By Jenny Strasburg, Patricia Kowsmann and Max Colchester
For Jes Staley, the embattled Barclays PLC chief, there's a new
cause for worry: his brother-in-law and an angry client.
Mr. Staley, facing a cut in pay and under investigation for
trying to uncover the identity of a whistleblower, now is clashing
with one of the bank's most powerful clients, KKR & Co.
According to people familiar with the matter, he waded into a
messy dispute between the private-equity giant and his wife's
brother, causing KKR to pull business from the bank.
At the center of the dispute is a Brazilian data-center company,
Aceco TI, founded in 1972 by the family of Mr. Staley's wife,
Debora Nitzan Staley. She and her brother, Jorge Nitzan, Aceco's
then-chief executive, sold the bulk of their interest in the
company to KKR in 2014 in a deal valued at around $700 million.
Entities controlled by Ms. Staley and her brother received some
$160 million and $80 million respectively as a result of the sale,
according to people familiar with it.
A year later, Aceco was unraveling amid Brazil's tumbling
economy, and KKR is fighting a pitched legal battle in São Paulo
against Mr. Nitzan and the other sellers, which include Ms. Staley.
KKR, with close to $475 million in Aceco equity at stake, is trying
to get its money back.
KKR's beef with Mr. Staley is that he interceded on behalf of
his brother-in-law, by trying to help find an investor late last
year, after the 2014 acquisition went sour, and by vouching for him
with KKR's two big co-investors in the deal. KKR's view, according
to people familiar with it, is that Mr. Staley's actions could have
hurt KKR's legal and financial options.
Mr. Staley's view, according to people familiar with it, is that
KKR improperly pressured him and is trying to turn a personal
situation for the executive into a business matter for the bank.
Mr. Staley has told multiple people that he wasn't acting in his
capacity as Barclays's CEO when he interceded for his
brother-in-law, and that his actions in the dispute were what
anyone would do to defend a family member.
Barclays itself had no role in the Aceco deal. A spokesman for
Barclays said, "Appropriate senior personnel within Barclays have
been kept informed about this matter, and in particular regarding
any management interactions with the parties concerned."
Recently, KKR executives have cut Barclays off from some of
their business, people familiar with the matter said. A KKR
spokeswoman said it has a responsibility to protect the interests
of its investors, "who we believe were defrauded in the sale of
Aceco." She continued, "We would also note that we have been a
longtime client of Barclays, which comes with its own
responsibilities for Barclays." Since 2010, KKR has paid Barclays
$190 million in investment-banking fees, according to Dealogic
data.
Mr. Nitzan, through a São Paulo-based spokesman, called
accusations of fraud "baseless." "Mr. Nitzan is confident that the
truth will prevail and that the accusations will be fully clarified
in arbitration, " the spokesman added.
Mr. Staley, an American, worked in Brazil early in his banking
career in the 1980s, met his wife there and has known her family
for decades. He came to Barclays as chief executive in late
2015.
In a separate matter, U.K. regulators have been investigating
the CEO after he tried to unmask a whistleblower who complained
about one of Mr. Staley's top hires at Barclays. The board last
month said it would commission independent reviews of the bank's
controls and whistleblowing program. Mr. Staley has apologized to
Barclays's board and in an email to staff last month said, "I got
too personally involved."
KKR's acquisition of a controlling stake in Aceco was its first
direct investment in Brazil. Aceco has built more than 800 data
storage and processing centers in Brazil and Latin America; Mr.
Nitzan and Ms. Staley each owned 26%, according to Aceco documents,
and private-equity firm General Atlantic LLC held the remaining
48%. General Atlantic received some $290 million for its stake,
according to people familiar with the 2014 sale. KKR got 87% of the
company and Mr. Nitzan, who remained CEO, kept 12.5%.
In May 2015, KKR's head of Latin America in São Paulo got an
anonymous email alleging Aceco's books had been manipulated since
2012, according to people familiar with the matter. The emailer
also went to Brazilian police, alleging Aceco had bribed government
officials with senior management's knowledge, these people
said.
