See Previous Post on October 6 for Important Background Information.
Photos: Neil Goldschmidt and Gordon Sondand, Below
Not since Neil Goldschmidt has a public figure in Oregon wielded so much power on the national stage. While Goldschmidt was a masterful politician and literally the political godfather of the Democratic Party in Oregon, he got very sloppy on the business side, which opened up his personal life to intense scrutiny. In fact Nigel Jaquiss of Willamette Week ultimately won a Pulitzer Prize for his chronicle of Neil Goldschmidt.
Gordon Sondland has similarly been a masterful on the business side yet become sloppy regarding politics, opening up his business practices to similar scrutiny.
For investment advisors like myself, one of the great challenges given low interest rates is finding quality fixed income investments, especially given the proliferation of highly engineered products from non-traditional issuers of such debt, including private equity firms like KKR, TPG and Blackstone. Remarkably, public pensions are heavy investors in such products, Oregon alone has a $2.5 billion portfolio what is called “non-traditional” fixed income.
Given my reputation for reviewing these complex fixed income financial products, numerous journalists have contacted me in the past few days and asked that I look at Mr. Sondland’s financial disclosure and various businesses. So here is a quick look, from an independent financial professional. I’ll try and make extensive use of exhibits so that you can draw your own conclusions.
First thought. Wow. This all seems strangely similar to the Neil Goldschmidt saga.
A good place to begin is Nick Budnick’s October 15, 2019 story in the Portland Tribune titled “As Gordon Sondland nears impeachment spotlight, who is he?” It is noteworthy that Sondland’s wife Katy Durant served on the Oregon Investment Council (OIC), the body that manages Oregon’s $90 billion in PERS assets from 2005-2016, 11 years.
Step 2 is to then bookend this article with another by Budnick, when he was with Willamette Week titled “Power Connection,” dated July 6, 2005. This is when Gordon Sondland’s wife Katy Durant officially joined the OIC responsible for managing Oregon’s PERS investments. Here is an excerpt from the article.
At the zenith of his power Neil Goldschmidt was set to assume control of the State System of Higher Education and become Chairman of the new Portland General Electric, an Enron subsidiary, as part of a bankruptcy buyout led by a leading private equity firm, the Texas Pacific Group (TPG). He had already been in the Carter cabinet as Secretary of Transportation, Oregon’s Governor, Mayor of Portland and student body President at the University of Oregon. And his lobbying client list was stellar.
At the time Goldschmidt’s best friend Gerry Bidwell, and his wife Diana, both sat on Oregon’s powerful Oregon Investment Council. As indicated in Budnick’s article, they both voted in favor of the TPG deal.
TPG’s plan for PGE was to peel off $1 billion the first year alone with Neil set to make at least $20 million. The public was incensed and ignited a quick fall as scrutiny mounted regarding Neil’s TPG role, his role in predatory lending with Irvine Levin’s Renaissance Holdings, now renamed Genesis Financial, his siding with Weyerhaeuser in a bitter hostile takeover of Portland based Willamette Industries, and other activities.
Like Diana Goldschmit, Gordon Sondland’s wife Katy Durant has been a big supporter of TPG on the Oregon Investment Council. The following agenda item and minutes reap is from a December 2015 meeting, note that Durant made the motion for approving a $700 million investment in TPG. OIC has invested almost $4 billion in TPG over 20 years yet this was the largest at one time.
Yet unlike Diana Goldschmidt, who seemed to have been blind sighted by her husband’s business activities, Katy Durant has boldly and knowingly stretched the boundaries of ethical conduct.
While on the OIC Durant remained active in commercial real estate deals, often involving parties who dealt directly with the OIC. Here is a $75 million deal involving Sondland/Durant’s Atlas Investments made in 2007 while Durant was on the OIC.
The following is a rare abstention regarding a $300 million investment a JP Morgan fund at her last meeting on the Council. A few months later JP Morgan provided Durant’s Atlas Investments $28M in financing for a real estate project. Of course such financings are usually months in the works.
$28 Million Financing Early 2017 with JP Morgan with Atlas Investments
This is where the State Treasurer is supposed to step in and unfortunately for Sondland and Durant, Democrat Tobias Read has done just the opposite. Read began by scrubbing away the archive of meetings and minutes as part of a web site overhaul. This includes key audio from Wilbur Ross, now Commerce Secretary, whose firm has received almost $300 million from the OIC. Again Durant made the motion to approve the investment, which I am confident Wilbur appreciated.
