|
Steve Feinberg is a billionaire who has made a career having the government bail him out while screwing workers and taxpayers. During the pandemic, one of Feinberg’s portfolio companies threatened to close a hospital in Pennsylvania unless they received a state government bailout, which PA was forced to provide. Feinberg’s private equity company also got rich off of a Massachusetts hospital chain by extracting cash and loading it up with debt before it went bankrupt in 2024. In 2008, Feinberg’s company purchased Chrysler and followed a similar playbook by taking out billions in debt. After the interest became unmanageable, Chrysler and another of Feinberg’s companies went to the federal government for help, eventually receiving over $22 billion in bailout money. Feinberg’s pride was hurt but his wealth was kept intact. The same can’t be said for the 35,000 Chrysler employees who were laid off during a two-year stretch in the Great Recession. More recently, a defense contractor owned by Feinberg’s firm was forced to pay $50 million after it defrauded the government into paying higher prices although the behavior in-question dated prior to Ceberus’s ownership. Additionally, Feinberg’s business career has been marred by accusations that his company used shady and unethical business practices to beat their competition. Feinberg’s companies were also involved in two major tragedies in the 2010s. Feinberg is a gun enthusiast who consolidated the gun industry in the late 2000s. To increase sales, Feinberg’s company pushed assault rifles to Americans and marketed them using military imagery. In 2012, the Sandy Hook School Shooter used guns produced by Feinberg’s company to kill 26 people. Feinberg promised to sell the company after the shooting, but still held onto a stake in 2016. Around the same time as his attempts to roll-up the gun industry, Feinberg and his company started a private military training firm. In the mid 2010s, the group provided training for four Saudis who eventually participated in the murder of Jamal Khashoggi. On top of all of the controversy, Feinberg has also shown a penchant to use the government to enrich himself. In 2017, Feinberg lobbied Trump to enact a policy change in Afghanistan which would have directly benefited one of Feinberg’s military contracting companies. Now with his nomination to be Deputy Defense Secretary, Feinberg’s conflicts of interests and opportunities for self-enrichment are enormous. |
Steve Feinberg Co-Founded Cerberus Capital Management In 1992 And Serves As Co-CEO Today. According to Cerberus Capital Management, “Mr. Feinberg is Co-Founder, Co-Chief Executive Officer, and Chief Investment Officer of Cerberus. He also founded or co-founded the other Cerberus affiliates and Cerberus Funds. Prior to founding Cerberus in 1992, Mr. Feinberg managed separate pools of capital for Gruntal & Co. and certain other accounts from 1985 to 1992.” [Cerberus Capital Management, Accessed 1/9/25]
March 2020: Cerberus-Owned Steward Health Care Threatened To Shut Down PA Hospital During Height Of COVID Pandemic Unless It Received A State Bailout. According to WSJ, "Pennsylvania’s governor was urgently preparing for a surge in Covid-19 cases last month when a private-equity-owned hospital said it would shut its doors unless the state secured a $40 million bailout. Steward Health Care System LLC said it needed the money from the state in three days or 'Easton Hospital will no longer be able to serve the community’s health-care needs and will be forced to close,' read a letter to the governor from Steward, which is owned by $43 billion New York investment firm Cerberus Capital Management LP." [WSJ, 4/26/20]
PA Hospital Owned By Cerberus Received $8 Million State Government Bailout
March 2020: PA Hospital Owned By Steward Health Care And Cerberus Received $8 Million State Bailout To Continue Operating. According to Axios, "Easton Hospital, owned by a portfolio company of Cerberus Capital Management, secured $8 million from the State of Pennsylvania in a last-minute bailout to keep the facility's doors open. Through June, the state funding commitment would total $24 million. Why it matters: It's very welcome news that a hospital won't close in the midst of a pandemic, but it also reflects pretty indefensible behavior by Cerberus. To be sure, Easton Hospital is unprofitable and had been negotiating for months to be acquired by a larger local rival. Under normal circumstances, it would make sense for Cerberus and portfolio company Steward Health Care to wind things down. But this is a national emergency, and Cerberus, its billionaire CEO, and very wealthy partners could have stepped in to help save lives. Plus, Cerberus and Steward both knew that federal aid to hospitals was on the way." [Axios, 3/31/20]
