CEO Robert Smith Has ‘Complete Trust And Support:’ Vista Equity Sources

The billionaire CEO and Vista Equity founder is under threat of indictment for the next 1,804 days if he strays from his seven-page agreement with federal prosecutors, even as his portfolio company Datto prepares to launch an IPO on Wednesday.

Vista Equity Partners CEO Robert F. Smith has the support of “his colleagues and employees and portfolio companies,” amid the fallout from his involvement with what federal prosecutors call the largest tax evasion in U.S. history by an individual.

“Robert fully intends to continue leading Vista and there are no issues that would prevent him from doing so,” a source said. “The resolution of Robert‘s personal tax matter under the non-prosecution agreement does not trigger anything under Vista’s fund documents … Further, the resolution does not implicate any securities rules because the NPA relates to a purely personal tax issue that has been settled with no charges brought. There is no regulatory reason that prevents Robert from continuing to perform his duties at Vista.”

The source said following the deal, Smith reached out to many of Vista’s portfolio companies to talk to their leaders one-on-one.

“An overwhelming number of LPs have come forward in support of Robert‘s leadership and are committed to him and what he is building at Vista,” the source said. “Robert has the complete trust and support of his colleagues and employees and portfolio companies.”

Vista Equity said it was not able to comment on the record.

[RELATED: ‘Vista Controls Us’: 5 Warnings From Inside Datto’s IPO]

Smith’s admissions to prosecutors come as his portfolio company, Datto, prepares to launch an IPO valued at $561 million on Wednesday. However as news swirled of Reynolds and Reynolds CEO Robert Brockman’s indictment and Smith’s agreement last week, Brian Sheth, Vista’s co-founder, suddenly quit Datto’s board -- prompting the company to file an amended S-1. Then in a phone call with executives Smith said the 44-year-old Sheth was planning to retire.

“Brian has been talking about retiring, and about his future and his future at Vista on and off,” a source familiar with the situation told CRN. “He is a billionaire. He has also worked for Robert and grew up within Vista since he was 23 years old.”

The source added that there was no “tension” between Smith or Sheth.

“He and Robert have been close since he was 23,” the source said. “He feels a devotion to Robert.
On Oct. 9, Smith and two of his lawyers signed a statement of facts that was prepared by federal prosecutors. The six page document details Smith’s involvement with Brockman’s off shore tax havens. Those havens were used by Brockman to conceal some $2 billion in capital gains income. Brockman meanwhile invested more than $1 billion to create the entity Vista Equity that was run by Smith.

As Vista grew into one of the largest private equity firms in the nation, and Smith amassed personal fortune estimated by Forbes to be $5 billion, he kept his true income a secret from the IRS, according to the statement of facts he signed.

“Smith willfully filed false United States Individual Income Tax Returns, Forms 1040, for the tax years 2005 through 2014 … in addition, Smith willfully failed to report on these income tax returns the income he earned from Fund 1 and other private equity funds,” Smith’s statement reads. “Smith willfully understated his income on these tax returns and willfully evaded more than $43,000,000 in U.S. federal income taxes for the tax years 2005 through 2014.”

Additionally, Smith failed to file Foreign Bank Account Reporting forms prior to 2011. The forms are required of U.S. Citizens under the Bank Secrecy Act to report foreign bank accounts, brokerage accounts or mutual funds hidden in off shore accounts.

Six of the 36 counts in Brockman’s criminal case are for “failure to file an FBAR” according to the docket sheet. When Smith finally did file the FBARs in 2015, he falsified the forms “willfully omitting Smith’s true beneficial ownership of these accounts.”

“The acts taken by Smith, including the acts described above, were done willfully and knowingly with the specific intent to violate United States law. Smith acknowledges that the foregoing statement of facts foes not describe all of his conduct relating to the offenses stated herein and does not identify all of the persons with whom he may have engaged in unlawful conduct,” the statement of facts reads.

Under the deal he signed with prosecutors, Smith cannot dispute the facts in the statement, any more than he can refuse to testify against his former business partner Brockman, without risking prosecution himself.

“Smith agrees that he shall not, himself, or through any agent or representative, make any statement, in litigation or otherwise, repudiating or contradicting the Statement of Facts associated with this agreement,” the non-prosecution deal states, according to a copy that was released by U.S. prosecutors. “Any contradictory statement by Robert F. Smith or his agent shall constitute a violation of this agreement.”

Whether a statement is contradictory, is entirely up to prosecutors in northern California. They also determine whether Smith is cooperating with the other portions of the agreement, which includes to testify against Brockman at grand jury and at trial, to produce evidence when asked, and to help prosecution in other similar federal investigations.

If he should fail to satisfy the terms anytime in the next five years, prosecutors warn that charges will follow.

“Robert Smith shall thereafter be subject to prosecution for any federal criminal violation of which the United States has knowledge including crimes relating to the scheme set forth in the statement of facts, perjury, and obstruction of justice,” the deal signed by Smith and his lawyers states.