At other times, private equity firms simply hired the wrong people. In 2012, Golden Gate Capital and Blum Capital bought the discount shoe seller Payless.65 As described in a detailed profile in the New York Times, through a series of owners, Payless tumbled through bankruptcy three times in four years. Part of the problem was that for every one dollar in profit Payless made, more than a dollar went to its private equity owners and another quarter went to its lenders. This made the company susceptible to crisis when, for instance, a work slowdown by longshoremen left Payless’s shoes waiting on boats for several weeks. But part of the problem was who these owners put in charge. After Alden Global Capital (which describes itself as a hedge fund but engages in private-equity-like buyouts) bought Payless out of bankruptcy, it installed as CEO, not an executive from footwear, fashion, or even retail, but an investment banker: Martin R. Wade III. Payless middle management felt that Wade and his team treated them with contempt: “They became convinced that, ‘You guys don’t know what you’re talking about,’” one former midlevel employee told the Times.66 And yet, despite their inexperience, the new management enthusiastically pushed its own ideas, such as a plan to buy millions of World Cup–themed flip-flops. The problem was that the sandals didn’t arrive until after the World Cup had ended and even then often with flags of countries like Mexico and Argentina, where Payless had no stores. Ultimately, the company had to sell the flip-flops at a deep discount. Another idea was to shift quality inspections from a dedicated facility to individual factories. As a result, Payless received many shoes that were defective in various ways: size six shoes labeled as size three, for example. A former employee said that “missing one shoe can wipe out whatever you think you’re saving.”67 Ultimately, Payless returned to bankruptcy and closed all its stores in the United States. (In a statement to the New York Times, Golden Gate Capital said that “[w]hen we exited Payless, we left it with a right-sized store footprint and meaningful earnings opportunities for future owners.”)

But why go through this whole process at all? Why would Friendly’s declare bankruptcy, just to be sold from one Sun Capital fund to another? The answer was simple: pensions. At the time of bankruptcy, Friendly’s had $115 million in pension liabilities.92 By selling Friendly’s to one of its affiliates, Sun Capital was able to reacquire its own company free and clear of those liabilities. Instead, they were transferred to the Pension Benefit Guaranty Corporation. The PBGC was chartered by Congress to rescue underfunded pension plans and paid for itself in part through insurance premiums that healthy pension plans paid to it.93 But it was always meant as the destination of last resort, not as a convenient sucker for strategic bankruptcy reorganizations.

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

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.

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