U.S. prosecutors and Internal Revenue Service agents spent four years piercing the veil of secrecy that billionaire money manager Robert F. Smith wove to hide more than $200 million in income. Last year, according to people familiar with the matter, a team led by the Justice Department’s top tax prosecutor argued to then-Attorney General William Barr that the evidence warranted indicting Smith, who had made headlines for pledging to pay the student debt of a Morehouse College graduating class.
But rather than expose a man worth about $7 billion to a possible prison term and potentially force him to give up control of his private equity firm, Vista Equity Partners, Barr signed off on a non-prosecution agreement. It required Smith to admit he had committed crimes, pay $139 million and cooperate against a close business associate indicted in the largest tax-evasion case in U.S. history—Texas software mogul Robert T. Brockman.
Smith, the richest Black person in the U.S. according to the Bloomberg Billionaires Index, agreed to cooperate after spending years raising his public profile as a philanthropist and advocate for racial justice. He praised the Trump administration’s efforts to provide economic assistance to minority business owners amid the Covid-19 pandemic. As his wealth tripled over the past five years, he also gave away more than he had hidden abroad. All that complicated the possible prosecution of a defendant whom jurors may have viewed sympathetically.
This account of what went on behind the scenes leading up to the non-prosecution agreement is based on interviews with a dozen people involved in the negotiations or briefed on them. All requested anonymity because they aren’t authorized to talk about the case. They tell a story about a man who spent freely on his defense and worked all the angles.
Smith began assembling a team of prominent attorneys after his tax problems surfaced in 2013. They included former Acting Attorney General Mark Filip and former Obama White House Counsel W. Neil Eggleston at Kirkland & Ellis, where Barr had worked before going to the Justice Department. Former IRS Commissioner Fred Goldberg was engaged, as was Mark Matthews, a former deputy commissioner.
As Justice Department tax prosecutors pushed closer to an indictment in late 2019, another issue came into play—Smith’s connection to a national security matter—according to people who heard about the discussions. The people, who don’t have security clearances, said they didn’t know the specifics, whether it involved Vista or how Smith might have been of assistance to the government.
A schism between tax prosecutors and national security officials led to months of wrangling. Twice the matter went up to Barr, once at the end of 2019 and again in July. Late in the game, facing an imminent indictment, Smith agreed to cooperate against Brockman, whose $1 billion investment launched his private equity career two decades earlier.
In the end, Barr intervened to settle the dispute, two of the people said. The decision to refrain from charging Smith was conveyed in a July 21 email to Filip from top tax prosecutor Richard Zuckerman reviewed by Bloomberg News. Smith’s team would get what they wanted: a stay-out-of-jail card.
It would take weeks to negotiate the details of the agreement, which allowed Smith, 58, to remain at the helm of a firm that manages more than $73 billion for public pension funds and other wealthy investors. He’s free to carry on with a lifestyle that has included homes in France, New York City, Colorado, California wine country, Austin, Texas, and North Palm Beach, Florida. And he can keep playing starring roles at institutions such as Cornell University, which named an engineering school after him in 2016, and Carnegie Hall, where he became chairman that year.
The agreement came at a cost. In a six-page statement of facts, Smith acknowledged evading more than $43 million in taxes over a decade and repeatedly filing false tax forms. He agreed to pay a penalty, forsake tax-deduction claims for $182 million of charitable contributions and cooperate for five years with prosecutors on investigations, including their case against Brockman, whose web of opaque Caribbean entities was allegedly used to hide $2 billion in income earned from Vista.
The Justice Department got an attention-grabbing fine and a cooperation agreement without having to risk losing at trial. But the decision to let Smith walk away unscathed by criminal charges doesn’t sit well with some former prosecutors, who said it illustrates how the richest Americans can maneuver the justice system in their favor. “This case sends a message that wealthy people will be treated differently than not-so-wealthy people,” said Paul Pelletier, a former Justice Department fraud section supervisor now in private practice who wasn’t involved in the case. “People of lesser economic means normally don’t avoid getting charged when they cooperate. The magnitude of the tax fraud here is enormous.”
Smith, his lawyers and his company all declined to comment. So did Barr and spokespersons for the Justice Department and the IRS. Brockman has pleaded not guilty and denies wrongdoing in his case.