so we can be helpful and knowledgeable about the operation," Rauner said.He also explained how GTCR liked to build big companies by buying up smaller ones in the same industry and rolling them together. And that is exactly what happened at Lason, which under GTCR control gobbled up more than 60 competitors in the U.S. and overseas markets in less than five years, according to court records.But the buying spree led to chaos, according to former Lason President John Messinger, who described it as operating in "grab mass" mode, according to a subsequent internal investigative report for Lason that was included in federal criminal court records.Gary Monroe, Lason's CEO and board chairman, said he was hired with the backing of GTCR, whose goal was to grow the company through acquisitions. Lason's approach was "to do a lot of deals very fast and create more size and revenue as quickly as possible," investigators said Monroe told them. They added "Monroe believes Lason did too much too quickly."Disorganization grew so acute that longtime customer General Motors pulled much of its database management business from Lason after a series of problems culminating in a weekslong disruption in 1998, according to civil court documents.Despite such problems, Lason reported record earnings quarter after quarter, a feat that won it raves from stock analysts and boosted its share price.Lason held an initial public offering of stock in October 1996, a sale that netted $11.8 million for Rauner's firm while reducing its ownership stake to 30.7 percent, SEC records show.A second public offering in August 1997 brought in another $19.5 million for GTCR while reducing its Lason stake to 15.1 percent, and a third public offering in late summer 1998 reaped an additional $11.4 million for GTCR while cutting its share of ownership to 3.4 percent. By the beginning of 1999, GTCR owned two-tenths of 1 percent of Lason stock.Prosecutors alleged that for most of that time -- from approximately 1997 through early 2000 -- Lason's success was bolstered by bookkeeping sleight of hand. The maneuver, referred to around the office as "Tailwind," was orchestrated primarily by William Rauwerdink, Lason's executive vice president and chief financial officer.Rauwerdink, who eventually became a company director as well, was hired by Rauner and fellow board members in 1996 just months after he was sanctioned and fined more than $200,000 by the SEC over insider trading allegations at his previous job. He neither admitted nor denied the allegations, Lason noted in an annual report to the SEC.Messinger told federal investigators the Tailwind scheme counted on manipulating financial data from newly acquired companies to inflate Lason earnings, driving up the stock price while masking Lason's real financial condition. But the scheme began to unravel as acquisitions slowed and it became difficult to meet Wall Street expectations with accounting tricks alone.The solution of the Lason conspirators was to make up $13 million in anticipated revenues from work that wasn't real, according to court records. To mislead investors and stock analysts, the false numbers were highlighted in a company press release distributed in late October 1999. The figures were also folded into an official report filed with the SEC on Nov. 15 that wrongly claimed operating income in the third quarter of 1999 had far exceeded the same period the year before.Amid those events, Rauner departed from the board. His replacement took over Nov. 12, six months before the expiration of Rauner's last term.Lason's stock began to slip in the face of market fears the company would not meet its goals, tumbling from $39.50 on Nov. 8 to $20.75 on Dec. 8. In response, Lason officials issued public statements declaring the company sound and blaming the stock drop on unfounded rumors about earnings problems.But on Dec. 17, the company did an about-face and issued a press release acknowledging earnings were off. On the next trading day, the stock price plunged 51 percent. It continued to drop as details of the alleged financial chicanery began to emerge, reaching $2.50 a share by the time investors' complaints were consolidated into one civil lawsuit in June 2000.In 2001, Lason filed for bankruptcy. The Lason executives were hit with assorted fraud charges in 2003, and all three pleaded guilty.Rauwerdink received a nearly four-year prison sentence and was ordered by a federal judge to pay $285 million in restitution. Monroe and Messinger received shorter sentences and were ordered to pay $20 million apiece in restitution.At its height, Lason listed 10,000 workers in 29 states and abroad, but by 2004 it reported just 2,700 employees. In 2007 it was sold to HOV Services in India.bsecter@tribune.comjcoen@tribune.comCopyright: ___ (c)2014 the Chicago Tribune Visit the Chicago Tribune at .chicagotribune.com Distributed by MCT Information Servicesself storage