By Aaron Kesel
The dynamics and scheme seems the same, similar to how former KB Toys CEO Michael Glazer gave himself and Bain Capital a fat paycheck, before bankrupting KB Toys. In the Toys R Us saga the only thing different is the characters. Josh Bekenstein, co-chairman of Bain Cap, worked with Toys R Us CEO Dave Brandon to enrich themselves and other executives at Toys R Us at the expense of investors, suppliers and workers of the company, the suit alleges.
The suit states that in emails Brandon illegally devised a plot to pay a cash bonus of 75% of their base salary to himself and other top execs days before Toys R Us filed for bankruptcy. Brandon then directed Alvarez and Marshal, whose co-founder Brandon also had a relationship with, to prepare an analysis that would support the bonuses. This is similar to how in Laser’s own case Paul Traub, Traub Bonacquist & Fox (TBF) was directed to commit fraud against Laser by Traub hiding the fact that he had a deep relationship with Barry Gold (the CEO that Traub appointed for eToys) including the two working at Mitt Romney’s Stage Stores together and Gold hiring Traub by his own signature. (Honestly, the only dynamic missing is [Paul Traub] Goldman Sachs suing Goldman Sachs (Michael Glazer), pretending to show accountability.)
Brandon received a massive $2.8 million from the plan, patting himself on the back, while Glazer gave himself $50 million. The lawsuit alleges that the bonuses Brandon gave to himself and other Toys R Us executives were in actuality a breach of fiduciary duty and may have caused Toys R Us and its creditors to lose more than $16 million (ironically the same amount that they paid themselves in bonuses).
Beyond the defrauding of company creditors and investors, Brandon also seems to have a conflicting relationship with co-chairman of Bain Capital Josh Bekenstein.
According to the lawsuit, in July 2016, Bekenstein, asked then-Toys R Us CEO Dave Brandon for a favor. Bekenstein asked Brandon, a former fast-food owner who previously headed Domino’s, to call the founder of Jimmy John’s, whom Bain Cap was inquiring about a possible investment. The legal suit was filed in a New York court by a trust representing more than 100 former Toys R Us creditors, most of whom were suppliers for the toy company.
Brandon responded, “I’ve done this for you guys 100 times! I’m happy to reach out to him.”
In another email dated July 15, 2017, approximately two months prior to Toys R Us filing for bankruptcy, Brandon discussed his salary and those of Toys R Us’ executives with the company’s chief talent officer, Tim Grace.
In the email, cited in the creditor lawsuit, Brandon is quoted in a potential admission of guilt that he had been paying himself and executives of Toys R Us too much money, “About a year ago you put us all in a room and explained that our base salaries … particularly in leadership roles [and] our annual bonus percentages were over indexed to market” and “that the combination of the two was costing [TRU] millions of dollars in out-of-market, excess compensation.”
Brandon’s solution, per his email: “We have to be creative and design something that works for us. Outside stats and comparisons are not going to help us.”
In a detailed complaint, attorneys alleged that the toy retailer’s former executives and private equity owners — who they say had deep relationships with one another — milked Toys R Us out of cash ahead of its disastrous bankruptcy. That’s not all though; they then pursued a plan to revamp the popular kids’ toy retailer in Chapter 11 and lied by misrepresenting key facts to suppliers. A plan which ultimately failed, leaving Toys R Us suppliers with hundreds of millions of dollars in unpaid claims.
A few of those “deep relationships” alleged included — former CFO Michael Short and former chief merchant Richard Barry — who currently heads TRU Kids, the entity that controls the dead retailer’s intellectual property, Retail Dive reported.
The lawsuit which may be shocking for some who haven’t read this writer’s Wall St Fraud Series, accuses former Toys R Us executives and private equity owners of “breaches of fiduciary duty, fraudulent concealment, misrepresentations, and negligence” that the lawyers say led to hundreds of millions of dollars in losses for suppliers and creditors.
Also named in the suit are former directors of Toys R Us’ board, who were employed by the retailer’s private equity owners — Bain Capital, KKR and Vornado including Bekenstein.
In another similarity to Laser’s own case, Brandon was paid above-market salary by Bain-controlled companies he worked for exactly like Barry Gold was paid by Mitt Romney’s Stage Stores, while he was “representing” eToys investors working with Paul Roy Traub a friend of his to defraud the company and Laser the court appointed CEO. In Brandon’s case, he was paid by Domino’s as well as Toys R Us.
Following Toys R Us’ leveraged buyout by Bain Capital, KKR and Vornado, which left the company with a debt of more than $5 billion, the company paid tens of millions of dollars in fees back to its private equity sponsors, transactions Toys R Us documented over the years in regulatory filings.
As per the lawsuit, Toys R Us directors, who also worked for the retailer’s private equity sponsors, were put into control of the decision whether to renew the agreement to pay the fees and negotiate the amount. The complaint alleges those actions deciding whether or not to pay the fees was an “obvious conflict of interest.”
“On its face, the agreement made no sense,” the complaint states.
TRU paid large fees each quarter to Bain, KKR, and Vornado — the equity owners of the company. But Bain, KKR, and Vornado were not required to provide any actual services in exchange for these fees. Moreover, TRU was already paying expensive outside consultants, such as McKinsey and AlixPartners, for business advice.
As stated by the lawyers, the decision whether to pay them and renew the agreement should have been turned over to independent directors or consultants not connected to the above equity companies. From the fourth quarter of 2014 through 2017 alone the fees costed Toys R Us roughly $17.9 million, the complaint reads.
