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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.

Indianapolis mass shooting suspect legally bought 2 guns, police say

Marion County Forensic Services vehicles are parked at the site of a mass shooting at a FedEx facility in Indianapolis, Indiana, on Friday. Photo: Jeff Dean/AFP via Getty Images

The suspected gunman in this week's mass shooting at a FedEx facility in Indianapolis legally purchased two assault rifles believed to have been used in the attack, police said late Saturday.

Of note: The Indianapolis Metropolitan Police Department's statement that Brandon Scott Hole, 19, bought the rifles last July and September comes a day after the FBI said in a statement to news outlets that a "shotgun was seized" from the suspect in March 2020 after his mother raised concerns about his mental health.

U.S. and China agree to take joint climate action

US Special Presidential Envoy for Climate John Kerry waves as he arrives at the Elysee Presidential Palace on March 10, 2021 in Paris. Photo: Chesnot/Getty Images

Despite an increasingly tense relationship, the U.S. and China agreed Saturday to work together to tackle global climate change, including by "raising ambition" for emissions cuts during the 2020s — a key goal of the Biden administration.

Why it matters: The joint communique released Saturday evening commits the world's two largest emitters of greenhouse gases to work together to keep the most ambitious temperature target contained in the Paris Climate Agreement viable by potentially taking additional emissions cuts prior to 2030.