Weeks after Colorado Treasurer Walker Stapleton took office this past January he drew a flurry of questions about a lucrative consulting contract he made with SonomaWest Holdings, the Northern California real-estate firm he headed for years as CEO. Stapleton arranged to work for up to 250 hours per year with Sonoma for $150,000 while acting as Colorado’s treasurer. Colorado AOL reporter Sandra Fish discovered the arrangement by looking at paperwork SonomaWest had to file as a public company, and government watchdogs took comfort from the fact that those public records filed with the Securities and Exchange Commission or SEC would continue to provide some level of transparency. Now Stapleton’s family finance business, Denver-based Stapleton Acquisitions Company, is proposing to buy out shareholders of SonomaWest (pdf) and take the company private. That would mean no more filing with the SEC. It would mean no more public records from which to monitor Stapleton’s moonlighting as a consultant.
“There are a lot of [business] reasons to take a company private,” University of Denver Finance Professor Mac Clouse told the Colorado Independent. “For one thing, you gain 100 percent control. You can take the company in the direction you want to go without having to wrestle with a single cantankerous board member. You would no longer have to appoint the kind of board that government regulations insist upon. The other main reason is that you no longer have to do all the public reporting. You don’t have to pay the high accounting costs that come with preparing statements.”
The treasurer’s office didn’t return calls for comment at the time of publication and Stapleton Acquisitions told the Independent it would be illegal for company representatives to add any more about the proposed deal to the information that’s already public.
Minimal required disclosure
Colorado Ethics Watch Director Luis Toro said his group is very interested in the proposed deal. He said state financial disclosure forms only ask officeholders to list their “sources” of income, along with assets, real estate, debts, board positions and lobbying income. Toro said that some office holders might volunteer more information, like the amount of hours they’re working outside the office, but that kind of detail is presently not required.
“The only way the public found out about Stapleton’s moonlighting was that it was disclosed by SonomaWest to the SEC as required by federal securities law,” Toro told the Independent. “If the business is taken private, even this back-door form of transparency will be gone. That’s a concern because the proposed consulting agreement that was disclosed could potentially take up a huge portion of the state Treasurer’s time.”
Toro added that the time commitment is reason enough for concern “even if you accept [Stapleton’s] claim that there is no potential for conflict of interest between the State and SonomaWest.”
Should Treasurer Stapleton consult with Sonoma to earn the full $150,000 listed in his contract with the company this year, he would have to put in roughly 600 hours, or 11 hours per week.
Secretary of State Scott Gessler, also elected in November, similarly planned to moonlight with his former law firm. That firm, Hackstaff Law Group, specializes in campaign finance law and has defended high-profile partisan conservative clients and championed conservative causes for years. The revelation that Gessler planned to continue to work for Hackstaff while serving the citizens of Colorado sounded alarms in watchdog offices and media outlets around the state. But as Gessler was called upon to detail his plan to work 20 hours a month for Hackstaff, filling his weekends with case work or even trial preparation, the arrangement seemed unworkable, and he abandoned it.
When news of Stapleton’s moonlighting plan originally broke in January, Ethics Watch voiced the same kind of concerns it is voicing now. Toro said there was a question concerning whether Stapleton could dedicate himself full-time to managing the state’s money. Toro also asked whether the real-estate consulting work might lead to conflicts of interest if the investment deals Stapleton was making for the state, for example, mixed with deals involving SonomaWest.
Stapleton provided reassurances and said he had consulted with the Attorney General’s office on the matter.
“There is no conflict of interest with respect to his duties as Colorado’s Treasurer,” Deputy Treasurer Brett Johnson told Fish at the time. “SonomaWest does not operate within the realm of public finance. While Treasurer Stapleton has discussed this matter with the AG’s office, he has not asked for a formal ruling on this matter because the relationship with SonomaWest does not represent any conflict of interest in any shape or form.”
A tender offer to go private
According to SEC documents, Stapleton Acquisitions plans to borrow $5.8 million from Wachovia / Wells Fargo to purchase all of SonomaWest shares not presently held by Stapleton family members. A rough estimate based on the documents filed with the SEC suggests the Stapleton family and Stapleton Acquisitions Company presently own 75 percent of SonomaWest stock.
Prof. Clouse estimated that, if things go smoothly, the Stapleton Acquisition Company-SonomaWest purchase might be completed quickly.
“A relatively small deal like this wouldn’t take long. A couple of months maybe,” he said.
He added that it was curious that Stapleton Acquisitions was offering such a high purchase price to SonomaWest stockholders.
In the February 18 letter (pdf) in which Stapleton Acquisitions President Craig Stapleton announced to the SonomaWest board his intentions to “commence a tender offer” on behalf of the Stapleton family, he proposed to buy outstanding stock for $8.90 per share. As he puts it, ” a premium of approximately 37 percent over the most recent closing price on February 14, 2011.”
“Generally 20 percent is what you see in this kind of offer,” said Professor Clouse. “From a business view, [the Stapletons] might be motivated to buy at this rate because they think they can make large savings from going private.” Clouse said going private to save money in accounting and reporting costs is a trend right now. “They might also believe they can make management decisions that will create value,” Clouse said.
In mid February, the SonomaWest stock was selling at roughly $6.50 per share. It’s at $8.25 this morning.