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After she was laid off, Reinhart became active in the Dead Giraffe Society, a Facebook group of former Toys “R” Us employees named for the company’s mascot, Geoffrey the Giraffe.121 With the assistance of the organizing group United for Respect, Reinhart and others began to advocate for better treatment of the company’s former workers. They met with members of Congress, who, at their urging, wrote to Bain, KKR, and Vornado and demanded to know why their employees hadn’t been paid severance.122 They convinced Senators Cory Booker and Robert Menendez, along with Congressman Bill Pascrell, to protest with them.123 They held a march through Manhattan, carrying a coffin for the mascot Geoffrey,124 and rallied outside the penthouse home of the CEO, David Brandon.125
cute bit of color
As described in the introduction of this book, most of the $6.1 billion that Carlyle paid for ManorCare—$4.8 billion—was borrowed, while the firm and its investors put up the remainder. Carlyle’s first major move, in 2010, was to sell ManorCare’s real estate to another investment firm for over $6 billion.45 ManorCare then rented back the facilities that it once owned. This was the sale-leaseback tactic, described in Chapter 1, that is a hallmark of so many private equity deals. As Peter Whoriskey and Dan Keating of the Washington Post later recounted, by selling ManorCare’s real estate, Carlyle was able to recover the money that it had put into the deal.46 In other words, with this sale alone, Carlyle had basically broken even and still owned an enormous nursing home chain.
But selling ManorCare’s property put a terrible strain on the business. ManorCare needed real estate to operate, and with the sale, ManorCare was obligated to pay nearly half a billion dollars a year in rent to occupy the buildings it was already using.47 On top of this, under the terms of the deal, ManorCare was still responsible for paying the buildings’ insurance, upkeep, and property taxes. This meant that ManorCare now had all the obligations of owning its properties, with all the costs of renting them.
crazy
Republican and Democratic administrations both worked eagerly for forty years to make possible the growth of private credit and private equity firms’ role within it. In 1982, for instance, the Securities and Exchange Commission (SEC) under President Reagan issued Regulation D, through which companies could generally borrow from “accredited investors”—shorthand for wealthy or sophisticated lenders—without registering with the SEC.16 This created a new class of firms from which companies could borrow money. Then, in 1990, the SEC allowed for the syndication of private capital to certain institutional buyers. Investors could now make loans on the private market and then bundle the promises of payment on those loans and sell them to other investors. This Rule 144A, in essence, created a new, secondary market for private credit.
These regulations were issued under SEC chairmen appointed by Presidents Reagan and Bush, respectively. But Democratic administrations got in on the game too. In 1996, Congress passed, and President Clinton signed, legislation that lifted the requirement that private funds—funds that made loans on the private credit market—be limited to one hundred or fewer investors.17 This created the opportunity for investors to build vast stores of capital with which to make private loans.18 The legislation passed overwhelmingly in the House (just eight members voted against it) and by unanimous consent in the Senate.19 Then, in 2012, Congress passed, and President Obama signed, the JOBS (Jumpstart Our Business Startups) Act, which further expanded the private credit market by permitting borrowers to make general solicitations for money.20 This meant that private credit sales could be advertised publicly and essentially obviated the purpose of going public. The legislation passed with bipartisan majorities in both chambers of Congress.21
Faced with all this pressure, over the course of 2020, Gores and Securus announced a number of new measures. They would give away $3 million to reduce recidivism and improve prisoner reentry,64 they would continue to reduce the cost of calls,65 and Gores himself would give away his personal profits from the company.66 Gores told the Detroit Free Press, with considerable self-importance, that “ultimately it’ll be a blessing that I’m in there and that somebody cares about what’s happening.”67 But Tylek responded, “We’re not asking you to come save people; we’re asking you to stop taking from them.”68 She added, “So before you can argue that you want to do something good and all these things, you have to stop doing the harm that you’re trying to unwind. Those two things can’t operate in the same space.”69 Thus far, Gores hasn’t heeded Tylek’s direction: he has not yet sold Securus—now rebranded Aventiv Technologies—nor has he shut it down. It remains, as of this writing, a part of Platinum Equity’s portfolio.70
Finally, as part of their rollup, private equity firms are expanding their carceral reach beyond prison itself and into prison release cards. These are debit cards that facilities give inmates when leaving jail or prison, in theory holding the money that the inmates brought with them, that they made inside, or that the facilities gave them. But multiple lawsuits allege that the business model of these companies was largely to extract fees from prisoners. For instance, one plaintiff, Jeffrey Reichert, was arrested for driving while intoxicated.151 When he was detained, the local jail confiscated the $177.66 he had in cash. He spent just four hours in detention but upon his release was not given his money back. Instead, he was given an ironically named Access Freedom debit card.152 Reichert quickly found that the card, which he had not previously agreed to take, was slowly draining him of his money: there was a weekly maintenance fee, an inquiry fee to check the balance, and an issuer fee to withdraw funds.153 This, it turned out, was company policy: the Keefe Group, which issued the card and which was owned by H.I.G. Capital, charged fees for card activity, for card inactivity, to request too much money, to ask about how much money there was to request, to replace a card, and to close the account. “Clearly, these cards are designed to make it impossible to avoid fees,” wrote Lauren Sanders of the National Consumer Law Center.154 A portion of the case was settled, and Keefe agreed to pay a percentage of the fees it took from prisoners, but much of the litigation remains ongoing.155 Additionally, the Consumer Financial Protection Bureau (CFPB) eventually fined JPay, which issued many of these cards and which was owned by Tom Gores’s Platinum Equity. The CFPB said that JPay’s tactic to attach fees to credit cards after people were released from prison was abusive.156 In the settlement, JPay agreed to give the former prisoners $4 million and pay a penalty of $2 million, as well as limit the fees that it would charge in the future.157
!!
