Bracket Creep

Here’s Mark Maremont (WSJ):

Mitt Romney’s attorney said Tuesday the GOP presidential nominee didn’t participate in a fee-waiver program at Bain Capital in which the firm’s executives sought to lower their taxes by converting more than $1 billion of ordinary income into capital gains.

R. Bradford Malt, an attorney who manages the Romney family finances, mostly through blind trusts, said in an email that Mr. Romney’s retirement agreement from Bain “did not give the blind trust or him the right to do this, and I can confirm that neither he nor the trust has ever done this, whether before or after he retired from Bain Capital.”

via Romney Didn’t Participate in Bain Fee Waiver, Attorney Says – WSJ.com.

I’m not sure I get it.  The fee waivers date back to Fund VII, if not earlier, which was organized before he fully retired from Bain in January 2003.  Romney still owned 100% of the management company that would have waived the fees in 2002.

Page 32 of Romney’s 2006 financial disclosure lists over $1 million in income from Bain Capital Partners VII, the partnership that would have received the converted management fees from Bain Capital Fund VII.  That income is reported as dividends, interest, and capital gains, which is consistent with fee conversion, not ordinary income.  The same financial disclosure reports income from “Bain Capital,” which appears to be Bain Capital LLC, the management company.  That income is reported as “dividends,” which presumably means distributions from the LLC.

So the documents show that Romney held a financial interest in both the management company and the GP of Fund VII, and Fund VII performed $55 million in fee conversions as of the end of 2009.  I would need to see the severance agreement and the partnership agreement to confirm what Mr. Malt is saying, but at this point, the documentary evidence suggests that Romney benefited directly from fee conversion.

It’s unlikely that Mr. Malt would have been involved in any decision to waive the fees.  The fee waiver provisions are set up in the underlying partnership agreement, and the active partners at Bain, not Mr. Romney or Mr. Malt, would have made the election to waive the fees.  But that election would have been binding on Mr. Malt and Mr. Romney, and would have benefited Romney directly.