Sunday, October 7, 2012

Money and Mass Murder

Does venture capitalism lead to mass murder? It's not simply a rhetorical question, as we often find when we begin with a horrendous incident of epic proportions and follow the trail of money that leads up to it.

Robert Hecht-Nielsen--Holmes' Boss

Ten years after TRW funded Robert Hecht-Nielsen's software company, HNC, it sold some of its stock in a money-raising IPO, which allowed the now-public corporation to be acquired seven years later by Fair Isaac Corp (now FICO).

Rather than losing his job as a result of the acquisition, HNC's founder, Robert Hecht-Nielsen, was named vice-President of Research and Development for the merged corporation, which also hired the father of James Holmes, then set to enter newly constructed Westview High School in San Diego.

Last April, when Hecht-Nielsen joined the board of KUITY Corp., a press release described him as follows:
Dubbed the “father of analytics,” Professor Hecht-Nielsen directs the Behavioral Neuroscience Laboratory at the California Institute for telecommunications and Information Technology (Calit2). He has taught at UCSD since 1985, is a member of the UCSD Institute for Neural Computation, and is a founder of the UCSD Graduate Program in Computational Neurobiology. Dr. Hecht-Nielsen is a pioneer in the development of neural networks and in 1989 authored the first textbook on the subject, Neurocomputing (published by Addison-Wesley). He co-founded HNC Software in 1986, and the company was acquired by FICO in 2002. Dr. Hecht-Nielsen is an expert on computational neurobiology, neural networks, mathematics, physics, and applied mathematics and is widely known for his ongoing innovation in these scientific arenas.
Dr. Hecht-Nielsen’s current work on motor neurons is changing the modern theory of neural science related to muscle movement. Scientists used to agree that one specific motor neuron was responsible for causing a single muscle to contract. Dr. Hecht-Nielsen’s research now demonstrates that in fact it takes the interaction of over a million motor neurons to activate a single muscle contraction. These findings have significant implications across a variety of fields from spinal cord injury rehabilitation to robotics.

FICO's Major Shareholders

In 2002--the merger occurring less than a year after the September 11 takedown of the World Trade Center complex--the largest shareholders in the now-public company were, according to a Securities and Exchange Commission (SEC) filing as three mutual funds:

Capital Research and Management Company (1)..... 3,411,098  --  3,411,098 12.8%
The TCW Group, Inc. (2)................................ 2,682,377  --  2,682,377 10.1%
Franklin Resources, Inc. (3)......................... 2,317,735  --  2,317,735  8.7%

  1. Capital Research and Management Co., which controlled by far the largest bloc of  stock, was a privately held company first established in 1931. CRMC, according to SEC statements, manages more than $1 trillion in assets, but "largely has flown under the public radar." It located  in Arizona, and particularly Phoenix, because of the region's commitment to fund technology research and development. 
  2. TCW was an investment company which managed the portfolio of Tracor, Inc.,
  3. Charles B. Johnson
  4.  Franklin Resources was a family-owned company (founded as Franklin Distributors, Inc. in 1947), which went public in 1971, moved from 99 Wall Street to 155 Bovet Road, San Mateo, with the families of Charles Bartlett Johnson and his brother Rupert Harris Johnson, Jr. still controlling 35% of stock in 1999. Their father, Rupert H. Johnson, Sr. (a/k/a R.H. "Amos" Johnson) had formed his own investment banking firm, R.H. Johnson and Company in 1927 and became a trustee for West Point Academy, his alma mater.
Together these three blocs of capital controlled more than 30% of the stock of FICO in 2002. Who did these shareholders represent exactly? To answer this question, we will look closely for common threads in the backgrounds of these companies as indicators of for whom the combined capital syndicate is working.

#1 Shareholder

“the biggest money managers you’ve never heard of”

As indicated above, this parent corporation, Capital Research and Management Co. (CRM) holds 12.8% of FICO stock. Last February Triangle Business Journal reported that Capital World Investors, based in Los Angeles and operating as a subsidiary of Capital Research and Management Co. is also the largest institutional holder of shares in online-retailer Amazon. By the end of 1997 CWI held 1.75 million Amazon shares ($162 million), which had risen in 2012 to 23.5 million share, estimated to have a market value of more than $5 billion.

