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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.

1 min ago - Sports

U.S. swimmer Ryan Murphy causes stir with doping comments

Bronze medallist Britain's Luke Greenbank, gold medallist Russia's Evgeny Rylov and silver medallist USA's Ryan Murphy pose with their medals after the final of the men's 200m backstroke. Photo: Jonathan Nackstrand /AFP via Getty Images

U.S. swimmer Ryan Murphy raised questions about the presence of doping in swimming following a second-place finish in the men's 200-meter backstroke on Thursday.

Driving the news: Murphy, who won gold in the 200-meter backstroke race in Rio, said following his race: "At the end of the day, I do believe there’s doping in swimming. That is what it is."

Key inflation measure grew slower than expected in June

Illustration: Sarah Grillo/Axios

The price of goods and services rose 0.4% in June, slower than the 0.5% growth during May, according to the core personal consumption expenditures (PCE) price index released Friday morning. The June reading was lower than the consensus expectation for 0.6% growth.

Why it matters: The core PCE is the inflation measure the Federal Reserve watches most closely. June's reading is the second month in a row of decelerated price growth, giving the Fed breathing room to design a pullback strategy from its emergency market support.