March 2024: Cerberus Claimed It Did Not Make Decision To Close PA Hospital Because It Did Not Control Steward Health Care. According to Axios, "Instead, Cerberus disagreed with my characterization of Cerberus being in charge of Steward in the first place. Really. Two things I wrote: 'In 2014, [Cerberus] closed one of the Mass. hospitals it had acquired, despite having pledged not to do so for at least 10 years after the acquisition, as part of the state regulatory approval process.' Also: 'Cerberus, which threatened to shut a small Pennsylvania hospital early in the pandemic...' How Cerberus replied, via a spokesperson: 'Neither of these statements are true. It is inaccurate to attribute either of these actions to Cerberus. Steward made its operating decisions. Cerberus did not have a majority of seats on the Board. And, at the risk of stating the obvious, Steward and Cerberus are separate companies.'" [Axios, 3/8/24]
2010: Cerberus Purchased Massachusetts Hospital Chain And Renamed It Steward Health Care. According to Axios, "When Cerberus Capital Management bought an unprofitable Massachusetts hospital chain in 2010, many viewed the deal as a financial lifeline. [...] Cerberus rebranded the hospitals as Steward Health, and went on an acquisition spree that eventually made Steward the country's largest private for-profit hospital chain. ” [Axios, 3/6/24]
2014: Cerberus Company Steward Health Care Closed Massachusetts Hospital Despite Promising Not To. According to Axios, "In 2014, it closed one of the Mass. hospitals it had acquired, despite having pledged not to do so for at least 10 years after the acquisition, as part of the state regulatory approval process.” [Axios, 3/6/24]
2016: Steward Health Care Paid $790 Million Dividend To Cerberus. According to WSJ, "In 2016, Steward Health Care System paid out a $790 million dividend—the lion’s share going to the hospital chain’s private-equity owner, Cerberus Capital Management. That money could have come in handy when the Covid-19 pandemic hit in 2020, a year when Steward recorded a $408 million net loss. The dividend, the amount of which hasn’t previously been reported, is among the key flashpoints at the center of accusations by elected officials, hospital employees and patients over who bears responsibility for Steward’s collapse." [WSJ, 9/11/24]
2020: Steward Physicians Borrowed Heavily To Buy Company From Cerberus; Cerberus Made $800 Million While Steward Became Saddled With Unmanageable Debt. Cerberus Made $800 Million From Exit In Steward Health, But Company Became Saddle According to Axios, "Cerberus began to exit in 2020, agreeing to sell control in Steward to the hospitals' physicians in exchange for an interest-paying note. The physicians soon borrowed $335 million from MPT to buy back the note. According to Bloomberg, Cerberus generated around $800 million in profit via its Steward investment. [...] Steward is in deep trouble, arguably in part due to liabilities assumed while Cerberus was still in charge. For example, it's stopped paying vendors and owes at least $50 million in back-rent to MPT. State officials are livid, particularly after Steward refused to provide financial information as required by law. They now want Steward to leave the state and find other operators for the hospitals, for fear that the alternative is shutdowns (it's already slated one Mass. rehab hospital for closure, although claims no more Mass. shutdowns are anticipated). The state's congressional delegation demanded answers from Cerberus in a letter sent last month." [Axios, 3/6/24]
March 2024: Hospital Chain Previously Owned By Cerberus Was “In Severe Distress And May Close Facilities." According to Axios, "The company, which Cerberus sold four years ago, is in severe distress and may close facilities, threatening care for thousands of patients, most of whom live in lower-income areas." [Axios, 3/6/24]
