Billionaire Brian Sheth Likely To Leave Private Equity Firm After Robert Smith’s Tax Fraud Scandal

Following billionaire Robert Smith’s admission to tax fraud last week, one of his private equity firm’s top dealmakers—cofounder and president Brian Sheth—looks set to depart.

While Sheth—who launched Vista Equity Partners with Smith in 2000 and is worth an estimated $2.3 billion—told managing directors last December that he was thinking about leaving the firm or retiring, Smith’s tax troubles were a contributing factor to the recent breakdown in their relationship, sources told Axios.

Smith, who is also a billionaire and the richest Black man in America, recently entered into a non-prosecution agreement (NPA) with the Department of Justice and the Internal Revenue Service, agreeing to cooperate with federal investigators and pay nearly $140 million in taxes and penalties. Forbes estimates Smith’s net worth to be $5.2 billion.

“The reality is, Brian knew that he couldn’t resolve his future at Vista until Robert got past the NPA and the announcement of the investigation of Robert Brockman by the DOJ,” a person familiar with the matter told Forbes. “Once Robert’s NPA was signed, Brian said he wanted to start talking about his eventual departure from the firm, but it wasn’t going to happen until after the NPA.” The same source, who denies that there is any tension between the two cofounders, says the timing of Sheth’s departure is still up in the air. 

The settlement has not only cost Smith, but has also roiled his firm. On a call with Vista executives last week, Smith discussed plans to pay the nearly $140 million and admit wrongdoing to end the four-year U.S. tax investigation. But many insiders and limited partners of the firm were left feeling they were misled about the extent of Smith’s legal troubles, sources told Bloomberg and Axios.

Smith also confirmed to executives on the call that Sheth is likely to leave the private equity firm, according to sources cited by Bloomberg and Axios. Sheth was reportedly not included in the call, nor does it appear that he was invited to participate, according to both reports.

Smith’s legal woes ultimately stem from his role in a massive tax cover-up: Robert T. Brockman, chairman and CEO of software firm The Reynolds and Reynolds Company, was accused of hiding over $2 billion in income from the IRS over the last 20 years. Brockman was charged in a 39-count indictment which included allegations of conspiracy, tax evasion, wire fraud, money laundering and destruction of evidence. Prosecutors called it the largest U.S. tax case ever brought against an individual. 

Brockman pleaded not guilty on all counts and was released on a $1 million bond after a hearing last week. “We look forward to defending him against these charges,” said his attorney, Kathryn Keneally of Jones Day, at the time.

Investments involving Vista Equity Partners were central to Brockman’s alleged scheme, with Smith admitting his participation in the purported tax evasion cover-up. Brockman allegedly used offshore entities in Bermuda and Nevis, as well as secret bank accounts in Bermuda and Switzerland, to hide from the IRS the income he had earned on his investments in one of Smith’s funds, according to the indictment.

Smith also allegedly hid some of his own money in offshore accounts and used his untaxed income to buy vacation homes and ski properties, authorities said. As part of the settlement with the Justice Department, he will pay the nearly $140 million fine but avoid prosecution by cooperating with federal prosecutors in the case against Brockman.

“It is never too late to tell the truth,” said U.S. Attorney David Anderson in a press release. “Smith committed serious crimes, but he also agreed to cooperate.”

Sheth and Smith met in the 1990s while both were working as investment bankers in San Francisco. The duo have had a long friendship—Sheth was Smith’s best man at his wedding, while Smith inspired Sheth to set up a wildlife conservation foundation.Sheth has for years been a leading force at Vista as one of the firm’s top dealmakers. Under his watch, the firm has conducted more software acquisitions than any other company or investor in recent years.

Now it appears he plans to step away, though the Vista insider tells Forbes that Sheth, who has signed non-compete clauses with Vista and Vista shareholder Dyal Capital Partners, will likely want to maintain some sort of working relationship with Smith and his firm.