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First of two parts

To assess Romney, look beyond the bottom line

He created jobs, closed factories, made enemies and inspired colleagues.

December 16, 2007|Bob Drogin | Times Staff Writer

When Ampad permanently shut the Marion plant several months later, Romney, then back at Bain Capital, expressed his regrets in a letter to Johnson. Romney wrote that he had tried to end the strike "privately without fanfare. It included communicating my strong personal desire that the strike be settled and that the plant remain open, offering my ideas for a possible settlement, and relaying the sentiments of the workers I met with in Boston."

That's not how Wolpow, the former managing director at Bain Capital, remembers Romney's role, however. Wolpow had been installed on Ampad's board of directors as part of the leveraged buyout, and he reported directly to Romney before and after the Senate race.

"He was in charge," recalled Wolpow, now co-director of the Audax Group, another private equity group. "He could have ordered me to settle with the union. He didn't order me to do that. He let me make decisions that would maximize the value of the investment. That was the right business decision as CEO of Bain Capital. But let's not pretend it was something else."

Ampad prospered briefly after Bain Capital took it public in 1996. But saddled with increasing debt, Ampad began laying off workers, closing plants and losing money within a year. It filed for bankruptcy protection in 2000. By then, Bain Capital had reaped $102 million in advisory fees, sales of stock and other payments, corporate documents show.

Romney and his team gained huge profits from at least half a dozen companies that soon crashed into bankruptcy.

In 1997 Romney and his team purchased a stake in DDi Corp., an Anaheim-based maker of printed electronic circuit boards. Three years later, Bain Capital netted a $36-million profit after it took the company public. Romney sold his own shares for $4.1 million, according to federal securities records, although his profit margin is unclear.

But DDi's stock soon collapsed, and the company filed for bankruptcy in August 2003, laying off more than 2,100 workers. Bain Capital and DDi executives jointly settled a federal class action lawsuit in March, agreeing to pay $4.4 million to shareholders who argued that DDi was poorly managed and "hemorrhaging cash" before the stock offering, court records show. Romney was not named in the suit.

Still other troublesome cases emerged when Romney ran for governor of Massachusetts in 2002. Chief among them was Damon Corp., a medical testing company based in Needham, a Boston suburb.

Romney had joined Damon's board of directors after Bain Capital purchased a stake in 1990. He remained there until Corning Inc. bought the company three years later. Bain tripled its investment.

Romney personally profited on the sale, claiming more than $100,000 in capital gains on sales of his own Damon stock, records showed.

But in 1996, Damon pleaded guilty in federal court in Boston to massive overbilling of the Medicare system and paid $119 million in criminal and civil fines.

Then-U.S. Atty. Donald K. Stern called it "a case, pure and simple, of corporate greed run amok." No one at Bain was implicated in the fraud.

Asked about the case during his gubernatorial campaign, Romney told reporters that he "blew the whistle" on the overbilling scheme while still on the Damon board, and had taken "corrective action."

In a recent telephone interview, Stern said he had no recollection of Romney alerting investigators or taking other action. Court records in the case showed the illegal scam continued unabated until Bain Capital sold Damon in 1993.

Romney's aides now argue that reporters misunderstood his claim back in 2002.

Romney and other members of the board had hired a New York law firm to review Damon's billing practices after a rival medical company had pleaded guilty to fraud, Damon records showed. The law firm recommended Damon change billing procedures but found no evidence of fraud.

Despite the failures, outside experts say Romney led his company to extraordinary success.

"It's a puzzle that people criticize him for making a lot of money" said Steven N. Kaplan, professor of entrepreneurship and finance at the University of Chicago Graduate School of Business. "He ran his company for his shareholders. That was his job."


Next: Using offshore tax havens to help investors



Tales of boom and bust

Staples Inc.

Founded: 1986

What: A start-up office supply company

Bain Capital involvement: In one of its first deals, invested $650,000 in 1986, eventually raising its stake to more than $2 million

What happened: Staples became the world's largest office products retailer, with 74,000 employees, 2,008 stores and annual sales of $18.2 billion.

Bain's take: $13 million

Impact on Romney: High-profile business success


Founded: 1888

What: A leading manufacturer of office products; including writing pads

Bain Capital involvement: Purchased a controlling share in 1992, investing $5 million

What happened: Ampad filed for bankruptcy protection in 2000 after laying off hundreds of workers. Emerged from bankruptcy in 2003 with new ownership.

Bain's take: $102 million in advisory fees, stock sales and other payments

Impact on Romney: Undermined his first bid for political office

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