Ex-TPG Employee Adam Levine Countersues, Charges Private Equity Firm With Cheating and Misleading Investors, Retaliation

Readers may recall that we posted about the surprising lawsuit filed by leading private equity firm TPG against its former head of public relations, Adam Levine. The reason the filing was unusual is that it is uncommon for major financial firms to air dirty laundry in public. TPG’s filing depicted Levine as an employee that went rogue after he was denied a promotion to partner, allegedly threatening to bring down the firm and absconding with firm property, namely a Blackberry and a laptop. The end-of January filing in Federal court in Texas also charged him with violating confidentiality agreements by leaking a story to the New York Times.

In another unusual turn, Levine, who lives in San Francisco, could not be located for TPG’s attorneys to serve him. Two months after the filing TPG persuaded the court to authorize “substitute service,” which set the clock for Levine to respond in three weeks running.

It looks as if Levine was due to surface independent of the TPG effort to move its case along. He filed a whistleblower suit in Federal court in San Francisco on Thursday. I’ve embedded it at the end of this post. It’s short and colorful, so I strongly urge you to read it. The legal junkies among you might enjoy contrasting it with TPG’s allegations, which you can find in the filing at the end of this post.

Levine’s case is a combination of denying specific allegations made in the TPG case against him and reframing his disputes with the partners as being the result of his efforts to combat practices that he had come to realize were questionable.

Specifically, Levine denied that he was a source for the New York Times and accused the firm of working on a widespread, systematic basis to charge items that investors would think were TPG overheads as expenses to portfolio companies. Levine also alleges that TPG allowed a marketing consultant to mislead investors by pretending he joined the firm later than he did. That would serve to allow investors to think he was not around when TPG entered into its disastrous TXU acquisition, which turned into a monster bankruptcy. Levine states that an e-mail to TPG founders Jim Coulter and David Bonderman, alerting them to the fact that he felt he had no recourse other than to go to the SEC, led to his termination.

The escalating fight over billing is the meat of the filing. Levine claims he became aware that the practice was not kosher as a result of reading the speech by the SEC’s Andrew Bowden last May about lawbreaking and serious compliance violations in private equity and recognized that some of TPG’s practices were the same as ones Bowden called out.

Levine, the head of Global Communication, reported to Jerome Vascellaro, the chief operating officer. Full disclosure: Vascellaro was my first engagement manager at McKinsey and I had completely forgotten that he had gone over to TPG when I read about the Levine suit.

Levine depicts TPG as increasingly charging firm expense to portfolio companies in the eighteen months prior to an IPO planned for 2015, via requiring many employees to keep timesheets and allocate their hours to general fund management or particular portfolio companies. Levine states that Vascellaro pushed him to bill more of his time to portfolio companies starting in 2011.

The suit contends that Levine started resisting this pressure after he read Bowden’s speech. When Levine suggested the firm create a more robust public relations department as part of going public. Levine alleges he was told by Vascellaro that to do that, he’d need to staff it so that it would be charged entirely to portfolio companies. Levine voiced his objections to the billing idea, went ahead with the idea. He got a proposal approved, and engaged three firms to suggest plans as to how to expand the PR department. The consultants recommended full time employees.

But when the plan was approved, Levine was instructed to model it on the TPG Growth legal department, which used solely consultants and contractors so they would be billed to portfolio companies.* Levine claims he was told he would be promoted to partner if he built this new unit. Levine claims he tried escalating his concerns, including senior counsel Clive Bode and outside counsel. Levine was then told in effect that he had to go and he needed to tell them what number he wanted and to sign an non-disclosure agreement. The tone of the discussions was already ugly and got uglier when Levine resisted signing a non-disclosure agreement. The threats attributed to Bode are colorful, including:

On November 3, 2014, Mr. Bode spoke with Mr. Levine and warned him that he should have heeded his earlier advice to hold off on his complaint. Mr. Bode then proceeded to explain that Mr. Bonderman, Mr. McGlashan, and Mr. Vascellaro were all “annoyed” by Mr. Levine’s email and that, had Mr. Levine addressed his email to Mr. Bode directly, he would have “hunted” Mr. Levine down and “gutted [him] like a carp.”…

And on November 7:

Mr. Bode exploded in anger; he told Mr. Levine that he was being “foolish” and if he were in the same room with him at that moment he would “smack” Mr. Levine’s head into a wall and “knock some fucking sense” into him.

There is more of that sort of thing in the filing.

Reading Levine’s account, you have to wonder why TPG sued him. If Levine can get past summary judgement (and there’s enough meat here that that seems to be a given), he can probably persuade a judge to include TPG’s billing practices as part of his discovery. That’s incredibly damaging to TPG if Levine’s charges pan out, and the sort of thing they should never want aired in public. Remember, even though Levine threatened to go to the SEC, whistleblower filings are confidential. Levine could have gone public but didn’t have to. Levine charges that TPG was inaccurate in saying that he was behind the New York Times leak. Perhaps TPG misread or strung together inconclusive evidence. Or maybe TPG assumed that Levine would also file a whistleblower suit of his own in addition to filing a whistleblower claim with the SEC. But going after Levine with a suit pretty much assured Levine would fight back if he had any grounds for responding. Maybe TPG felt it would get a PR or procedural advantage in landing the first blow.

One weakness of the filing is that a fair bit relies on conversations in meetings. Unless Levine kept good contemporaneous records, he’s going to run into the “he said, she said” problem. And with highly motivated, very polished witnesses against him who are sure to have the counter-story worked out, on the surface, that would appear to put him at a disadvantage on that part of his case, unless the e-mail record is clear enough proof on its own.

Finally, while Andrew Bowden appears to deserve some credit as a spur to Levine’s actions, the filing also exposes the naivete of Bowden’s approach to the industry. Levine depicts the TPG partners as unified in their opposition to his questions about the billing practices (and remember, this is prior to when the firm was to go public, and hence should strive to be squeaky clean) and increasingly brutal in their responses. I’d like to know how Bowden squares the conduct depicted in this filing with his cheery belief that the industry started cleaning up its act in response to his stern words and thus is deserving of trust and a light touch. The portrait here is that TPG disregarded his warnings and doubled down instead.

This is going to be an extremely interesting fight, regardless. Let’s hope the judge resists TPG efforts to keep evidence under seal.

Levine may wind up doing an even bigger public service than he says he intended to. If Levine prevails, the SEC will look remiss if it does not saddle up and launch an enforcement action of its own. That’s more resolve than we are likely to see from TPG’s investors, who will be inclined to make softball inquires rather than risk ruffling a perceived-to-be-important general partner in order to determine whether they’ve been cheated.

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* Notice that this means that TPG Growth is sharing legal fees, a bar violation.

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