Jon Lovelace
The company's history goes back to 1931--the year Jonathan Bell Lovelace of Beverly Hills, California, founded Capital Research and Management Company, the original mutual funds company with money he pulled out of the stock market before the 1929 crash--but Capital Research and Management Company really took off in 1933 when it became the adviser for the Investment Company of America (ICA). Having first worked for Pacific Finance Company after graduating from Princeton, Jon Lovelace, his son and successor who died late last year, joined the family company as investment research expert in 1951, becoming chairman in 1964. The Capital Group family of funds include:
  • Capital International
  • Capital Guardian
  • Capital Research and Management
  • Capital Bank and Trust
  • American Funds
The current top executives consist of David I. Fisher, who is chairman of the board of The Capital Group Companies, Inc., Capital Group International, Inc., and of Capital Guardian Trust Company; and Walter P. Stern, Chairman of American Funds and Capital Group International, Inc., Vice Chairman of Capital Research International, and a Director of The Capital Group Companies, Inc. Stern is also a Director of Austin-based Temple-Inland, Inc. based on CRM's being the its largest stockholder--owning 56 million shares (12%) with a market capitalization of about $3.6 billion. Stern first became a director of Temple-Inland, Inc. in 1984, along with Buddy Temple; Bobby Ray Inman joined that board in 1987.

In January 2007 billionaire Carl Icahn and an investment fund he controlled acquired a 6.7 percent stake in Temple-Inland Inc.--a corrugated packaging, forestry products and financial services company--which owned Lumbermen's Investment Corp. through its financial subsidiary, Guaranty Bank.  Pressured by Icahn, Temple said it would separate into three stand-alone public companies and sell off its timberlands.

#2 Shareholder

"$18,093,363,633 in discretionary assets under management"

TCW (Trust Company of the West), which holds 10.1% of FICO stock, was founded by Robert Addison Day--grandson of California oil baron William Myron Keck, who founded Superior Oil Co. (now part of Exxon Mobil Corp.), in 1971. The five clients TCW had by the end of its first year had increased to 57 by the end of 1975.

Nelson Rockefeller
In 1981 Henry A. Kissinger (affiliated with Rockefeller Brothers) joined the TCW board, and in 1993 the company acquired Dillon Read International Asset Management and opened offices in London and Hong Kong. Marc Irwin Stern of the firm is closely connected to heirs to the Rockefeller fortune, Mark Fitler Rockefeller (Nelson's youngest son) and  Michael Sorum Rockefeller (Nelson's grandson and Rodman C. Rockefeller's son). Stern sits on the board of Rockefeller Financial, a privately owned investment manager, formerly known as Rockefeller & Co., Inc.

 In 1994, following a series of events set out below, Tracor, Inc., a defense electronics company based in Austin, Texas, whose primary customer is the United States government, announced that TCW, then the largest shareholder of Tracor's stock, on May 2, 1994 had contracted to sell 700,000 shares back to the company from its various mutual fund portfolios.

TCW's Role in Tracor

Tracor, Inc. was formed in 1962 when Texas Research Associates, Inc., merged with Textran Corporation. In 1964, Tracor made its first stock offering (IPO), which eventually led to a takeover made by Westmark Systems, Inc. in 1987. Adm. Bobby R. Inman announced in September 1986 his resignation as president and CEO of Microelectronics & Computer Technology Corp. (a consortium founded by 19 companies in 1983 to conduct research into advanced computer designs), to accept chairmanship of Westmark, a holding company set up by a Dallas-based merchant bank, Mason Best, and to become Westmark's CEO a few months later. Westmark acquired as part of the transfer ECM, "electronic counter-measure devices," used to prevent attack on naval vessels by confusing heat seeking missiles and radar guided missiles.

Adm. Inman
One year later Westmark acquired Tracor, which had long been one of Austin's biggest employers. George Bush was elected President in 1988, taking office in January 1989. By the end of that year, Inman's job with the failing defense contractor had ended, as  the Los Angeles Times reported:
Bobby Ray Inman, a former intelligence chief, has resigned as head of Westmark Systems Inc., a defense electronics contractor striving to pay for its $867-million buyout of Tracor Holdings Inc. Westmark, whose sole holding is Tracor, said Inman "initiated the action after concluding that a transition in management would facilitate the long-term financial and organizational decisions which will be made at Westmark and Tracor."
Admiral Inman is often referred to in Texas simply as "Bobby Ray," a matter of some amusement to William Safire, who once referred to the admiral in his column as "manipulative and deceptive," in addition to having an "anti-Israel bias." The feud with Safire had possibly begun during Inman's earlier role as director of the National Security Agency (1977-1981) under President Carter. The antagonism clearly developed most violently while he was deputy director of the CIA under William J. Casey (Feb. 12, 1981–June 10, 1982)--a placement insisted upon by Sen. Barry Goldwater

The transition from Carter's intelligence team to Reagan's was headed up by the Secretary of the Navy under Nixon and Ford, J. William Middendorf, who had led an investor group in April 1977 that acquired Financial General, a Washington D.C.-based bank with headquarters a block from the White House.  From 1977-1981, Middendorf was President and Chief Executive Officer of First American Bankshares, Inc.

Jackson Stephens
One member of this investor group was Jackson Stephens, who sent men from his Little Rock firm, Systematics, to talk to Middendorf about providing banking software for Financial General, but they were firmly rejected. Stephens decided to wrest control of the bank from Middendorf.

