Let's just say the rumored frontrunner for the job of superintendent of the Providence Public Schools is Thomas Darden, co-founder and former managing director of Chicago-based Reliant Equity Investors (not the kind of firm that has a website, apparently), and since 2009 (that date's important) deputy for process improvement and compliance of The School District of Philadelphia.
I've heard this from enough people that a little Googling was in order tonight. One of the few things that comes up for Reliant Equity Investors is a nasty piece of business down in West Virginia and Orange County, Virginia, where about 375 workers won a $1.1 million settlement on a class action lawsuit over violations of the Wage and Payment Collection Act, Worker Adjustment and Retraining Notification Act and other labor laws after AB&C Group went bankrupt and abruptly shut its doors, leaving workers unpaid.
... the suit names AB&C, its employer BlueSky Brand, Inc., and BlueSky's employer, Reliant Investors, LLC, as defendants. It also names Carr Preston, the vice president and director of BlueSky; Thomas Darden, Jr., a director of BlueSky and Reliant; Qian Elmore, a director of BlueSky and principal of Reliant; Robert Pulciani, CEO of BlueSky; and Philip Wax, CFO of BlueSky and CFO of AB&C; as defendants.
OK, that's pretty creepy, but West Virginia might as well be Mars as far as most Rhode Islanders are concerned. What else can we find. BlueSky? Oh dear...
Multichannel Merchant, April 1 2008:
BlueSky Brands is history. The North Kingstown, RI-based parent company of the Paragon Gifts, Bits and Pieces, Bits and Pieces U.K., National Wildlife Direct, and Winterthur catalogs, which also owns McLean, VA-based third-party fulfillment provider AB&C Group, shut down on March 14...
No cash, no product, no sales Indeed, BlueSky failed to get its next level of financing as early as June 2007, according to Curt Barry, president of operations and fulfillment consulting firm F. Curtis Barry & Co. “After that, many personnel cuts were made — both in senior management and in the work force,” he says.
A key problem, according to some: BlueSky Brands incurred too much debt in its acquisitions. One source who requested anonymity describes the company's strategy as “a gross mismanagement from the beginning.”
In particular, says the same source, the National Wildlife and Winterthur titles were in debt when BlueSky acquired them in November 2006. The firm did not ever have deep enough pockets to reinvent the business and sustain the loss, the source notes.
Catalogers typically fail for two reasons, says Stuart Rose, managing director for Wellesley, MA-based investment firm Tully & Holland: “They don't have enough money to finance catalogs, and they don't have enough inventory.” Mailers get the cash from customers when the merchandise ships, not when it is ordered, so you need product in stock to function, he says.
Reports of BlueSky's troubles had been brewing for at least six months, “so the cycle has been there for a while,” Rose says.
Well, businesses do go bust! I'm sure it is all on the up and up though!
Or not. US Dept. of Labor, January 25, 2011:
PROVIDENCE, R.I. – The U.S. Department of Labor has obtained a court judgment and order appointing an independent fiduciary to manage the 401(k) plan of defunct BlueSky Brands Inc. of Westerly, R.I. The judgment and order resolve a lawsuit filed by the Labor Department against the company for violations of the Employee Retirement Income Security Act.
Under the judgment and order, the court appointed Northeast Retirement Services Inc. of Woburn, Mass., to serve as the independent fiduciary of the BlueSky Brands Inc. 401(k) Savings Plan. The independent fiduciary has the authority to manage the plan, distribute its assets to the plan’s participants and beneficiaries, and terminate the plan. The judgment was entered in the U.S. District Court for the District of Rhode Island.
“It’s doubly unfortunate when the closure of a company results in workers both losing their jobs and access to the retirement benefits they have earned,” said Edward Maloney, acting regional director of the Labor Department’s Employee Benefits Security Administration in Boston, Mass. “We took this legal action to ensure that the plan is properly managed so that its participants can finally gain access to their retirement assets.”
