Pritzker Pick Risks Republican Focus on Business Record

Photographer: Daniel Acker/Bloomberg

PSP Capital Partners LLC Chief Executive Officer Penny Pritzker listens during the "Titans at the Table" Bloomberg Television program in Chicago. Close

PSP Capital Partners LLC Chief Executive Officer Penny Pritzker listens during the... Read More

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Photographer: Daniel Acker/Bloomberg

PSP Capital Partners LLC Chief Executive Officer Penny Pritzker listens during the "Titans at the Table" Bloomberg Television program in Chicago.

If Penny Pritzker is picked to serve as U.S. commerce secretary, she’ll bring a resume showing a full range of business experiences -- success, failures, tax lawsuits and even squabbling among heirs over trust funds.

She’s developed a Chicago skyscraper, run a luxury senior housing company and served as chairwoman for a credit reporting company.

Her family has also been sued by the federal government over Caribbean tax shelters, been part of the 2001 failure of a bank that specialized in subprime lending, and opposed legislation that would make it easier for unions to organize.

In nominating Pritzker, President Barack Obama would get an accomplished businesswoman who led record fundraising for his 2008 White House race, while also bringing on someone who would provide plenty of fodder for Republican confirmation questioners because of the complex financial portfolio that’s long surrounded the billionaire Hyatt Hotels Corp. heiress.

“If you haven’t been a public figure, it becomes overwhelmingly intrusive,” said Judd Gregg, a former Republican senator from New Hampshire who withdrew his name for commerce secretary while undergoing the vetting process during Obama’s first term. “You are going to get a lot of questions on anything that is a political hot-button and the way you did business.”

Gender Issue

A Pritzker pick would help balance gender in Obama’s second-term Cabinet. The president, who faced criticism after picking men to lead the State, Treasury and Defense Departments, recently named women to lead the Interior Department and the Securities and Exchange Commission.

Republicans previously have tried to use Pritzker’s business background against her and Obama. In 2008, the Republican National Committee posted the headline “Obama’s National Finance Chair owned a failed bank that specialized in subprime lending” on its website.

Still, others with ties to subprime lending and complex financial transactions have been easily confirmed. Former Treasury Secretary Henry Paulson, who served in President George W. Bush’s administration after running Goldman Sachs, was approved by the Senate on a voice vote in 2006.

Philanthropic Family

Pritzker, 53, is the most public face of a family financial dynasty whose net worth has been estimated at more than $15 billion. Although she and her family members are prominent philanthropists -- their names are on galleries in the Art Institute of Chicago, a medical school at the University of Chicago and a concert pavilion in the city’s Millennium Park -- they’re also very private.

Jeannine Jeskewitz, a spokeswoman for The Pritzker Organization, declined to comment for this story.

Pritzker has known Obama since the mid-1990s when she met him on a YMCA basketball court in Chicago, where Obama’s brother-in-law, Craig Robinson, coached one of her children’s teams.

The Obama family began making visits to the Pritzker summer home in Michigan. It was there that Obama first mentioned in 2002 that he was thinking of running for the U.S. Senate in 2004 and wanted her support. Pritzker, who has a law degree and MBA from Stanford University in California, helped him then and also led his 2008 presidential fundraising, which collected $745 million.

After Obama’s victory that year, Pritzker’s name circulated as his top choice for commerce secretary until she issued a statement making clear she didn’t want the job.

Second Term

The president is considering her for a second-term appointment, three people familiar with the matter told Bloomberg News last week. Pritzker’s spokeswoman, Susan Anderson, declined to comment for this story. Eric Schultz, a White House spokesman, said he wouldn’t speculate about appointments, “but I would note that Penny Pritzker is someone who chaired the Skills for America’s Future initiative, and someone who the president respects.”

The timing is better for Pritzker now. Her two children have entered college and her family’s finances are more streamlined.

That’s the result of a decade-long effort, completed in 2011, to restructure the family’s portfolio after heirs alleged in a 2002 lawsuit that Pritzker and two cousins, Thomas and Nicholas, paid themselves too much to run the family enterprise, moved assets to their own trust funds and failed to disclose their actions.

Family Fight

The lawsuit was initially filed by Liesel Pritzker, then a 18-year-old actress and college student. She claimed her father, Robert, had drained her trusts.

Robert Pritzker denied in court documents that he’d done anything wrong and Penny Pritzker and her two cousins did the same. About the same time the case was filed, the family had agreed to a 10-year restructuring where they’d keep some assets, sell others and share a portion with partners or public shareholders as part of a rearrangement of about 950 trust funds through which it controlled their businesses and investments, including a cruise ship line and casinos.