General George Olmsted, who controlled First American when the Federal Reserve forced him to dispose of his stock, was advised by Nicholas Brady's firm. In 1977, he sold a controlling stake in the company to the Middendorf group, which included Peter Flanigan, a managing director of Dillon, Read. In other words, Dillon, Read officials were on both sides of the transactions.

Safire alleged that  in late 1981 Inman "had planted a false story with a group of newsmen that Israel was the source of rumors that a Libyan 'hit team' was on its way to the U.S.," and later that the admiral's "animus also later contributed to the excessive sentencing of Jonathan Pollard," after his spying conviction for Israel in 1985.

Safire's rant accused Inman of leaving the CIA to join the proxy board of International Signal and Control, a manufacturer of cluster bombs for the Pentagon, whose president, James Guerin, was a "longtime Inman intelligence source." This was all set out in Alan Friedman's book, Spider's Web:

As the top man in Westmark, Inman chose as its early board members  "executives from Temple-Inland, Xerox Corporation, the Union Pacific Railroad, and Robert Strauss, former chairman of the Democratic National Committee."

On December 16, 1993, following President Bill Clinton's nomination of the Admiral to be Secretary of Defense, Bob Woodward wrote in the Washington Post:
Inman's reviews are extraordinary, almost hyperbolic. Nearly everyone who knows him mentions a piercing intellect, honesty, unusual memory for details and prodigious capacity for work.
He had a kind of genius, as well, for ingratiation. As director of the National Security Agency under President Jimmy Carter, Inman was eager for allies in the traditional struggle between his high-technology eavesdropping agency and the human-agent proponents of the CIA. Inman won the friendship of then-National Security Adviser Zbigniew Brzezinski by indulging his appetite for "raw intercepts" of the telephone calls of foreign leaders, according to Carter administration officials.
William J. Casey
A further display of bureaucratic maneuvering came when Stansfield Turner, Carter's CIA director, pushed a reorganization plan that would have absorbed the NSA. Inman spent two hours briefing then-Attorney General Griffin Bell, a close Georgia friend of the president, on the flaws of the plan - and then gave Bell a helicopter ride to Langley for his appointment with Turner. "That was one of the few times I was glad that my name was Bobby Ray," the East Texas native once said....
William Casey, under whom Inman served as deputy at President Ronald Reagan's CIA, once called Inman "brilliant, brittle, a golden boy worried about his own image." Certainly Inman cultivated the press and Congress to a degree almost unprecedented in the intelligence world.

He did so at times in subtle opposition to Casey's penchant for stretching the law with covert action. Appearing with Casey before the Senate intelligence committee, according to committee member Joseph Biden, D-Del., Inman announced in body language when the panel was being misled.
"They'd be sitting there, and Casey would be lying like a son of a bitch, and I'd look at Inman," Biden recalled in an interview yesterday. "I'd say, `Is such and such a covert operation happening?' and Casey would be going mumble mumble mumble, and Inman would be reaching down pulling up his socks . . . It meant, `Take this with a grain of salt.' "
If Goldwater had had his way, Inman would have had Casey's job. After Reagan's election in 1980, Goldwater, then chairman of the Senate intelligence committee, lobbied hard for Inman.

"It's got to be Bobby," Goldwater said. In the Arizona conservative's view, Inman was a genius who understood politics and Congress as well he understood spy hardware and the military.

Inman, who turned down the deputy's job until Reagan told him flatly, "I need you," resigned quietly after a little over a year. In public he said only that he had lost his zest for bureaucratic fighting, adding that his relationship with Casey had been good if not close.
In fact, Inman said privately that Casey's "clandestine mindset" was out of control. He had grown deeply suspicious of a covert operation designed to overthrow the Sandinista regime in Nicaragua. When he learned the agency was preparing to funnel aid to disaffected Sandinista Eden Pastora, the notorious Commander Zero, he had a rare confrontation with a superior. He barged into Casey's office uninvited and asked unwelcome questions about the motives and legality of the plan....
When he left Washington in 1982, Inman told friends and reporters that he had no interest in returning to a government position - no matter what the post, and no matter who asked. In 1986, when one of the periodic reports circulated that Casey was going to quit or would resign, Inman repeated his pledge.

"I won't accept the nomination," he told one reporter. "I won't go to the confirmation hearing, and I won't serve." When that statement was not published, Inman said he was upset that no one believed him. Yesterday he stood next to Clinton and said, "I did not want the job."
Last August, it was announced that:
The Carlyle Group and Getty Images management have paid $3.3 billion to buy Getty Images from San Francisco-based investment firm Hellman & Friedman....The Getty acquisition is the latest in a flurry of deals by Carlyle. Last week, the firm bought a controlling interest in TCW Group from Societe Generale. Carlyle and TCW management and employees are thought to have paid about $700 million in cash, and some debt, according to people familiar with the transaction.

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