BlueSky Brands Inc. sponsored the 401(k) plan to provide retirement benefits to the plan participants. Prior to ceasing operations in March 2008, the company failed to take steps to ensure the ongoing prudent administration of the plan, according to the Labor Department’s suit. As a result, former employees of the company have been unable to access their 401(k) accounts. Under ERISA, plans must be managed by fiduciaries. In the absence of a plan fiduciary, participants and beneficiaries cannot obtain plan information, make investments or collect retirement benefits.
As of Aug. 31, 2010, the plan had 77 participants and assets totaling $1,055,136.89, the latest data available. Fidelity Investments is the custodian of all of the plan’s assets and will not release those assets without the authorization of a plan fiduciary.
James Surowiecki lays out how these scams work:
The real reason that we should be concerned about private equity’s expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets, deriving enormous wealth not from management or investing skills but, rather, from the way the U.S. tax system works. Indeed, for an industry that’s often held up as an exemplar of free-market capitalism, private equity is surprisingly dependent on government subsidies for its profits. Financial engineering has always been central to leveraged buyouts. In a typical deal, a private-equity firm buys a company, using some of its own money and some borrowed money. It then tries to improve the performance of the acquired company, with an eye toward cashing out by selling it or taking it public. The key to this strategy is debt: the model encourages firms to borrow as much as possible, since, just as with a mortgage, the less money you put down, the bigger your potential return on investment. The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust.
This approach has one obvious virtue: if a private-equity firm wants to make money, it has to improve the value of the companies it buys. Sometimes the improvement may be more cosmetic than real, but historically private-equity firms have in principle had a powerful incentive to make companies perform better. In the past decade, though, that calculus changed. Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.” This allowed them to recoup their initial investment while keeping the same ownership stake. Before 2000, big special dividends were not that common. But between 2003 and 2007 private-equity funds took more than seventy billion dollars out of their companies. These dividends created no economic value—they just redistributed money from the company to the private-equity investors.
As a result, private-equity firms are increasingly able to profit even if the companies they run go under—an outcome made much likelier by all the extra borrowing—and many companies have been getting picked clean. In 2004, for instance, Wasserstein & Company bought the thriving mail-order fruit retailer Harry and David. The following year, Wasserstein and other investors took out more than a hundred million in dividends, paid for with borrowed money—covering their original investment plus a twenty-three per cent profit—and charged Harry and David millions in “management fees.” Last year, Harry and David defaulted on its debt and dumped its pension obligations. In other words, Wasserstein failed to improve the company’s performance, failed to meet its obligations to creditors, screwed its workers, and still made a profit. That’s not exactly how capitalism is supposed to work.
Certainly sounds like the same scam, right down to the choice of a mail-order business.
To recap: the private investment firm of which Darden was a co-founder and managing director, sunk Rhode Island based BlueSky Brands, of which Darden was a director, committing violations of labor law in the Virginias and mis-managing (if not looting) the pensions of workers in Rhode Island. Darden then headed off to the Broad Academy and Philadelphia Public Schools, where he was a key part of the corrupt and discredited Ackerman administration's strategy of parceling off the district's schools to private operators. And now he's the frontrunner for PPSD superintendent? In the middle of a rolling pension crisis?
The cherry on top of all this is that the Rhode Island businesses Darden bankrupted were up and running in no time with proper management:
Some Rhode Island residents consider fixing up their beach house as a summer project. Steve Rowley brought a shuttered 132,000 sq.-ft. distribution center in Westerly, RI, back to life.
Rowley, a semi-retired marketing consultant who was CEO of The Paragon from 1998 to 2005, helped bring jobs back to the building that once housed The Paragon and other catalogs of BlueSky Brands, which shut down last March. The Paragon’s merchandise and operations equipment stored at the Westerly DC were scheduled to be sold at auction this past June, says Rowley.
But the auction was cancelled before its scheduled date when multititle gardening mailer Gardens Alive agreed to purchase all the items, plus the intellectual property and rights of The Paragon. (Gardens Alive had bought BlueSky’s games catalog Bits and Pieces in May.)