Wednesday, June 15, 2011

To assess Romney, look beyond the bottom line

December 16, 2007 |Bob Drogin | Times Staff Writer

(Page 3 of 3)

To assess Romney, look beyond the bottom line

... Romney and his team gained huge profits from at least half a dozen companies that soon crashed into bankruptcy.

In 1997 Romney and his team purchased a stake in DDi Corp., an Anaheim-based maker of printed electronic circuit boards. Three years later, Bain Capital netted a $36-million profit after it took the company public. Romney sold his own shares for $4.1 million, according to federal securities records, although his profit margin is unclear.

But DDi's stock soon collapsed, and the company filed for bankruptcy in August 2003, laying off more than 2,100 workers. Bain Capital and DDi executives jointly settled a federal class action lawsuit in March, agreeing to pay $4.4 million to shareholders who argued that DDi was poorly managed and "hemorrhaging cash" before the stock offering, court records show. Romney was not named in the suit.

Still other troublesome cases emerged when Romney ran for governor of Massachusetts in 2002. Chief among them was Damon Corp., a medical testing company based in Needham, a Boston suburb.

Romney had joined Damon's board of directors after Bain Capital purchased a stake in 1990. He remained there until Corning Inc. bought the company three years later. Bain tripled its investment.

Romney personally profited on the sale, claiming more than $100,000 in capital gains on sales of his own Damon stock, records showed.

But in 1996, Damon pleaded guilty in federal court in Boston to massive overbilling of the Medicare system and paid $119 million in criminal and civil fines.

Then-U.S. Atty. Donald K. Stern called it "a case, pure and simple, of corporate greed run amok." No one at Bain was implicated in the fraud.

Asked about the case during his gubernatorial campaign, Romney told reporters that he "blew the whistle" on the overbilling scheme while still on the Damon board, and had taken "corrective action."

In a recent telephone interview, Stern said he had no recollection of Romney alerting investigators or taking other action. Court records in the case showed the illegal scam continued unabated until Bain Capital sold Damon in 1993.

Romney's aides now argue that reporters misunderstood his claim back in 2002.

Romney and other members of the board had hired a New York law firm to review Damon's billing practices after a rival medical company had pleaded guilty to fraud, Damon records showed. The law firm recommended Damon change billing procedures but found no evidence of fraud.

Despite the failures, outside experts say Romney led his company to extraordinary success.

"It's a puzzle that people criticize him for making a lot of money" said Steven N. Kaplan, professor of entrepreneurship and finance at the University of Chicago Graduate School of Business. "He ran his company for his shareholders. That was his job."