By Miriam Gottfried and Mark Maremont
More than 20 years ago, a group of former salesmen for Houston
software entrepreneur Robert Brockman sued their old boss, claiming
in court that he had deprived them of commissions by directing a
portion of customer payments to a Cayman Islands entity.
Mr. Brockman twice appealed to the Texas Supreme Court as he
tried to avoid answering detailed questions about the offshore
entity, and he settled the case in 2001 under confidential
Although the salesmen didn't realize it at the time, they had
stumbled onto early signs of what the government later called the
largest criminal case ever brought against a person accused of
evading U.S. taxes. Federal prosecutors in October charged Mr.
Brockman with using a web of offshore entities to conceal about $2
billion in income from the Internal Revenue Service.
Mr. Brockman has pleaded not guilty to 39 criminal counts,
including tax evasion, wire fraud, money laundering and evidence
destruction. He and his attorneys didn't respond to requests for
Prosecutors allege the bulk of the tax evasion stemmed from
profits Mr. Brockman made from investments with Vista Equity
Partners, a private-equity firm he helped launch in 2000 and which
now manages $73 billion in funds dedicated to software
Vista founder Robert Smith, the wealthiest Black person in
America, settled his own tax-evasion case with the government,
which was made public on the day of Mr. Brockman's indictment. Mr.
Smith has agreed to testify against his former mentor, one of at
least two Brockman confidants to turn on him.
Some of the money in the criminal case against Mr. Brockman
originated with the same Cayman Islands entity that the salesmen
complained about years earlier, according to an IRS affidavit
unsealed in December. The link between the two cases hasn't been
The record-setting case pits Mr. Brockman, a billionaire with a
reputation as a relentless litigant, against the immense resources
of the federal government. Legal specialists say the government
appears to have strong evidence, but federal prosecutors may face
challenges trying the case because of the complexity of tax laws
governing offshore trusts.
In another potential hurdle for the government, the 79-year-old
Mr. Brockman claims in court documents he can't be tried because he
is suffering from dementia and is unable to assist in his own
defense. Prosecutors said in court filings that he could be faking
a mental decline. A hearing on his competency is scheduled for
June, and if the court sides with Mr. Brockman, the charges could
be dropped or deferred.
Despite his wealth, Mr. Brockman was virtually unknown outside
of a small circle in Houston and the automotive industry until his
indictment was announced in the fall.
Court documents and interviews with his former employees,
business associates and his younger brother portray him as a
brilliant, sometimes penny-pinching executive with an
antigovernment streak that led him to regard the IRS as a corrupt
organization unfairly targeting taxpayers.
Mr. Brockman bought used furniture for company offices, rarely
gave raises and forbade employees from smoking to save money on
health insurance, according to former employees and associates. He
stayed at budget hotels and ate frozen dinners in his room during
monthly visits to one of his company's offices near Dayton, Ohio, a
former vice president at his software firm recalled.
Most of the wealth he gathered over the years is held in a
Bermuda trust that owns, among other things, nearly all of his
software company. The firm, Reynolds & Reynolds Co., provides
software to auto dealerships, and it had annual revenue of about
$1.4 billion, according to a now-defunct Brockman charity website.
Mr. Brockman was chief executive of Reynolds & Reynolds until
"The allegations made by the Department of Justice focus on
activities Robert Brockman engaged in outside of his professional
responsibilities with Reynolds & Reynolds," a company
spokeswoman said in a statement. "Throughout numerous court filings
and legal proceedings, the Company has never been alleged to have
engaged in any wrongdoing in any way."
The Bermuda trust has assets of at least $7.7 billion, including
$1.4 billion in Swiss bank accounts, according to a confidential
affidavit from Mr. Brockman's wife that was filed with a Bermuda
court and reviewed by The Wall Street Journal. A lawyer for a
former trustee suggested in a recent Bermuda court hearing the
trust's total value could be as high as $10 billion.
That level of wealth would rank Mr. Brockman around 50th on the
most recent Forbes 400 list of U.S. billionaires, well ahead of
Twitter Inc. CEO Jack Dorsey and Fidelity Investments magnate
Edward Johnson III. Mr. Brockman never appears on the list.
Among the assets Mr. Brockman has amassed: a Bombardier private
jet, a 209-foot yacht, a 17,000-square-foot residence in Houston
and a 5,800 square-foot cabin in Aspen, Colo., according to public
records and court documents filed by prosecutors.
The origin of his fortune dates back five decades, when Mr.
Brockman founded a company that became a pioneer in developing
software that helps automobile dealers manage nearly every aspect
of their businesses, including inventory, pricing, promotion and
He was among the first software executives to see the value of
recurring revenue, locking customers into long-term contracts for a
product that was essential to conducting business and difficult to
substitute, former executives and customers said.
Over the years, Reynolds & Reynolds has been in litigation
with numerous car dealers, some of whom alleged they were
overcharged for mandatory upgrades, court documents show. The
company denied the allegations and often won the cases.
