According to a shareholder suit filed on Wednesday, Apollo Global Management agreed to pay $570mn in order to cover the taxes of its top executives. This was part of an effort to distance the private equity firm’s scandal-plagued founding partner Leon Black.
The dispute shines a light on a series hurried governance reforms intended to improve Apollo’s public perception amid a funding crisis caused by Black’s messy departure from March 2021.
According to the lawsuit, Black who was fired after it became known that he paid $158mn to Jeffrey Epstein for professional tax advice, and other services, will receive $276mn in Apollo’s coffers.
The lawsuit states that Marc Rowan and Josh Harris are each entitled to more than $100mn.
The three founders “concocted” a series of unjustified justifications for the $570mn payment after realizing that they would face substantial tax bills if the investor-friendly proposal they made to eliminate the dual class share structure which gave them control over Apollo was implemented.
According to a complaint filed on Wednesday in Delaware Chancery Court, “there was not a legitimate reason” to pay personal taxes of the founders. Anguilla Social Security Board is a shareholder who has been aggrieved by the Apollo board. It has claimed that the board has breached their fiduciary duty and demanded the money to be returned to Apollo.
Black and Harris didn’t immediately respond to comments. Apollo released a statement in which it defended the deal, saying that shareholders of the group have gained from the deal.
According to the lawsuit, payments were approved by three members of a “conflicts panel” consisting of friends and associates of the founding partners. The lawsuit claims that the committee approved hundreds pages of documents in just hours after receiving them and did not keep minutes for most of their meetings.
The lawsuit, which is based on emails and documents that were given to the Anguilla Board under an order from a court prompted by a previous litigation, makes allegations about the last days of a decade-long agreement between three men who created one of the richest groups on Wall Street.
The lawsuit alleges that the three billionaires worked together on proposals to make them richer, even as Rowan became the chief executive officer of Apollo and Black was ousted in a leadership dispute, which he blamed later on Harris. The founders of Apollo were said to be seeking payment in exchange for eliminating the “tax receivable agreements” which governed the outcome if they chose to sell the private partnership units in which they owned their stakes in Apollo and hold publicly traded shares instead.
Apollo will be able to deduct the cost of such “taxable trades”, which would have normally been a loss for the founders. The group has promised to return 85 percent of the tax savings to its founders.
According to court documents citing internal presentations, the founders claimed that they should receive compensation for abandoning that agreement.
The Anguilla Board disagreed and argued that no such exchange had occurred, nor had Apollo received any tax benefits.
The lawsuit states that although Perella Weinberg Partners was the financial advisor to the conflict committee, they accepted many of the founders’ arguments, but “refused [to] provide a fairness opinions and disclaimed providing any tax advice even though the whole transaction was predicated upon complex tax considerations”.
Perella Weinberg declined comment. Apollo stated: “The TRA deal that is being challenged was the product of a deliberative and deliberate process, and negotiated and approved with the help of Apollo’s legal and financial advisors.”
Many boutique investment banks, private equity firms and other financial institutions have used similar Tax Receivable Agreements (TRA) to support their initial public offering. Securities filings reveal that Apollo paid executives $83mn between January 1, 2021, and June 30, 2022 in TRA payments.
The complaint also criticised the close relationship between Apollo executives, and independent directors of the group. Anguilla used a legal tool called a derivative suit to sue Apollo founders for the company. It asserted legal rights which it claimed the directors of the company were unlikely to enforce, as they were too entangled to investigate any alleged wrongdoing.
Richard Emerson is one of the targets of Anguilla’s board criticism. He was a former investment banking executive and Microsoft dealmaker, who resigned from his position as Apollo director last Thursday.
According to an email included in the complaint, Emerson asked his long-time associate Harris (who has since left Apollo) for assistance in securing a Harvard University place for his son shortly after his appointment.
It is important to provide assistance “without creating a. . . The email stated that “Varsity Blue Taint”, an apparent reference to the 2019 scandal where a number wealthy Americans were prosecuted on allegations they paid bribes in order to secure their child’s place at elite universities.
Emerson didn’t immediately respond to our request for comment.
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