“I call it taking a bowl of spaghetti and untangling it,” Thomas Pritzker, Penny’s cousin, told Bloomberg Markets magazine in 2008.

That overhaul included the 2006 sale of chewing tobacco maker Conwood Sales Co. to Reynolds American Inc. for $3.5 billion and the sale of the Marmon Group, an international conglomerate of manufacturing and service companies, to Warren Buffett’s Berkshire Hathaway Inc. The Marmon transaction, which included a 60 percent stake for $4.5 billion, was announced in December 2007 and is scheduled to be completed by 2014.

Asset Sales

In 2012, the family and Chicago-based Madison Dearborn Partners agreed to sell their TransUnion Corp., a credit reporting provider, to Advent International Corp. and Goldman Sachs Capital Partners for about $3 billion.

The family’s flagship asset, Hyatt, raised $950 million through a 2009 initial public offering. The sale was structured so family members would own about 80 percent of the company’s Class B common stock, representing more than three-quarters of voting power. Hyatt’s November 2009 IPO was priced at $25 a share; it was trading at $41.61 at 1:30 p.m. in New York, a 66.4 percent increase.

The company’s shares were downgraded today to “market perform” from “outperform” at FBR Capital Markets by equity analyst Nikhil Bhalla following a report yesterday that fourth- quarter profit fell 69 percent.

Pritzker’s personal net worth is estimated at more than $1.5 billion, according to the Bloomberg Billionaires Index. If nominated, Pritzker will have to fill out an executive branch financial disclosure form that would provide another window into the family’s fortune and her personal investments.

IRS Lawsuit

Scrutiny of her family’s finances is nothing new for Pritzker, who has been dealing with such questions for decades.

The Internal Revenue Service sued her family to collect taxes from the estate of Abram Pritzker, Penny’s grandfather, after his 1986 death when heirs claimed an estate worth $25,000. The case centered on hundreds of trust funds he’d set up in the Caribbean with the assistance of Chicago attorney Burton W. Kanter, to avoid taxes. The IRS sought $53 million in taxes, before the two sides settled in 1994 for $9.5 million.

That history could trigger questions during confirmation hearings because the president has targeted such tax-avoidance strategies and Democrats made it an issue during his race against Republican Mitt Romney, the multimillionaire co-founder of Bain Capital Partners LLC.

Bank Failure

The 2001 failure of Superior Bank, a pioneer in the securitization of subprime mortgages that was half-owned by the Pritzkers, tarnished the family’s reputation as investors.

Regulators took over suburban Chicago-based Superior after losses depleted capital reserves. Those losses were tied to mortgages involving high-risk borrowers that were packaged as investments, FDIC officials said at the time. The thrift, with $2.3 billion in assets, used improper accounting and record- keeping, they added.

At the time, Superior was one of the nation’s largest bank failures in a decade. About 1,000 customers had about $43 million in uninsured deposits that weren’t covered by the FDIC’s insurance at the time of at least $100,000 per account, the FDIC said. There were $10.2 million in uninsured deposit claims as of Dec. 31, 2012, the regulator said.

The family agreed in December 2001 to pay the government $460 million over 15 years as part of the bank’s collapse. Pritzker, who served as head of the bank’s board until 1994, issued a statement through Obama’s campaign in 2008 that said the bank failed because “regulators concluded the valuation of certain assets in Superior’s financial statements, which had been audited by Ernst & Young and previously approved by regulators, were overstated.”

Labor Tension

The Pritzker family’s dust-ups with organized labor, traditionally part of the Democratic base, have been another source of controversy in recent years and could prompt questions from senators.

The Hyatt chain is being targeted by Unite Here, a union that represents workers in its hotels, because of alleged safety violations and contract disputes. This week, workers picketed outside the company’s downtown Chicago headquarters over the safety of its housekeepers and replacing longtime employees with minimum-wage or temporary workers.

In 2009, Bloomberg News reported Pritzker had told the president that she opposed legislation backed by unions called card check. It would make it easier for unions to organize by persuading a majority of a workplace’s employees to sign cards backing the effort instead of holding a secret-ballot election.

“We believe whoever is selected as the nominee for U.S. Commerce Secretary needs to take seriously the challenge of helping workers achieve full-time jobs with decent wages and safe working conditions,” Dave Glaser, the director of a Unite Here global boycott of Hyatt, said in a statement.

-- With assistance from John Lippert in Chicago and Hans Nichols in Washington. Editors: Jeanne Cummings, Robin Meszoly

To contact the reporter on this story: John McCormick in Chicago at jmccormick16@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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