Dan Morain

Dan Morain

Dan Morain: Why do business with gun monger?

Published: Sunday, Dec. 30, 2012 - 12:00 am | Page 1E
Last Modified: Sunday, Dec. 30, 2012 - 8:44 am

Two months before Adam Lanza used one of his company's guns to massacre 20 first-graders at Sandy Hook Elementary School, George Kollitides talked about threats he perceived to his children.

The politicians who oversee California's public employee and teacher pension funds should heed what Kollitides said, and ask hard questions, like why would they do business with a guy like him or his former partners at Cerberus Capital Management, a New York private equity firm that manages $1.1 billion in this state's pension money.

Kollitides was the Cerberus partner who oversaw the acquisition of more than a dozen gun and ammunition manufacturers that became Freedom Group. He's now Freedom Group's chief executive officer, though Cerberus – putting California teachers and public employees' pension money to use – still owns the company.

On Oct. 19, Kollitides answered softball questions on a National Rifle Association podcast about the presidential campaign. "It is pretty scary," Kollitides said, worrying that Barack Obama would win and appoint liberal Supreme Court justices. "I worry about my kids and my grandkids' future."

Kollitides got wound up: "All of our freedoms will be at risk. The liberal courts and liberal politicians believe they know what's best for Americans. They're going to tell us when we have to get health care.

"They're going to tell what time we have to get out of bed every day. They're going to tell us where we have to go to work. They're going to take our money and redistribute it. This is an issue that every American needs to worry about, but in particular those who are incredibly supportive of the Second Amendment."

It was quite a rant.

Not that I shed a tear for Kollitides, but his life changed on Dec. 14 when 20-year-old Lanza used a semi-automatic Bushmaster .223 rifle to kill 20 children and six educators at Sandy Hook Elementary School in Newtown, Conn.

Cerberus bought Bushmaster Firearms in 2006. Bushmaster is the nation's leading producer of military-style assault rifles, or, as Kollitides calls them, modern sporting rifles. They're especially popular among young men, perhaps because they're depicted in violent video games.

On the Monday after the slaughter, California Treasurer Bill Lockyer, who built his career in part based on his opposition to assault weapons, declared that state pension funds should divest themselves of holdings in companies that make such firearms. Assault weapons are illegal in California, thanks in part to Lockyer's work when he was in the state Senate.

"The idea that we would be profiting from illegal weapon sales is abhorrent," said Lockyer, who sits on the pension fund boards.

Soon after Lockyer spoke out, a CalSTRS investment officer called Cerberus asking about its stake in Freedom Group. Early the next day, Cerberus issued a statement saying it would sell Freedom Group.

"As a firm, we are investors, not statesmen or policymakers," Cerberus' statement says. "It is not our role to take positions, or attempt to shape or influence the gun control policy debate. That is the job of our federal and state legislators."

The statement is remarkably disingenuous. Although Cerberus claims it doesn't get involved in politics, its board includes former Vice President Dan Quayle, and its partners donated heavily to Mitt Romney and Republican congressional candidates.

Kollitides, who left Cerberus in March when he became CEO of Freedom Group, was part of a campaign group called Sportsmen for Romney. On the NRA podcast, Kollitides told how Freedom Group was working with the NRA to get out the pro-gun vote by inserting campaign fliers in 500,000 packages of ammunition and guns.

Cerberus explained its decision to sell Freedom Group by calling the Newtown massacre "a watershed event that has raised the national debate on gun control to an unprecedented level."

Perhaps so, but by Cerberus' reasoning, other events weren't watersheds, not the Virginia Tech massacre of 32 people in 2007, or the attempted assassination of Gabrielle Giffords in Tuscon in 2011, or the Colorado movie theater carnage in July. Each should have raised the debate to unprecedented levels.

If Kollitides has softened his hard line in the wake of Sandy Hook, he is not saying. He didn't answer my requests for an interview, not surprisingly.

The California State Teachers' Retirement System is a $155 billion fund and has committed a relatively modest sum to Cerberus, $751 million. The California Public Employees Retirement System, a $230 billion fund, has committed $400 million to Cerberus.

Three CalSTRS officials visited Cerberus' Manhattan offices in June 2011 and over lunch were pitched on investing more pension money with the firm. The officials were veterans. But Cerberus' investment in Freedom Group didn't set off alarms.

If they had looked, they would have seen that Freedom Group boasts of being the world's largest producer of firearms for civilian use, and that it owes much of its growth to "modern sporting rifles."

Nor did due diligence detect that Bushmaster was running an ad campaign, halted since the Newtown massacre, that featured a photo of its AR-15 military-style weapon, next to the line: "Consider your Man Card reissued." Or that it drops any pretense that "adaptive combat rifles" are used for hunting. They are intended for combat.

Then again, Cerberus has done what private equity firms do. It saw value in gun-makers, acquired them, closed factories, consolidated manufacturing, cut costs and increased profits. Freedom Group reported $403 million in sales in the first nine months of 2012, an increase of 30.5 percent from the same period in 2011.

Cerberus' gun brands probably will fetch a nice price. That should give Cerberus partners big paydays and fatten the investment accounts of Cerberus clients, including California's public pension funds.

Officials who run public pension funds have a fiduciary responsibility to retirees. They also have a social responsibility. Over the years, CalSTRS and CalPERS have shunned tobacco, Iran, Sudan, and the apartheid government of South Africa. Pension fund trustees should know that any profits from the sale of Freedom Group will be blood money.

It's probably asking too much, but maybe the trustees could use some of the money to honor the Sandy Hook children and teachers. At a minimum, they should remember Sandy Hook the next time they consider investing another dime in Cerberus Capital Management.

© Copyright The Sacramento Bee. All rights reserved.

Read more articles by Dan Morain, Senior editor



Dan Morain, editorial page editor

Dan Morain

Dan Morain, editorial page editor, has been a columnist at The Sacramento Bee since 2010. As a news reporter, he covered the California Supreme Court when Rose Bird was chief justice, the Legislature when Willie Brown was speaker and the Governor's Office during Gray Davis' tenure. He spent 27 years at the Los Angeles Times, where his final assignment was to be part of the team that covered the 2008 presidential campaign. He and his wife, Claudia Morain, have three children, each of whom attended public schools and California's public universities.

Email: dmorain@sacbee.com
Phone: 916-321-1907
Twitter: @DanielMorain

Sacramento Bee Job listing powered by Careerbuilder.com
Quick Job Search
Sacramento Bee Jobs »
Buy
Used Cars
Dealer and private-party ads
Make:

Model:

Price Range:
to
Search within:
miles of ZIP

Advanced Search | 1982 & Older