May 2024: Steward Health Care Filed For Bankruptcy. According to WSJ, "Steward filed for bankruptcy in May, its coffers drained by recurring losses and payouts to shareholders. The company, which operated 30 hospitals in eight states, had been in financial straits for years. Patient care was in disarray. Steward routinely stiffed vendors, and many of its facilities lacked adequate staff and basic equipment." [WSJ, 9/11/24]
Steve Feinberg Was A Gun Enthusiast. According to New York Magazine, "While some enthusiasts collected guns, Feinberg collected gun companies. At Cerberus, he talked firearms often, once derailing a Freedom Group board meeting with a discussion of the relative ballistic merits of polymer-cased ammunition and traditional hollow-points. In 2012, his daughter Lindsey posted a picture of her father’s T-shirt to Instagram. It featured images of a sniper rifle trailing smoke, a mounted machine gun, and a row of bullets emblazoned with the tagline IT’S TIME TO WORK. In the comments, she’d posed the question: 'Who is my dad…….???????'" [New York Magazine, 11/15/16]
Steve Feinberg’s Cerberus Purchased Gun-Maker Bushmaster One Year After Congress Passed Liability Shield For Weapons Manufacturers. According to New York Magazine, "Cerberus set out to create it. A catalyst was the Protection of Lawful Commerce in Arms Act, pushed by NRA lobbyists and passed by a Republican-controlled Congress in 2005. PLCAA granted gunmakers broad immunity from lawsuits from victims of gun violence. A year later, Cerberus bought Bushmaster for $76 million from Richard Dyke, the company’s founder." [New York Magazine, 11/15/16]
Steve Feinberg’s Cerberus Founded Freedom Group To Consolidate Gun Industry. According to New York Magazine, "Soon after the sale, Bushmaster was folded into Freedom Group, the holding company Cerberus had chartered to conquer the gun business. Its play was obvious: roll up small gun companies, centralize management while combining costs and cutting overhead, and then, when the moment was right, sell the conglomerate to the public via an IPO. After Bushmaster, Freedom purchased Marlin, a manufacturer of lever-action hunting rifles; Parker, a manufacturer of ornate, collectible shotguns; DPMS, another assault-rifle manufacturer; and the big one, Remington, America’s oldest continuously operated gunmaker, whose .22 caliber hunting rifle had, for generations, served as the young firearms initiate’s 'first gun.' Remington’s CEO, Tommy Millner, was selected to run the entire group." [New York Magazine, 11/15/16]
Freedom Group’s Gun Quality Declined Under Cerberus After Plant Closures. According to New York Magazine, "Nardelli’s tenure at Freedom Group was disastrous. He knew little about guns; his expertise was in high-efficiency manufacturing and building economies of scale. He alienated many of Freedom’s top managers and accelerated a program of manufacturing consolidation that centralized production in Remington’s main facility in Ilion, New York. This push for efficiency meant laying off skilled workers, introducing manufacturing defects into Freedom Group products. 'Since the announced closure of the North Haven factory, the quality of Marlin lever-actions has gone completely to hell,' wrote one gun blogger. 'Our rifles were neither fit nor finished, nor in any condition to be offered for sale.' Gun magazines and internet forums were filled with complaints, and after Cerberus bought it, Remington was forced to issue multiple recalls, for both guns and ammunition. A number of customers sued the manufacturer, claiming their guns had gone off without the trigger being pulled, prompting a class-action lawsuit." [New York Magazine, 11/15/16]
2008: Freedom Group Introduced Remington Assault Rifle. According to New York Magazine, "Freedom Group used its integrated brand portfolio as leverage. In 2008, it introduced its new Remington-branded assault rifle, the R-15. Essentially just a Bushmaster painted green, the gun was re-termed a 'modern sporting rifle' and marketed to hunters. There was no disguising its military heritage, but by stamping a storied brand onto this menacing instrument, Cerberus was able to expand Freedom Group’s business in both the traditional gun-store market and the family-friendly sporting retailers. Soon, Remington-branded assault rifles were available at Walmart." [New York Magazine, 11/15/16]
