TPG Capital, one of the world’s biggest private equity firms, has placed executive Bill McGlashan on “indefinite administrative leave” after he was named in a sweeping criminal probe of bribery and cheating in college admissions. Other financiers, from Manuel Henriquez, the CEO of NYSE-listed Hercules Capital, and Doug Hodge, the former head of bond giant Pacific Investment Management, were also named in the probe.
Dubbed “Operation Varsity Blues,” on Tuesday, the U.S. Attorney in Massachusetts charged 50 people, from television stars, to business leaders, and university coaches of using alleged bribery, fraudulent college entrance exams and quid pro quo deals to get their students into universities, including Yale University, Stanford University, the University of Texas, the University of Southern California, and the University of California – Los Angeles. The schemes were organized by Rick Singer, an owner of a college counseling and admissions company called The Edge College & Career Network and a nonprofit called The Key World Foundation.
According to prosecutors, Singer often hired third parties to take or fix students SAT and ACT exams, or organized conspiracies with university athletic coaches to build fake recruitment credentials that aided their chances of admission. Singer has pleaded guilty to racketeering conspiracy, money laundering, tax conspiracy and obstruction of justice. He faces up to 65 years in jail and a $1.25 million fine. Others named in the probe were charged with conspiracy to commit mail fraud and honest services mail fraud.
Some of America’s most prominent financiers were named in the probe.
TPG’s Bill McGlashan, for instance, co-founded the firm’s growth investing efforts and was CEO of its prominent Rise Fund, a multi-billion-dollar pool of social impact capital that counts billionaires Richard Branson, Reid Hoffman, Pierre Omidyar and Laurene Powell Jobs as board founders. In the complaint, prosecutors allege McGlashan participated in a cheating and recruitment scheme, including by conspiring to bribe Donna Heinel an athletic director at USC, to help his son get admitted to the university as a recruited athlete.
Late on Tuesday, TPG placed McGlashan on leave. Said a spokesperson at the firm, “As a result of the charges of personal misconduct against Bill McGlashan, we have placed Mr. McGlashan on indefinite administrative leave effective immediately.” TPG Co-CEO Jim Coulter will now act as interim managing partner of TPG Growth and The Rise Fund. “Mr. Coulter will, in partnership with the organization’s executive team, lead all investment work for both going forward,” the spokesperson added.
Hercules Capital, a publicly-traded lender to Silicon Valley technology companies, plunged nearly 9% after its CEO Manuel Henriquez and his wife were charged for their alleged efforts to pay for fraudulent SAT and ACT scores to get their daughter into Georgetown. Henriquez is alleged to have used his connections at Northeastern University to also help admit a client of the Key Worldwide Foundation. Hercules hasn’t responded to an email seeking comment.
Analysts at Keefe Bruyette & Woods downgraded Hercules, a top performer in the specialty finance sector, in the wake of the charge.
Hercules, with assets of around $2 billion, has built a following on Wall Street as a premier lender to Silicon Valley startups, having given capital to firms like Box, DocuSign, Pacira Pharmaceuticals and even Facebook prior to their initial public offerings. “If convicted, we believe this could result in Mr. Henriquez’s eventual removal as CEO, damage to borrowers’ confidence in choosing Hercules as a lending partner, and loss of investor confidence,” said KBW analyst Ryan Lynch in a client note. He added the scenario would reduce, “the premium valuation Hercules has historically traded at.”
Doug Hodge, the retired former CEO of bond giant Pacific Investment Management Company was also named in the complaint for using bribes to have how two children admitted to USC as athletic recruits, and another to Georgetown University.
Money in these instances is alleged to range from $35,000 to beyond $100,000. USC fired the administrator and a separate coach named in the prosecutors complaints. “USC is conducting an internal investigation. Donna Heinel and Jovan Vavic have been terminated and the university will take additional employment actions as appropriate,” the school said. Stanford University sailing coach John Vandemoer pleaded guilty in the probe and was fired. A Georgetown tennis coach, Gordon Ernst, also named in the probe, was fired in 2017 after the university uncovered alleged wrongdoing, the school said Tuesday.
Others named in the probe include Hollywood actresses Felicity Huffman, best known for her role on the TV show Desperate Housewives, and Lori Loughlin, who played a character on Full House. Beginning in 2011, Singer’s charitable organization, The Key Worldwide Foundation, is alleged to have funneled the $25 million in bribes to participants in the scheme, including coaches and university administrators.
No universities were accused of wrongdoing.
— With reporting from Susan Adams and Zach Friedman