The situation was even worse in Bayonne, New Jersey, which had taken a similar deal with KKR and its operating partner a few years before. In announcing the agreement, the parties made big promises. A law firm hired by the water authority estimated that the city could save over $35 million over forty years.22 The CEO of the operating company extolled “KKR’s long-term vision,” which, he said, “brings credibility to address America’s water challenges.”23 The Clinton Global Initiative even featured the partnership as an innovative new business model in its annual meeting.24
The 911 dispatch was just one small part of private equity’s expansion into emergency services; the far larger part was its acquisition of ambulance companies. It may be surprising to learn that ambulances were once free, overwhelmingly provided by the government—especially for younger people who have only known the prohibitive costs of calling an ambulance. In fact, in 1988, a national survey of cities found that not one had privatized its ambulance services.52 But in the 1990s, amid municipal budget cuts and a growing distrust in government, that began to change. By 1997, 16 percent of cities had privatized their ambulance services.53 By 2012, nearly 40 percent had.54 If localities were looking to sell their ambulance operations, private equity firms were looking to buy them, as people who called emergency services were willing to pay perhaps enormous sums to save their own lives. So, over the course of fifteen years, Patriarch Partners, Warburg Pincus, Clayton, Dubilier & Rice, and KKR, among other firms, all bought ground ambulance companies.55 KKR and American Securities also bought the largest air ambulance companies—those that delivered patients by helicopter and plane—which, together with one other firm, controlled two-thirds of the industry.56
The salespeople were themselves under tremendous pressure. Managers allegedly forced people to stand at their desks when they missed sales targets and prodded them to make bets on one another’s performances.95 One manager had a “Guess Who” game where she showed her team’s metrics and asked people to guess who had gotten each. Another saved the key cards of fired admissions staff on a key ring, which she would rattle in front of salespeople to remind them of what would happen if they failed to meet their targets. Because of these tactics, one director of admissions—that is, one of the salespeople—at Ashford said, “you stop thinking of these students as people, you start putting numbers on people.… Your entire day was consumed with a number so that you wouldn’t get in trouble.”96 Ultimately, California succeeded in its lawsuit against Ashford, which the court ordered must pay $22 million for defrauding students.97
nice
Require reporting on the ultimate parent entity of nursing homes. Private equity firms often obscure their ultimate ownership of nursing homes to avoid legal liability. The Center for Medicare or Medicaid Services has regulations that require homes to disclose any investors with a 5 percent or greater ownership stake.13 These regulations should be updated to require nursing homes to identify the ultimate parent entities of the investors, as well as the ultimate parent entities of the contractors that they use (nursing homes often obscure their wealth by paying money to contractors that they themselves own). This information should be made public so that the families of those who die in nursing homes know whom to sue.
i mean sure but it is crazy to end on a sentence like that
There was a good reason for this. Economics satisfied the two most basic needs of investment bankers. First investment bankers wanted practical people, willing to subordinate their educations to their careers. Economics, which was becoming an ever more abstruse science, producing mathematical treatises with no obvious use, seemed almost designed as a sifting device. The way it was taught did not exactly fire the imagination. I mean, few people would claim they actually liked studying economics; there was not a trace off self-indulgence in the act. Studying economics was more a ritual sacrifice. I can't prove this, of course. It is bald assertion, based on what economists call casual empiricism. I watched. I saw friends steadily drained of life. I often asked otherwise intelligent members of the prebanking set why they studied economics, and they explained that it was the most practical course of study, even while they spent their time drawing funny little graphs. They were right, of course, and that was even more maddening. Economics was practical. It got people jobs. And it did this because it demonstrated that they were among the most fervent believers in the primacy of economic life.