Republican gubernatorial candidate Bruce Rauner arrives at his polling place to vote in the Illinois primary election on March 18, 2014, in Winnetka. | Brian Kersey/Getty Images
Company that made deal with Rauner’s firm has buyer’s remorse
Gov. Pat Quinn’s effort to campaign again as a saint among sinners has been complicated by fresh scandals in state government — and by having a challenger who’s a political newcomer, with no track record of his own in government.
But Republican nominee Bruce Rauner had a long career in business that ended only about 19 months ago. And big parts of Rauner’s private-sector record could be as open to question as, say, the Quinn administration’s decision to provide soft landing for a deposed alderman on the Illinois Department of Transportation’s payroll.
Consider the sale of a company called APS Healthcare to Universal American Corp. in March 2012. The seller in the deal was GTCR, the Chicago private-equity firm that Rauner co-founded and led until his retirement in October 2012.
In a federal lawsuit filed against GTCR, Universal American says Rauner’s firm essentially sold it a $222.3 million lemon after APS and GTCR executives engaged in a “deliberate campaign to conceal the truth.”
In the suit, filed in November in Delaware, Universal American says it was told that APS estimated 2012 revenues of $44.8 million for 2012. Within six weeks of the deal closing, the revenue forecast dropped 40 percent. And four months later, projected revenues were down 90 percent. The final amount was a fraction of the initial forecast, according to court records.
Much of the lawsuit centers on APS’ dealings with an unspecified government agency, referred to in court records only as Customer A. The company’s deal with the agency represented nearly 42 percent of APS revenues, court records show. But Customer A officials allegedly told the company before the sale that it had failed to deliver promised mental health services and could lose the public contract.
Universal American says the gravity of the situation was hidden from the potential buyers by APS executives and by a GTCR managing director named David Katz, who left the firm recently. Katz is a defendant in the suit, which does not name Rauner personally.
Problems with Customer A wouldn’t have been the first time APS got in trouble with a government agency while it was owned by GTCR from 2007 until 2012. Without admitting wrongdoing, APS agreed to pay $13 million to settle allegations from the federal government and the state of Georgia in 2011.
The feds said the firm “failed to provide the required services to a large portion of the Medicaid recipients and over-billed the Georgia Department of Community Health.” This allegedly occurred from 2007 until 2010.
“APS Healthcare took Medicaid’s money for itself and left some of our most vulnerable citizens without the aid they deserved,” Sally Quillian Yates, the U.S. attorney for Georgia’s northern district, said at the time the settlement was announced.
While the scandals in the Quinn administration have been widely and very publicly picked apart, it appears the only local mention of the lawsuit against GTCR and APS Healthcare’s troubles in Georgia appeared recently in the blog of dissident Republican lawyer Doug Ibendahl.
“Bruce is not involved with this, and it is best to let GTCR’s motions speak for themselves,” Rauner spokesman Mike Schrimpf said Tuesday. “Bruce was never on the board at APS, did not put together the deal and played no role in the management of the company.”
In court papers asking the judge to dismiss some of Universal American’s allegations, lawyers for APS and GTCR wrote, “Unfortunately, things did not work out as either Universal or the defendants here would have liked.”
They also said it would be unfair to “scapegoat” the sellers for the rapid decline of APS: “Budget projections are exactly the sort of uncertain, forward-looking statements that cannot give rise to fraud claims.”
That may prove persuasive to the judge. But in a political campaign where money matters are as important as ethics, Rauner’s analysis of Illinois’ financial state had better be a lot more accurate than his business colleagues’ assessment of APS’ prospects.
Or else Illinois voters who support Rauner also could feel buyer’s remorse.