Freedom Group Marketed Weapons Using Military Imagery. According to New York Magazine, "To market their shooting platforms, the Freedom Group frequently employed the cultural imagery of the global war on terror. Before being acquired by Cerberus, Bushmaster’s bare-bones product brochure had all the glamour of a catalogue of plumbing fixtures. By 2009, it looked like a recruiting poster for Delta Force. If a Remington was a gun buyer’s first gun, a Bushmaster was the last, the ultimate fetish object for a generation acclimated to imagery from Call of Duty: Modern Warfare. Marketed to civilians as 'the ultimate combat weapons system,' many of Bushmaster’s gun builds were modeled after the weapons used by America’s Special Forces. The 'military-proven' guns offered the buyer vicarious status as an 'operator,' although Cerberus understood well that few of its customers actually had combat experience." [New York Magazine, 11/15/16]
2012: Sandy Hook School Shooter Used Freedom Group Guns To Carry Out Massacre. According to New York Magazine, "This approach was duplicated across a number of other Freedom Group sidelines, including manufacturers of weapon optics, pistol grips, ammunition, even clothing. Freedom Group’s customers were buying, often at a premium, field-tested military gear. Some belonged to military families, but many were just hobbyists. Among these customers was Nancy Lanza, of Newtown, Connecticut. She purchased a Bushmaster assault rifle in March 2010, part of an expanding arsenal: three pistols, two bolt-action rifles, a shotgun, and three samurai swords. [...] When Adam Lanza shot his mother, Nancy, in her sleep on the morning of December 14, 2012, he used one of her bolt-action rifles, a Savage Mark II. He then discarded this gun and prepared for a tactical assault, arming himself with two pistols, a shotgun, and her Bushmaster assault rifle, along with ten 30-round magazines. Using a technique employed by Special Forces operators, he then taped these magazines together into bundles of three, allowing for immediate reload. Then he went to Sandy Hook Elementary School and shot his way into the school, killing six adults and 20 schoolchildren, all with the Bushmaster, in less than ten minutes. Then he shot himself in the head." [New York Magazine, 11/15/16]
2012: Cerberus Promised To Sell Freedom Group After Sandy Hook Shooting. According to New York Magazine, "Cerberus issued a statement, promising it would move to sell Freedom Group immediately. Of course, it had wanted to do that all along. Feinberg wanted over a billion dollars, but he couldn’t find a taker at that price. The original idea, of an IPO, was out of the question: No reputable investment bank would underwrite it, nor even take the M&A fees associated with a private deal. Another option would have been to sell off the most controversial product lines, like Bushmaster, but the centralization of manufacturing made that impossible, too." [New York Magazine, 11/15/16]
2015: Cerberus Cashed Out Most Investors From Freedom Group. According to New York Magazine, "But the fear of regulation in the aftermath spurred gun hoarding, and this was good for Cerberus. In late 2013, Freedom Group rebranded, changing its name to Remington Outdoor Company. By the end of the year, Remington Outdoor’s annual sales had finally passed its billion-dollar target. It was its most profitable year. [...] Unable to find a buyer, Feinberg proposed a deal: He’d pay a special onetime dividend from Remington Outdoor’s accrued earnings, letting investors cash out, and Remington would be placed in a special-purpose vehicle, concentrating ownership of what remained in the hands of a few die-hard Cerberus insiders. Of course, 'owning' was a questionable term here; by the end of 2015, Remington Outdoor Company was worth less than the debt attached to it, like a house with an underwater mortgage. In June of this year, the company’s latest CEO, Jim Marcotuli, stated the obvious: 'We’re not for sale.' Several people I spoke to said Cerberus had extracted enough cash from Remington during the good years to meet the firm’s threshold rate of return, and so, in a narrow sense, the investment was a victory." [New York Magazine, 11/15/16]