Rather than see the data rich archive that existed prior to Read assuming office in January 2017, complete with audio for all meetings, the primary images on the website are of Read himself.
Even more surprising is that Read is also not ensuring public comments are accurately reflexted in the minutes, the most basic Democratic ideal.
At the April 2019 meeting I specifically addressed Read and encouraged him to restore the archive of minutes and data on past investments. All he noted in the minutes was that I “suggested changes to the website.”
In 20 years or monitoring the OIC’s activities, it is my opinion that the current Chair Adams has been the finest member. She asks the tough questions and tries to lead the council in the right direction yet the Wall Street influence seems too much for Read and others. This poses a serious risk to PERS participants the day Adams leaves the council.
Durant often went furthur with respect to scrubbing away public comment, see below, as Chair of the OIC in 2015 and 2016. Imagine the ridiculousness of stating “addressed the council with prepared remarks,” with no reference to the actual content of the remarks.
Let’s now take a look at another example regarding why this archive is so important.
TPG and the OIC’s in Novalpina, a TPG spinoff, Making Oregon Public Employees the largest shareholders in a Cyber Weapon Software Company NSO/Pegasus
After a long career benefiting enormously from Oregon’s investments in TPG, senior partner Stephen Peel started his own fund Novalpina, with a helping hand from TPG.
The OIC in fact became the first and largest investor at almost 25 percent of the entire fund. Here is a link to audio for this November 2017 monthly meeting. You can hear Chair Adams asking all the right questions yet getting little support from other council members, in terms of scrutiny, regarding the investment:
In the audio Novapino Founder Stephen Peel and his partner note their focus will be mid-size European companies, using a wind power company as an example.
As it turns out they invested more than half the billion dollar fund, including debt, in a cyber weapons firm, NSO. This essentially makes Oregon Public Employees the NOS’s largest shareholder. Here is a series of visuals, note that acccording to Private Equity HUB Novalpina used Brooklands Capital Strategies, a division of TPG, on the fundraising. Not even the Willamette Week has reported on this investment.
A good question for Gordon Sondland on his special mission to the Ukraine to get to the bottom of the election interference scandal is whether Novalpina and its portfolio company played a role.
Novalpina’s entry into the Cyber Weapon software business was greased by OIC funds and TPG’s big entry into security software when it purchased a majority stake in McAfee from Intel in September, 2016.
NSO’s previous owner was Francisco Partners, another private equity firm in which the OIC has invested almost $500 million. Here is a recap of the NSO sale from Francisco partners to Novalpina per Wikipedia. Note the source. Whether or note Novalpina leveraged this up with debt is not clear. What is clear is that Oregon’s public employees are its largest shareholder.
MInutes at OIC Meeting, Audio File of Peel’s Proposal Available on-line
Vanity Fair Article Describing How NSO Was Discovered by Engineer Now in Ukraine, A Fascinating Read
One More Example of Sondland and Durant’s Conflicts of Interest, Elliott Broidy’s Markstone Capital
The OIC invested $50 million in 2004 in Eliott Broidy’s new Markstone Capital and during Durant’s time on the Council significant issues regarding problems with the fund were discussed. These included a major pay for play scandal brought by a New York Public Pension. Broidy is also now the subject of a Department of Justice Investigation.
Sondland is a major investor with Broidy is a security surveillance firm, as reported by Nigel Jaquiss of Willamette Week. What Jaquiss and other Journalists have not discussed is Durant’s role on the OIC overseeing the Markstone Capital investment while sensitive discussions were held.
Durant is quoted as saying that via her efforts the OIC has saved hundreds of millions in fees, which is simply ludicrous. What she has done is stifle disclosure at every turn.
Back To Gordon Sondland’s Business Finances
In 2015 while Durant was Chair of the OIC an additional $112 million was invested in Endeavour Capital. Durant’s husband is invested in three Endeavour Capital funds per his January 2018 Public Financial Disclosure Report.
One of the great frustrations for an advisor like myself is seeing companies which could represent good investments if they went public, instead being sold to foreign firms. For example, Endeavour orchestrated the sale of one of Portland’s most significant employers, and tax payers, Esco Steel, to a Scottish company. What a shame that so many quality upper management jobs, and local tax revenues, are lost.
Endeavour has also an investor in predatory lending via Genesis Financial Solutions, as is Sondland, per his disclosure report.
From the Endeavour description below, it is not clear who the “long term capital partner” it was sold to in 2019. With Sondlan’s long history of “hard money lending,” is he perhaps that investor? Who knows?
