Pri­vate-eq­uity money backs e≠ort to kill Calif. law meant to help the poor

Pe­ti­tion cam­paign is the lat­est sign that such money is reach­ing into more re­mote cor­ners of the econ­omy

The Washington Post Sunday - - BUSINESS - BY PETER WHORISKEY

san diego — A com­pany backed by pri­vate eq­uity is fi­nanc­ing a cam­paign to re­peal Cal­i­for­nia’s land­mark crim­i­nal jus­tice law in­tended to help the poor.

The new law would have the ef­fect of killing the state’s bail­bond com­pa­nies, and in re­sponse, a few in the in­dus­try have raised more than $2.5 mil­lion to re­peal the mea­sure. The largest share of that, al­most $800,000, comes from Tri­ton, a bail com­pany owned by En­deav­our Cap­i­tal, an Ore­gon-based pri­vate-eq­uity firm that has man­aged bil­lions of dol­lars in in­vest­ments.

The do­na­tions are pay­ing for an army of cam­paign work­ers that have de­scended on Cal­i­for­nia’s shop­ping cen­ters to be­seech passersby to sign a pe­ti­tion. The cam­paign, which needs 365,880 names to put the mea­sure be­fore vot­ers in 2020, pays the side­walk solic­i­tors a few dol­lars for each sig­na­ture — the go­ing rate around San Diego was $3.25. Arith­meti­cally, the do­na­tions may be enough to de­lay the law’s im­ple­men­ta­tion for at least a year.

“You go­ing to help me out, sweet­heart?” asks a woman with long false eye­lashes ac­cost­ing shop­pers at a Wal­mart in ex­ur­ban San Diego.

“Señora, es usted un votante? Would you mind sign­ing?” says a clip­board man in a Spi­der-Man T-shirt at an­other Wal­mart.

“Hello, shop­pers,” says a man in a Los An­ge­les Chargers hat at yet an­other San Diego-area Wal­mart. “Do you have a minute to keep dan­ger­ous crim­i­nals in jail?”

The im­pe­tus for the new law arose from crit­ics who say the bail sys­tem leads to the in­car­cer­a­tion of many de­fen­dants who pose no threat to so­ci­ety and lan­guish in jail merely be­cause they are poor.

Un­der the new law, courts would de­cide who should be

re­leased, bas­ing their de­ci­sions on de­fen­dants’ records, the na­ture of the ac­cu­sa­tions and other fac­tors.

The leg­is­la­ture passed the bill by a wide mar­gin, and Gov. Jerry Brown (D) signed it on Aug. 28, say­ing that “to­day, Cal­i­for­nia re­forms its bail sys­tem so that rich and poor alike are treated fairly.”

Shortly af­ter­ward, how­ever, op­po­nents be­gan the pe­ti­tion drive, an ef­fort that state Sen. Robert M. Hertzberg (D-Van Nuys), who spon­sored the leg­is­la­tion that Brown signed into law, called “naked cap­i­tal­ism.”

“Voter ref­er­en­dums are sup­posed to be about di­rect democ­racy — now wealthy peo­ple can sim­ply write big checks,” Hertzberg said of the pe­ti­tion­ers for hire. “The re­al­ity is that Cal­i­for­nia is the big­gest bail mar­ket and has the high­est bail rates in the coun­try. If these com­pa­nies can de­lay it for a year, they can make money for a year.”

By en­gag­ing in a statewide po­lit­i­cal cam­paign, the pri­va­tee­quity com­pany may bring a level of pub­lic­ity that in­vestors of­ten pre­fer to avoid. But if en­acted, the new law is likely to be ru­inous to En­deav­our’s in­vest­ment: With­out bail re­quire­ments in court, cus­tomers for the bail­bond com­pa­nies would van­ish.

John E. von Sch­legell, co­founder of En­deav­our Cap­i­tal, wrote in an email that “as board mem­bers we are aware of the ref­er­en­dum but we are not in­volved in any of the de­tails here at En­deav­our.”

“The com­pa­nies we in­vest in de­ter­mine their own ad­vo­cacy on is­sues that range from LGBTQ causes to home­less­ness to unions to health care,” von Sch­legell wrote. “En­deav­our has not taken a po­si­tion on this ref­er­en­dum, or any bal­lot mea­sure for that mat­ter . . . . We do sup­port the com­pany’s goal to con­tinue to op­er­ate (legally and eth­i­cally) in Cal­i­for­nia.”

He rec­om­mended that The Wash­ing­ton Post talk to ex­ec­u­tives of Tri­ton, the bail firm that En­deav­our owns.

Tri­ton ex­ec­u­tive Herb Mut­ter said the com­pany made the do­na­tion be­cause the new law “would wipe out the bail in­dus­try in Cal­i­for­nia.”