Reynolds & Reynolds and its main competitor, CDK Global
Inc., are the subjects of an antitrust probe by the Federal Trade
Commission, according to a CDK securities filing. Reynolds &
Reynolds declined to comment about the antitrust probe or past
litigation. CDK didn't respond to a request for comment.
Mr. Brockman and his younger brother, Thomas David Brockman,
were raised in St. Petersburg, Fla. Their father, Alfred Eugene
Brockman, was a gas-station owner, and their mother, Pearl, a
physiotherapist, according to 1940 census records.
Dave Brockman recalled lean years growing up and said his
brother "decided he didn't love that and went out to make something
Robert Brockman attended Centre College, a selective
liberal-arts college in Kentucky, and paid his way partly by
delivering laundry, his brother said. He married at age 18,
according to records in Boyle County, Ky., and later divorced.
Mr. Brockman graduated from the University of Florida and after
working at Ford Motor Co. shifted to International Business
Machines Corp., where he became a top salesman. He married his
current wife, Dorothy, in 1968.
The couple lived in Houston, where Mr. Brockman began teaching
himself computer programming and started his software company,
initially known as Universal Computer Systems Inc.
In building UCS, Mr. Brockman was particular about new hires,
requiring that all job applicants take a test designed to determine
their intelligence and suitability for a given role. Vista's own
employee-testing regimen is based on that.
After being hired, staffers had to account for every call at the
office, and executives each week posted the names of those who made
the most personal calls. Employees had to use a keypad to open
doors around the building so managers could trace their
Mr. Brockman would lead executives on dove-hunting trips to a
ranch in Mexico. He kept a stash of guns at the company's Houston
headquarters and in the trunks of the fleet of Mercedes sedans
parked in the garage at his Houston home, former employees and
Mr. Brockman's yearlong sales training program was effective,
former employees said. Alumni graduated to high-level sales roles
at such companies as Microsoft Corp. and Oracle Corp.
He liked to keep employees on edge, recalled a former executive,
Bobby Tyson, who said Mr. Brockman once asked him "when was the
last time you shot somebody between the eyes." The phrase, Mr.
Tyson learned, meant to fire an employee at random. "Everybody
understands they could be next," he recalled his boss saying.
Mr. Tyson, who described Mr. Brockman as a genius whom he still
admires, said he once reluctantly carried out such a firing on
orders from his boss.
Later, Mr. Tyson sued Mr. Brockman for unpaid compensation. He
prevailed after a 6-year court battle, which ended after Mr.
Brockman's appeal was rejected by the U.S. Supreme Court. Mr. Tyson
said he ended up collecting about $2.5 million.
Mr. Brockman's use of offshore entities started in 1981. That
year, he and his late father flew to Bermuda to establish what
became the A. Eugene Brockman Charitable Trust, Dave Brockman
The trust has given away more than $100 million to charities
since 2004, court records show. It also has six human
beneficiaries, according to Bermuda court documents: Mr. Brockman,
his wife, their son Robert Brockman II and a grandchild, along with
Dave Brockman and his wife.
Dave Brockman, who once worked for UCS, said he hadn't had much
contact with his brother for close to 20 years. He said the two had
a falling out after Robert denied him a promotion he felt he
deserved, and he quit.
He doesn't believe his brother did anything illegal, he said,
but doesn't want any money connected to a criminal case. If offered
money from the trust, Dave Brockman said, "I would refuse it. It's
tainted money as far as I'm concerned."
The IRS was alerted more than 20 years ago to Mr. Brockman's
offshore activities as a result of the litigation by his former
In court documents, the salesmen asserted Mr. Brockman founded
the Cayman Islands entity not only to evade paying commissions but
also to avoid federal taxes. Mr. Brockman denied the allegations
and said he had sold the entity years before, while retaining
preferred stock in it.
In the late 1990s, two attorneys for the salesmen met with an
IRS agent, according to people familiar with the matter. The IRS
around this time began an audit of Mr. Brockman and obtained
records from Bermuda about the trust, according to a different
person familiar with the matter.
The outcome of the inquiry couldn't be determined. But when the
Cayman Islands entity, Computer Terminals Ltd., was liquidated in
the 1990s, "a substantial sum" made its way to a company in the
Caribbean called Edge Capital Investments Ltd., according to the
IRS affidavit. Edge Capital was controlled by Mr. Brockman outside
of the Bermuda trust structure, prosecutors have alleged.
Mr. Brockman allegedly used $30 million from Edge Capital to
acquire the Aspen property and a Colorado fishing retreat, part of
the purported tax evasion scheme, according to the indictment.
He also allegedly used Edge Capital to secretly purchase a
portion of his own company's debt -- an act prohibited by
provisions in the loan agreements -- at a sharp discount in the
wake of the 2008 financial crisis, the indictment said. These
allegations are potentially the most serious Mr. Brockman faces;
each of the 20 wire-fraud counts related to the debt repurchase
carries a maximum sentence of 30 years.
If Mr. Brockman's case goes to trial, Mr. Smith, Vista's chief
executive, is expected to testify, marking a dramatic reversal in
their lucrative relationship.