According to the court documents, between 2005 — the year of the buyout — and 2017, Toys R Us paid a whopping $250 million to its private equity owners, while those creditors and suppliers were largely ignored.
The creditors’ lawsuit further alleges that Toys R Us executives misled suppliers to believe that Toys R Us’ DIP (debtor-in-possession) loan of $3 billion contained no stipulations that the company would need to reach to maintain funding. In fact, as Toys R Us attorneys stated later, the company had holiday targets that it needed to make a quota for, which the business never fulfilled, forcing the retailer into default in early 2018.
“Commencing September 18, 2017, Brandon, Barry, and Short personally contacted key Trade Vendors through telephone calls, texts, and emails, and represented that TRU had obtained $3 billion in DIP financing that for the next 16 months gave TRU funds to pay Trade Vendors for goods or services provided on credit,” according to the lawsuit.
But instead of 16 months of financing, lenders pulled Toys R Us’ access to funds under the DIP the following spring, meaning Toys R Us was then out of money to repay its vendors, many of whom extended the retailer trade credit, about six months later. Suppliers, objected in court to Toys R Us’ plans to liquidate and distribute proceeds among its secured lenders, but ultimately settled for just nickles on the dollar.
Creditors additionally allege that there was no plan to keep Toys R Us operating through bankruptcy and doing so was reckless. “The directors gave no consideration-none at all-to assessing the probability that the DIP financing strategy would fail,” the complaint alleges. “If the financing terminated, TRU would have no choice but to conduct an immediate liquidation. The directors never assessed the likelihood of this outcome. They adopted a ‘we don’t care about the risks’ attitude.”
Still Toys R Us continued to operate into the winter of 2017 and Brandon paid himself and his fellow executives including Bain Capital, KKR and Vornado directors massive salaries. The retailer’s private equity owners could preserve some value in their equity if the retailer “could revitalize and emerge as a successful business with a going-concern value in excess of its debt,” the complaint states.
But that didn’t happen. Instead, Toys R Us suddenly went into liquidation, and the rest is history. Suppliers lost millions, at least 30,000+ employees were out of work, and thus the last national dedicated toy retailer was destroyed by greed, exactly as this writer and serial Wall St whistleblower Laser Haas warned.
Whistleblower Laser Haas forewarned, in 2013, stating the fact that Toys R Us would go bankrupt (as this reporter noted).
Laser has been pointing out, for two decades now, how Bain Capital persons (like Beckenstein) have colluded with Goldman Sachs personnel and lawyers like Colm Connolly to defraud Mattel, Fingerhut, Kay Bee, FAO, Gymboree, Zainy Brainy, Toys R Us and eToys creditors/ investors for massive billions via a racketeering enterprise known as a “Bankruptcy Ring.”
Over 50,000 jobs have been lost; and the Trump Administration doesn’t seem to care.
As a matter of fact, this reporter previously noted that Laser has proof Mattel has aided and abetted the criminal conspiracy via Romney’s Stage Stores attorney Paul Roy Traub pretending to switch sides to be Mattel Creditors Committee attorney.
That Paul Traub scheme guaranteed Bain Capital could get toy industry retailers super cheap.
All along, Mitt Romney and his company Bain Capital were working on inching their way to owning the BIG Kahuna Toys R Us, to destroy it like they have past businesses.
Whistleblower Haas tells this reporter that the lawsuit against Toys R Us owners is missing the mark on the bigger schemes; such as the fact Bain Capital turned down nearly a billion dollars for 300 stores.
According to “Laser the Liquidator,” those 300 stores likely did not net back $200 million.
Further, both KB & eToys were in bankruptcy multiple times and somehow KB & eToys always wound back under Bain Capital ownership, including under Toys R Us.
It was the plan of Goldman Sachs, Bain Capital, KB, MNAT, Barry Gold and Paul Traub, to get a 2-for 1, where they would sell eToys assets, super cheap, to Bain/KB/Glazer, for a paltry price $5.4 million.
At the same time, Goldman Sachs would also get away totally ‘Scot Free’ with ripping off the eToys stock public offering for nearly a billion dollars. (See NY Times March 2013 article, by Joe Nocera, “Rigging the I.P.O. Game.”)
This reporter pointed out that Trump gave Romney’s buddy, Michael Milken, a pardon; which details the fact that Mitt and Trump aren’t real enemies.
Billions of dollars in material adverse harm, over 50,000 jobs lost; and – by the way – there’s also dynamics of mayhem and homicides that Trump hopes you will ignore whilst he screws up the world failing to act sooner on the coronavirus crisis.
We are being toyed with, by massive Wall Street organized crimes, being protected from investigation and prosecution by a moron, pathological lying POTUS.
This author will leave you with a question: what does KB, Fingerhut, Toys R Us and eToys all have in common? They served as unjust enrichment to Bain Capital, Goldman Sachs, and their cronies of lawyers like Paul Traub.
In an apparent effort to hold the Guinness World Record for most involvement in fraud cases, Paul Traub also was involved in Enron, K-Mart, Okun 1031 Tax Group, Adelphia, Polaroid, Fingerhut, and many other schemes. (See my article – here – Meet Mitt Romney’s Frank Nitti, Paul Roy Traub.)
This reporter’s Wall St fraud series has further documented that many of those people in the upper levels of government (including Washington, DC.) who are supposed to enforce the law and prevent financial criminals, are miserably failing to do their jobs.
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