A KKR-commissioned accounting and legal investigation determined
many of the anonymous emailer's allegations had merit, according to
a report reviewed by The Wall Street Journal. It found Aceco made
payments to some entities now embroiled in the sprawling bribery
and corruption scandal in Brazil known as Car Wash.
KKR fired Mr. Nitzan in late 2015. And last year it marked its
equity investment in Aceco down to zero, according to people
familiar with the decision. Aceco officials didn't return
calls.
The spokesman for Mr. Nitzan denies he was involved in fraud.
KKR, he said, acquired control of Aceco "just before the worst
recession in the history of the Brazilian economy," which hurt
Aceco's finances and made KKR regret its investment and want to
reverse it. The spokesman, on behalf of Ms. Staley, noted she
inherited her Aceco stake and had no management role. A General
Atlantic spokeswoman declined to comment.
Jockeying for control of Aceco and its assets intensified last
fall, after the company fell behind on payments affecting $85
million in debt. An entity now fully owned by Mr. Nitzan bought a
slug of debt in the Aceco holding company that was created as part
of the 2014 deal -- which could have allowed him, as a creditor, to
regain control of Aceco. KKR was taken by surprise, people familiar
with the events said, and the company and Mr. Nitzan are waging
battle over ownership in Brazilian courts.
Meanwhile, in September, KKR's private-equity chief for the
Americas based in New York, Alexander Navab, placed a call to Mr.
Staley to lay out KKR's side in the conflict and see if Mr. Staley
could influence Mr. Nitzan, according to people familiar with the
call.
The call was brief, and Mr. Staley didn't agree to intercede,
people familiar with the matter said. KKR executives hoped Mr.
Staley would get back to them. A person close to Mr. Staley said he
viewed the call as confrontational.
Soon afterward, Mr. Staley suggested to a longtime friend,
Timothy Collins of New York-based Ripplewood Advisors LLC, that he
consider investing in Aceco. Mr. Staley described Mr. Nitzan as a
"good guy," according to people familiar with the conversation.
In December, as Mr. Collins explored such an investment, he
contacted KKR -- and was surprised when, through an intermediary,
KKR suggested he steer clear, according to some of the people
familiar with the talks.
With the ownership of Aceco in dispute, KKR viewed any deal
involving Mr. Nitzan and an outside ally as limiting KKR's legal
options, people familiar with KKR's thinking said. Mr. Collins
stayed away.
Meanwhile, KKR learned that Mr. Staley, while traveling on
Barclays business, had discussed Aceco in private conversations
with two KKR co-investors, the Teacher Retirement System of Texas
and GIC, Singapore's sovereign-wealth fund, according to people
familiar with the matter.
Answering questions from senior executives at the funds, Mr.
Staley told them he was standing by Mr. Nitzan, who he didn't
believe would commit fraud, people familiar with the conversations
said. Mr. Staley's view was that KKR had bought a good company but
at a bad time. A person familiar with Mr. Staley's thinking said
that when the executives asked him about the allegations about his
brother-in-law, he felt he should give them honest answers.
GIC and the Texas pension fund declined to comment.
After learning of these conversations, KKR executives discussed
whether to call the Barclays board to complain, a person familiar
with the matter said. Instead, in mid-March, KKR's Mr. Navab called
Mr. Staley again.
Mr. Navab noted KKR hadn't heard from Mr. Staley after their
September call, yet Mr. Staley had intervened on behalf of Mr.
Nitzan, people familiar with the call said. Mr. Staley was vehement
that he would continue standing by his family, the people said.
Write to Jenny Strasburg at jenny.strasburg@wsj.com, Patricia
Kowsmann at patricia.kowsmann@wsj.com and Max Colchester at
max.colchester@wsj.com
(END) Dow Jones Newswires
May 03, 2017 02:48 ET (06:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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