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Illustration: Eniola Odetunde/Axios

Robert Smith's admission to tax fraud has done more than just cost him a whopping $140 million. It's also roiled Vista Equity Partners, the private equity firm he founded and leads, with some insiders and limited partners feeling they were misled (or left in the dark) about the extent of Smith's legal troubles.

Behind the scenes: Smith called a virtual meeting of Vista's managing directors and other top staffers on Wednesday, to discuss details of his settlement. A source says he called the overall experience "humbling" and that he regretted the "undue burden" that his actions had put on others, including some Vista colleagues.

Smith also said that Brian Sheth, Vista's co-founder and president, is likely to be leaving Vista. Sheth himself was not on the call, and it does not appear that he was invited to participate.

  • Sheth, long considered one of Vista's top dealmakers, had told managing directors last December that he was thinking about leaving the firm or retiring.
  • But he had not yet made any formal decision, nor have he and Smith discussed specifics of how a departure would be structured. Complexities include his existing firm economics, fund "key man" clauses, etc.
  • Sources say that Smith's tax troubles are a contributing factor to a breakdown in the two men's relationship, and that Smith's meeting comments raised some eyebrows.
  • Expect Dyal Capital Partners, which has twice purchased minority stakes in Vista, to have some say in the final resolution.

Of note: Sheth did not return a request for comment, while a Vista spokesman also declined comment.

One of Smith's biggest internal challenges is a perception that he long underplayed the severity of the investigation — presenting it as a relatively minor accounting problem. Or not raising it at with certain limited partners, save perhaps for a minor data room mention.

  • But, yesterday, the U.S. Attorney's press release was much more biting, calling it an "illegal scheme to conceal income and evade millions in taxes."
  • It added that Smith did so "knowingly and intentionally," which reads a bit different from Smith's narrative of being a naive young investor who went along to get along with the tax structures proposed by an older, more experienced limited partner.
  • That LP was Robert Brockman, who yesterday was charged with what DOJ calls the "largest ever" tax fraud scheme by a U.S. citizen. Smith is cooperating in that ongoing investigation.
  • Smith and Vista are said not to be concerned about a subsequent SEC investigation into Smith's continuing ability to run a securities firm, but I'm not quite sure why they're so confident. Particularly if new sheriffs roll into town next year, and they're not thrilled with the fact that Smith's fat bank account is largely what kept him out of jail.
  • Read the full findings of facts.

The bottom line: Smith has settled with DOJ and the IRS, but the story isn't over yet.

Go deeper

Dec 9, 2020 - Podcasts

Calm co-CEO on the rise of mental wellness apps

The market for mental wellness products and services is booming, as the pandemic has gotten on just about everyone's last nerve.

Axios Re:Cap goes deeper with Michael Acton Smith, co-founder and co-CEO of meditation app Calm, which was just valued at $2 billion. The discussion includes how mental wellness differs from mental health, the B2B of the industry and those election night ads on CNN.

45 million Americans under winter storm watches near New England

Computer model projection showing the winds moving around the powerful East Coast storm on Saturday Jan. 29, 2022. Image: https://earth.nullschool.net

Nearly 45 million Americans are under winter weather alerts and warnings from North Carolina to northeastern Maine, as a major winter storm threatens the region.

Why it matters: It is predicted to be the biggest blizzard since 2018 to strike the Northeast with more than 2 feet of snow possible in parts of eastern Massachusetts, according to the National Weather Service.

2 hours ago - World

Australian PM pledges $700M for climate change-threatened Great Barrier reef

A green sea turtle is flourishing among the corals at Lady Elliot island in Australia's Great Barrier Reef. Photo: Jonas Gratzer/LightRocket via Getty Images

Australian Prime Minister Scott Morrison announced Friday a AU$1 billion ($703 million) investment plan for the Great Barrier Reef.

Why it matters: The nine-year plan for projects including water quality improvement, reef conservation and supporting some 64,000 tourism jobs comes months ahead of this year's federal election. It has been criticized by scientists and environmental groups for failing to tackle climate change.