2016: Steve Feinberg “Personally” Owned Stake In Freedom Group. According to New York Magazine, "For now, that waste is buried in Steve Feinberg’s yard. As the head of Cerberus, he personally owns a controlling, concentrated stake in the firm — likely a majority. Internally, business conditions are improving, as Marcotuli’s cost-cutting fixes have returned the company to profitability. But revenue remains soft in a market still saturated by the assault-rifle-buying frenzy of 2013, and Remington, in a tacit acknowledgment of its critics, has abandoned the kind of combat-oriented marketing imagery that so excited its customers." [New York Magazine, 11/15/16]
2013: Former Navistar Employee Filed Complaint Alleging Navistar’s Illegal Behavior. According to a press release by Sanford Heisler Sharp McKingth, “In 2013, Duquoin Burgess, a former contract director at Navistar, filed the Complaint against Navistar Defense and Navistar International for violations of the False Claims Act. Seven years later, Navistar agreed to pay $50 million to resolve the FCA allegations. The Complaint claimed the company took advantage of the Government’s contract procurement system and specifically its critical need for Mine Resistant, Ambush-Protected (MRAP) vehicles in Iraq and Afghanistan to engage in a pervasive and long-running scheme to charge the U.S. Government inflated prices for vehicle parts.” [Press Release - Sanford Heisler Sharp McKight, Accessed 1/9/25]
2018: Cerberus Acquired Navistar Defense. According to a press release by Cerebrus Capital Management, “Cerberus Capital Management, L.P. (‘Cerberus’) today announced a definitive agreement with Navistar International Corporation (NYSE: NAV) (‘Navistar’) under which certain affiliates of Cerberus will acquire a 70% interest in Navistar's defense business, Navistar Defense, LLC (‘Navistar Defense). Headquartered in Lisle, Illinois, Navistar Defense is a leading tactical wheeled vehicle original equipment manufacturer serving military, law enforcement, and government agencies worldwide. Navistar Defense provides a complete portfolio of both tactical and commercial off-the-shelf military vehicles, as well as custom-tailored lifecycle support solutions to a global customer base. Since 2004, Navistar Defense has delivered approximately 37,000 vehicles across 28 countries and has access to Navistar's global dealer network across 90 countries.” [Press Release - Cerberus Capital Management, 12/3/18]
2021: Navistar Defense Agreed To Pay $50 Million Settlement After It Was Accused Of Defrauding The Government To Pay Higher Prices. According to a press release by the Department of Defense Office of Inspector General, “On May 27, 2021, Navistar Defense LLC (Navistar), an Illinois based manufacturer of military vehicles and subsidiary of Navistar International LLC, agreed to pay $50 million to resolve allegations that it fraudulently induced the U.S. Marine Corps to enter into a contract modification at inflated prices for a suspension system for armored vehicles known as Mine-Resistant Ambush Protected vehicles. During negotiations for the modification, Navistar was asked to provide sales information on the contract parts to assess the reasonableness of Navistar’s proposed prices. The United States alleged that Navistar knowingly created fraudulent commercial sales invoices and submitted those invoices to the government to justify the company’s prices. The sales reflected in the commercial sales invoices never occurred. The government relied on the fraudulent sales invoices in agreeing to Navistar’s inflated prices.” [Press Release - Department of Defense Office of Inspector General, 6/9/21]
May 2007: Cerberus Purchased Chrysler. According to The Guardian, "DaimlerChrysler is selling more than 80% of its struggling US Chrysler division to private equity company Cerberus, ending a nine-year, $90bn (£45bn) union which has failed to live up to its original billing of creating a global power house. New York-based Cerberus, which has $23.5bn under management, is paying $7.4bn for the 80.1% stake in Chrysler. DaimlerChrysler will get $1bn, but the bulk of the purchase price will be used to strengthen the financial position of Chrysler and its finance arm." [The Guardian, 5/14/07]
Cerberus Loaded Chrysler With Debt That Became Unmanageable When Sales Decreased. According to the New York Times, “That situation was made worse by hefty interest payments on more than $10 billion in debt that Cerberus arranged for Chrysler as part of the takeover, which left the automaker carrying piles of debt just as auto sales were about to plummet. While many private equity deals involved saddling companies with debt to pay off investors, Chrysler needed to take on more debt because it had so little cash on hand to finance its operations, some analysts say. The company paid back some of the debt in November 2007.” [New York Times, 8/8/09]