Jeff Manning of the Oregonian wrote an excellent article on Jan 10, 2019 titled “Corinthian , giant for-profit college with 900 local students, accused of running predatory student loan program.” The article outlines the relationship to Genesis and related predatory lending practices. Bloomberg below shows the ownership migration from Renaissane Holdings to Genesis.
Gordon Sondlands Debts Per Public Disclosure, Something Looks Odd
When I did the original review of President Trump’s financials for Bloomberg’s Rich Rubin, now at the Wall Street Journal, Rubin was stunned that I concluded Trump was running to avoid bankruptcy. It was genius, I noted.
The reason was that, while everyone was focused on his assets, no attention was being paid to his debts, which according to my calculation gave him only 18-24 months. When Rubin concluded Trump’s net worth was only $2 billion, rather than $10 billion, President Trump publicly insulted him, saying I’ll have to tell Michael Bloomberg not to send a cub reporter who knows nothing about anything.
Of course if Steve Bannon is correct, President Trump’s net worth does not exceed $50 million about what Sondland’s has been estimated to be. The key word is “net,” meaning after deducting debts. It seems crazy that President Trump would not think $50 million was impressive enough.
Regarding Sondland and President Trump, many banks simply won’t lend to hotels because they are high risk loans. They have been burned too many times due to overly aggressive assumptions.
What follows is a list of Sondland’s “disclosed debts”, a list that clearly does not include all his properties debts, likely because they are legally structured differently. Based upon this disclosure, he has spread things around quite a bit with Washington Trust, a fine Spokane based bank, holding perhaps at much at $30 million.
What Gordon probably never anticipated is that all his property debt can be analyzed in great detail given that the banks he used have securitized the loans into commecial mortgage pools and sold these to investors.
Each such sale requires a prospectus, filed with the SEC, that provides very detailed information on each property, for example the Paramount Hotel assumes an occupancy rate of 87 percent. In addition, almost have his revenue comes from food and beverage.
Goldman Sachs SEC Filed Prospectus Holding at Least One Gordon Sondland Mortgage
So let’s start with this deal involving a mortgage pool created by Goldman Sachs on February 6, 2015, which by the way does a lot of business with the OIC and Durant is now Chair, that is 2015, which shows Sondland’s $25 million mortgage on the Paramount Hotel, which was previously securitized by JP Morgan. In the prospectus Goldman claims the occupancy rate is 87 percent. Of course this is critical for a hotel and why again many banks will simply not lend to hotels, given the high risk that occupancy should decline sharply. Also noteworthy is that the President’s primary lendor, Deutsche Bank, President Trump’s primary lendor, was a key player in the issue.
Of course an obvious question might be, how has Gordon’s business mix changed since he joined the Trump administration. For example, are there most government events being held there, etc. This would be a good public records request since he is still the owner of the properties. Simply saying he is not actively managing them is not adequate.
Sondland’s Provenance Hotels recently filed an ethical complaint against Democratic Congressmen Earl Blumenhauer, and was allowed to do a major opinion piece in the Oregonian, after Blumenhaeur suggested consumers boycott Sondland’s Hotels given his refusal to testify to Congress. One food vendor, salt and straw ice cream, has already backed out. Let’s just say chances are good the commercial lending officer at Washington Trust will be watching closely tomorrow.
This ethical complaint is particularly interesting because after years of frustration with Sondland’s wife Katy Durant not disclosing conflicts of interest while in charge of Oregon’s PERS investments, I filed a complaint with the State Ethics division. I am after all investment advisor to approximately 25 PERS participants.
Here is a copy of the response received.
Final Thoughts: The idea of public service is to serve the public, not have the public serve you. And this whole idea of “let them eat cake” put forth by Sondland and Durant is probably a primary reason why politics is so divided.
Simply putting your name on art exhibits and using a foundation as a PR tool is also bad business, and worse politics.
My advice to Sondland is to look at the retirement plan for your 615 employees, to which you contributed $60,000 as the employer contribution in your most recent filing, that’s about $97 per employee for the year.
And when you are in Europe please try not to personify the “Ugly American.” That joke you tell about asking what time it is, and someone responding no, is a language thing.
It’s reported your father was a Russian citizen before fleeing to Germany. As you should know, that is a language thing and all you do is display ignorance to slavic languages when you tell that joke.
In Russian the answer would be nyet, the same thing. It means I don’t have the time. Put another way, in Chinese ta means him or her, no gender to the pronoun. Listen more Gordon and talk less.