The two men met in the late 1990s, when Mr. Brockman was
considering selling his company and was introduced to Mr. Smith,
then a Goldman Sachs Group Inc. technology banker.
After Mr. Brockman decided against the sale, he presented an
idea to Mr. Smith: He would back the younger man in a
private-equity fund devoted to software -- a rarity at the time.
Mr. Brockman agreed to make an initial pledge of $300 million,
later increasing it to $1 billion, according to a statement of
facts Mr. Smith signed in October as part of his deal with the
The arrangement carried one unusual condition. Mr. Smith had to
put a portion of his share of the fund profits into an offshore
structure similar to Mr. Brockman's. Mr. Brockman said he didn't
want his own foreign trust to be dragged into a U.S. court in the
event of litigation against Vista, the statement of facts said.
Mr. Brockman was the only investor in Vista's first fund, and
became a major investor in a couple of subsequent funds. Many
elements of Vista's playbook for maximizing profits at software
companies followed Mr. Brockman's model, according to people
familiar with Vista's early years.
In 2006, Vista helped Mr. Brockman's Universal Computer Systems
finance the $2.8 billion acquisition of much larger Reynolds &
Reynolds, putting Mr. Brockman atop one of the two dominant players
in the auto-dealer software business.
Mr. Smith, 20 years younger than Mr. Brockman, became as
high-profile as Mr. Brockman was publicity-shy. In 2019, Mr. Smith
pledged to pay off the student loans held by the graduating class
of Morehouse College, a historically black college in Atlanta. He
owns one of Manhattan's most expensive properties -- bought for
nearly $60 million in 2018 -- and is chairman of Carnegie Hall. He
divorced his wife and married the 2010 Playboy Playmate of the
Messrs. Smith and Brockman were both targets of the government's
tax probe. But in October, Mr. Smith reached a nonprosecution
agreement with the government that included Mr. Smith's admission
that he evaded paying taxes on more than $200 million in income,
using an offshore arrangement similar to one allegedly used by Mr.
Mr. Smith agreed to pay $139 million in back taxes and penalties
and cooperate against Mr. Brockman, the government said.
Prosecutors allege Mr. Brockman set up an encrypted email system
to communicate with those involved in his offshore structure. They
referred to each other using such fishing-related code names such
as "Permit," for Mr. Brockman, and "Steelhead," for Mr. Smith,
according to the indictment; the IRS was "The House."
Around 2007, Mr. Brockman hired a Bermuda attorney, Evatt
Tamine, to help manage the offshore structure. Mr. Tamine became
Mr. Brockman's right-hand man and acted as the trustee of the main
Brockman trust. Prosecutors, citing dozens of examples, allege in
the indictment that Mr. Tamine was only a figurehead, and Mr.
Brockman secretly directed every move.
A trust set up by a U.S. taxpayer's forebears -- as with the
Brockman trust -- may not be subject to tax as long as it is run
independently and no money flows to the taxpayer, according to tax
specialists. By claiming that Mr. Brockman was secretly running the
trust, prosecutors may be building a case that it was either a sham
or a type of controlled trust that is taxable to him, said Matthew
McKim, an offshore-tax lawyer at Loeb & Loeb LLP.
In one of Mr. Tamine's early performance reviews, included in a
court filing, Mr. Brockman instructed him to keep records on "an
encrypted USB dongle carried in a different location in luggage
when traveling" and to run a software program called "Evidence
Mr. Brockman learned of the tax investigation in June 2016,
according to prosecutors. Soon after, a former UCS executive
involved in the offshore structure, Don Jones, died. Mr. Tamine
made several trips to the home of Mr. Jones's widow in Mississippi
to destroy documents and computer drives, according to Mr. Tamine's
account in one of his performance reviews filed with the court.
"Those efforts meant that we could rest easily that any attempt
to search Don's home would be fruitless," Mr. Tamine reported to
his boss, according to the court filing.
Bermuda authorities instead raided Mr. Tamine's home at the
request of the U.S. in September 2018. He agreed to cooperate in
the case against Mr. Brockman and gave authorities access to the
encrypted email server.
Prosecutors allege that Mr. Brockman began seeking medical
evaluations of his mental acuity shortly after the raid.
A doctor in March 2019 said the executive was operating
intellectually with an IQ of 87 and exhibited poor short-term
recall, according to one of the medical reports submitted in court
by Mr. Brockman's attorneys.
Prosecutors say Mr. Brockman's doctors have an apparent conflict
of interest because they are affiliated with Baylor College of
Medicine. The Brockman trust has donated millions of dollars to the
school, and Mr. Brockman has served as a board trustee. A Baylor
spokeswoman declined to comment.
Mr. Brockman continued to run his multibillion-dollar software
company during this period, and he gave "long and cogent answers"
during a two-day legal deposition in September 2019, prosecutors
Two weeks later, Mr. Brockman took a cognitive test in which he
had trouble drawing a clock face, according to court filings,
resulting in a finding of "moderate dementia."
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com and Mark
Maremont at firstname.lastname@example.org
(END) Dow Jones Newswires
March 03, 2021 10:46 ET (15:46 GMT)
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