Glenn Youngkin received 'unusual' $8.5 million payout from former employer — and paid no taxes on it: lawsuit

On Thursday, NBC News reported that a shareholder of a private equity firm is alleging in a lawsuit that an unusual deal gave Virginia Gov. Glenn Youngkin $8.5 million in stock benefits at the expense of police and firefighters — and he paid no taxes on it.

"A complex corporate transaction had gone through at the Carlyle Group, the powerful private equity company that Youngkin led as co-chief executive. Under the deal, approved by the Carlyle board and code-named 'Project Phoenix,' he began receiving $8.5 million worth of Carlyle stock, tax-free, according to court documents," reported Gretchen Morgenson. "The Project Phoenix payout came on top of $54 million in compensation Youngkin had received from Carlyle during the previous two years, regulatory records show. Youngkin retired from Carlyle on Sept. 30, 2020; he won the governor’s election in November 2021."

According to the report, Youngkin was one of several Carlyle executives who benefited from the deal, with eight other officials, including Carlyle founder David Rubenstein, receiving more than $200 million worth of combined shares.

"Now, that transaction is under attack by a Carlyle shareholder in Delaware Chancery Court. The suit, filed last week by the city of Pittsburgh Comprehensive Municipal Pension Trust Fund, says the $344 million deal harmed Carlyle’s stockholders, who received nothing in return when they funded the payday," said the report. "Meanwhile, the Carlyle insiders who received the payouts escaped a tax bill that would have exceeded $1 billion, according to the complaint, which accuses Rubenstein, Youngkin and other Carlyle officials of lining their own pockets at the expense of people like police officers and firefighters."

READ MORE: CNN host grills Mick Mulvaney over Trump's handling of classified info: 'Documents flushed down the toilet!'

"Carlyle’s 2020 $344 million tax-free payout to its insiders cited in the lawsuit is a new twist on a type of contract known as a tax receivable agreement, or TRA. Companies and their founders typically create such agreements in conjunction with initial public offerings of the companies’ shares," said the report. "Under normal circumstances, TRA payouts can be a win-win for both a company and its insiders, market participants say, because both parties get something of value — the insiders get stock, and the company gets a tax benefit when they sell it. But in a highly unusual move that was unfair to Carlyle’s shareholders, lawyers for the Pittsburgh pension fund say, Carlyle structured its payout as tax-free, generating no tax benefits to the company even as it enriched insiders."

Private equity firms, which specialize in extending capital to businesses and organizations that might struggle to secure conventional loans in exchange for some controlling stake in those organizations and are often criticized for predatory destruction of healthy businesses, already get heavily preferential treatment in the tax code, including a controversial loophole on "carried interest" that allows the managers of such firms to cut their top marginal rate almost in half.

At the demands of Sen. Kyrsten Sinema (D-AZ), the Democratic climate and health care bill not only preserved this loophole but also exempted private equity firms from the new minimum "book tax" that ensures large corporations pay a minimum 15 percent on their profits.