Chrysler Fired 35,000 Workers From 2007 To 2009. According to ABC News, "Chrysler is the latest big American company to fire workers in hopes of staying afloat in this recession. The country's number three automaker announced today that as part of its financial viability plan it will cut another 3,000 jobs. Since January 2007, the company has cut 32,000 positions or 37 percent of its workforce. These latest cuts will bring that number to 35,000. Chrysler's cuts come despite the $4 billion in loans the company has received from the federal government. " [ABC News, 2/10/09]
Cerberus-Controlled Companies Received Over $22 Billion In Government Bailout Money During The Great Recession. According to the New York Times, “Cerberus and its co-investors ultimately invested $7.4 billion in Chrysler, a sum now worth an estimated $1.4 billion. Ideally, Cerberus hoped to wed Chrysler’s finance arm to another finance company it controlled, GMAC. To that end, the risks in Chrysler’s auto business were something that the Cerberus team thought it could manage and that wouldn’t stand in the way of making billions of dollars for investors. [...] Indeed, GMAC and Chrysler became so weak that they needed $22.6 billion in government aid in the last year to stay afloat. For Chrysler and its workers, investors, business partners and customers, was all of that worth it?” [New York Times, 8/8/09]
2009: Chrysler Filed For Bankruptcy
April 2009: Chrysler Filed For Bankruptcy. According to the New York Times, “Mr. Feinberg took over Chrysler almost exactly two years ago, promising to revive the company. Chrysler filed for bankruptcy protection at the end of April. So how he and his private equity firm, Cerberus Capital Management, choose to describe their journey with Chrysler is a delicate matter.” [New York Times, 8/8/09]
Steve Feinberg Was Key Figure Behind Cerberus’s Creation Of Private Military Training Company Tier 1 Group. According to New York Magazine, "During the training, Feinberg was struck by the inferior quality of the camp’s range and facilities. Nearby Blackwater, he felt, had a much better setup. Reichert agreed, and the two began to discuss a new venture. Within weeks, Reichert had a business plan and had assembled a team of military trainers, including a number of special-forces veterans. Reichert named the company Tier 1 Group, after the Defense Department’s designation for its top-level commandos. Cerberus put up the capital, purchasing a shooting range on the outskirts of Memphis for Tier 1’s facilities, a sprawling 800-acre private military base with a half-dozen shooting ranges, on-road and off-road driving courses, a parachute-drop zone, and an 'urban-combat compound' designed to look like an Afghan village. Tier 1’s biggest customer was the United States Special Operations Command. Navy seals, Army Rangers, and other elite military operatives trained there in preparation for clandestine missions across the globe." [New York Magazine, 11/15/16]
Tier 1 Group Trained Four Saudis Who Later Participated In Murder Of Jamal Khashoggi. According to the New York Times, “Four Saudis who participated in the 2018 killing of the Washington Post journalist Jamal Khashoggi received paramilitary training in the United States the previous year under a contract approved by the State Department, according to documents and people familiar with the arrangement. The training was provided by the Arkansas-based security company Tier 1 Group, which is owned by the private equity firm Cerberus Capital Management. The company says the training — including ‘safe marksmanship’ and ‘countering an attack’ — was defensive in nature and devised to better protect Saudi leaders. One person familiar with the training said it also included work in surveillance and close-quarters battle. [...] Mr. Khashoggi, a columnist for The Post, was killed inside the Saudi Consulate in Istanbul in October 2018, his body dismembered using a bone saw. The assassination brought widespread condemnation on Prince Mohammed, who has publicly denied any knowledge of the operation.” [New York Times, 7/17/21]
Training For Saudis Provided By Tier 1 Group Was Approved By State Department
