Datto’s Private Equity CEO Admits ‘Serious Crimes,’ But Avoids Prosecution

Under a deal with federal prosecutors, Vista Equity Partners CEO Robert Smith will pay $140 million and cooperate with law enforcement to avoid prosecution for what they call his ‘serious crimes.’

Robert Smith, CEO of Vista Equity, which owns MSP tool provider Datto -- “committed serious crimes” federal prosecutors said as part of his involvement in what they are calling “a $2 billion tax fraud” case.

While Smith’s criminal conduct on behalf of the tax fraud scheme went on for some 15 years, U.S. Attorney David L. Anderson for the Northern District of California told reporters during a Thursday news conference, “Its never too late to do the right thing.”

“It is never too late to tell the truth. Smith committed serious crimes, but he also agreed to cooperate. Smith’s agreement to cooperate has put him on a path away from indictment,” Anderson said.

As a part of his deal, Smith signed a six-page statement of facts that details more than a decade of criminal activity to avoid taxes, including creating shell companies in Belize and Nevis, and filing false tax returns between 2006 and 2014.

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

The man Smith has “agreed to cooperate” against is a former business partner and current Reynolds & Reynolds CEO Robert Brockman, who is accused of carrying out the largest ever tax fraud by an individual, prosecutors said.

Brockman was arraigned on a 39-count indictment via Zoom Thursday and released on $1 million bond after pleading not guilty.

“The allegation of a $2 billion tax fraud is the largest ever tax charge against an individual in the United States,” Anderson told reporters Thursday.

Smith’s admitted criminal conduct comes just as Datto, one of the top cloud platforms for MSPs, is poised to launch an IPO next week.

CRN emailed a Datto spokeswoman and left a voicemail for a Vista Equity spokesman on Friday morning. Neither immediately returned a request for comment.

In Datto’s S-1 Securities and Exchange Commission filing, the company gave a stern warning to investors about Vista Equity, which will own 72.2 percent of its stock after the IPO. It cautioned that Vista’s “interests may conflict with ours or yours in the future.”

“Vista controls us, and its interests may conflict with ours or yours in the future,” the warning reads. “Vista will control the vote of all matters submitted to a vote of our board of directors, or our Board, or shareholders, which will enable it to control the election of the members of the Board and all other corporate decisions,” Datto warns in its Risks section. “In addition, our bylaws will provide that Vista will have the right to designate the Chairman of the Board for so long as Vista beneficially owns at least 30% or more of the voting power of the then outstanding shares of our capital stock then entitled to vote generally in the election of directors.”

Vista’s authority will stretch beyond the boardroom, Datto said. It warns potential investors that Vista will hold sway over business plans, management and corporate policy as well.

“Vista will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common stock,” the warning reads.

As a part of his deal to avoid prosecution, Smith admitted to forming shell companies in Belize and Nevis in 2000 and concealing them through third parties in order to dodge taxes on some $200 million in income between 2000 and 2015.

He also used the shell companies to hide his ownership in private equity investments, prosecutors said. He has agreed to cooperate with ongoing federal investigations, to forfeit tax breaks on $182 million in charitable contributions, and to pay almost $140 million in fines.

“Smith has agreed to pay approximately $56 million in taxes and penalties stemming from the unreported income and another $82 million in penalties stemming from his concealment of his offshore bank accounts,” prosecutors said. “Taken altogether, Smith will pay more than $139 million in taxes and penalties.”