A Buyout Fund C.E.O. Got in Tax Evasion Trouble. Here’s Why Investors Shrugged.

However, the reluctant response to Mr Smith’s tax violations contrasts with a scandal involving Leon Black, a fellow private equity billionaire and co-founder of Apollo Global Management. After the revelation, also last fall, that Mr. Black had paid Jeffrey Epstein, the shamed financier and registered sex offender, tens of millions of dollars for tax and estate planning services, Apollo commissioned an external review at Mr. Black’s behest. In January, Apollo announced that Black, 69, had done nothing wrong but would step down as chief executive until the summer, and introduced several governance changes.

Though investors haven’t drawn their money out of Apollo funds, the company’s shares, which are publicly traded and much larger than Vista, have since lagged behind its rivals Blackstone Group and KKR. Some Apollo investors have publicly expressed their reservations. Mr. Black’s business also prompted calls in the art world to oust him as chairman of the Museum of Modern Art.

The Mr. Smith scandal raised several ethical issues for investors as Mr. Black was dealing with a convicted sex offender. Another reason both Mr. Smith, 58, and Vista were unscathed from the tax evasion episode is because the company was quick to alert investors – who dislike surprises and value disclosures – that problems were emerging brew.

When federal prosecutors said in October that Mr Smith had completed a 15-year program to hide $ 200 million in income and avoid millions in taxes through a network of offshore trusts and bank accounts, investors turned Vista prepared for the evil news for about four years. The venture came to light after a long study of the relationship between Mr. Smith and Robert T. Brockman, a Texas billionaire who helped Austin-based Vista get it started.

Mr. Smith, Vista chairman and chief executive officer, learned in the summer of 2016 that he was the subject of a criminal investigation involving Mr. Brockman. In the fall of this year, Vista began regularly – if minimally – providing investors with information about the federal investigation, five people said. The company made at least 10 updates available to investors, said a person who was briefed on the company’s activities and refused to be identified because the affairs are not public. The individual did not provide any details about the information in this information.

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