2014: Training For Saudis By Tier 1 Group Was Approved By State Department. According to the New York Times, “The State Department initially granted a license for the paramilitary training of the Saudi Royal Guard to Tier 1 Group starting in 2014, during the Obama administration. The training continued during at least the first year of former President Donald J. Trump’s term.” [New York Times, 7/17/21]
July 2017: Steve Feinberg Pushed For More Military Contractors To Be Used In Afghanistan At The Same Time He Owned A Major Military Contractor. According to the New York Times, “President Trump’s advisers recruited two businessmen who profited from military contracting to devise alternatives to the Pentagon’s plan to send thousands of additional troops to Afghanistan, reflecting the Trump administration’s struggle to define its strategy for dealing with a war now 16 years old. Erik D. Prince, a founder of the private security firm Blackwater Worldwide, and Stephen A. Feinberg, a billionaire financier who owns the giant military contractor DynCorp International, have developed proposals to rely on contractors instead of American troops in Afghanistan at the behest of Stephen K. Bannon, Mr. Trump’s chief strategist, and Jared Kushner, his senior adviser and son-in-law, according to people briefed on the conversations. [...] If Mr. Trump opted to use more contractors and fewer troops, it could also enrich DynCorp, which has already been paid $2.5 billion by the State Department for its work in the country, mainly training the Afghan police force. Mr. Feinberg controls DynCorp through Cerberus Capital Management, a firm he co-founded in 1992.” [New York Times, 7/10/17]
2000 - 2002: Lawsuit Alleged Cerberus Secretly Forced Company Into Bankruptcy. According to the New York Times, “In 2000, Cerberus invested $42 million in the debt of WSNet Holdings, a small provider of satellite television programming. Over the next two years, according to shareholder lawsuits, Cerberus forced the company into bankruptcy by secretly buying up the bonds of companies WSNet hoped to acquire and forbidding WSNet executives from pursuing deals. Through bankruptcy proceedings, the fund tried to take control of the company, lawsuits contend. The suits also contend that Cerberus installed directors at WSNet who maximized Cerberus’s profits at the expense of other stakeholders. The claims were settled for a relatively small amount in 2005, by which time Cerberus had recouped its initial investment in WSNet, according to the lawsuits. Cerberus contended in court documents that the claims were meritless. Cerberus insiders also point out that courtroom hyperbole is not uncommon when bondholders and equity investors battle for a company, and that litigation has become a routine sideshow in distressed-debt deals. But similar complaints dogged the Cerberus investment in the debt of the Coram Healthcare Corporation, a home health care company.” [New York Times, 12/14/06]
2000: CEO Of Health Care Company Supported Restructuring Plan That Favored Cerberus; Cerberus Later Settle Suit After It Was Discovered Cerberus Was Secretly Paying CEO $1 Million.
According to the New York Times, “Cerberus Settled Allegations That They Paid CEO Of Health Care Company In 2000, when Coram declared bankruptcy, the company’s executives proposed a restructuring plan that would give total ownership to Cerberus and other bondholders. Coram’s equity investors, including the real estate magnate Sam Zell, would have gotten nothing. Mr. Zell and other shareholders then discovered that the company’s chief executive, who helped propose the plan, was secretly receiving nearly $1 million a year from Cerberus, in addition to his Coram salary, according to court documents. A federal bankruptcy judge ruled that a conflict of interest existed. Cerberus argued that the Coram dispute was a result of sloppy recordkeeping and not deceptive business tactics, according to sources who requested anonymity because of confidentiality agreements. They note that even the court agreed that Coram’s chief executive had brought an operational expertise to the company, and that it was not clear any damages resulted from the failure to disclose the additional payments. In 2003, Cerberus and two other investors agreed to pay $56 million to Coram, partially to settle the conflict-of-interest claims.” [New York Times,
]