He added: “We also think it is not good law. The no­tion that peo­ple are lan­guish­ing in jail merely be­cause they are poor is not sup­ported by the facts.”

An un­usual in­dus­try pro­file

Al­though the bail-bond in­dus­try has been char­ac­ter­ized in the past by small store­front busi­nesses op­er­at­ing near county court­houses, En­deav­our’s bail com­pany is of a larger scale, and its back­ing by a pri­vate-eq­uity firm cre­ates an even more un­usual pro­file within the bail in­dus­try.

In their search for prof­its since the re­ces­sion, pri­vate-eq­uity firms have ex­plored new mar­kets and in­creas­ingly in­vested in com­pa­nies serv­ing the poor and vul­ner­a­ble. They have bought up pay­day lenders, de­ten­tion cen­ters, nurs­ing homes, prison phone ser­vices and homes for low-in­come renters, ac­cord­ing to the Pri­vate Eq­uity Stake­holder Project, a non­profit group that has tracked the in­dus­try.

Like­wise, in 2012, En­deav­our Cap­i­tal in­vested in Tri­ton and owns al­most two-thirds of the com­pany, ac­cord­ing to 2017 state fil­ings. It owns a sim­i­lar stake in an af­fil­i­ated in­surer, Seav­iew Surety, which un­der­writes the bail amounts.

The Tri­ton bail com­pa­nies op­er­ate un­der the name Aladdin, and last year, the Aladdin com­pa­nies put up about $700 mil­lion in bail in Cal­i­for­nia, ac­cord­ing to Post es­ti­mates that are based on in­sur­ance fil­ings.

“Aladdin fulfills a con­sti­tu­tional right for its cus­tomers by pro­vid­ing ex­pe­di­tious pre­trial re­lease while en­sur­ing a high rate of court ap­pear­ances,” ac­cord­ing to En­deav­our’s web­site. It says that Tri­ton is also the “the largest re­tail pre­trial re­lease ser­vice provider in Amer­ica.”

Al­though En­deav­our touts the con­sti­tu­tional un­der­pin­nings of its ser­vices, some le­gal schol­ars have looked askance at the bail­bond sys­tem.

In most states, peo­ple charged with crimes post bail money to be re­leased be­fore trial. The bail amount is sup­posed to en­sure that a de­fen­dant will re­turn for the next court date. If the de­fen­dant shows up for trial, the bail money is re­turned.

Crit­i­cism of the sys­tem arises be­cause many de­fen­dants — about a third of the peo­ple in Cal­i­for­nia’s jails, Hertzberg said — can­not af­ford bail.

Some low-in­come de­fen­dants sim­ply sit in jail. Oth­ers turn to bail-bond com­pa­nies, which put up the bail on their be­half. The com­pa­nies typ­i­cally charge the de­fen­dants or their fam­i­lies 10 per­cent of the bail amount for this ser­vice. For ex­am­ple, if a judge sets bail at $10,000, the de­fen­dant pays the bail-bond com­pany $1,000, and the bail­bond com­pany puts up the $10,000.

When the de­fen­dant shows up for trial, the bail-bond com­pany gets its money back. It gen­er­ally does not re­turn the $1,000 to the de­fen­dant, how­ever.

“If you or your loved one has been ar­rested, Aladdin Bail Bonds guides you through ev­ery step of the bail process, help­ing make get­ting re­leased from jail sim­ple and fast,” Aladdin says on its web­site. “We are the largest, most trusted and most cost-ef­fec­tive bail ser­vice provider in Cal­i­for­nia.”

Four states — Illi­nois, Ken­tucky, Ore­gon and Wis­con­sin — have largely banned com­mer­cial bail-bond com­pa­nies. Many other states are weigh­ing re­forms, too.

In pursuit of sig­na­tures

It is un­clear, how­ever, what will hap­pen in Cal­i­for­nia. The re­peal cam­paign ap­pears to have enough money to gather the re­quired sig­na­tures — enough that it re­cently raised the pay per sig­na­ture around San Diego from $2.25 to $3.25. It has un­til Nov. 26 to pre­sent the sig­na­tures to state of­fi­cials.

If the re­peal ques­tion gets to vot­ers, more­over, the pol­i­tics many be in­tri­cate and con­fus­ing, high­light­ing in­tra­party di­vi­sions.

Al­though the bill re­ceived broad sup­port in the leg­is­la­ture, the coali­tion of pro­gres­sive groups that sup­ported bail re­form has splin­tered. Most no­tably, the Amer­i­can Civil Lib­er­ties Union, which has long cam4,000 paigned for changes to the bail process, with­drew its sup­port for the bill be­cause, the group said, the law as crafted could lead to more de­fen­dants be­ing held.

“As much as we would wel­come an end to the preda­tory lend­ing prac­tices of the for-profit bail in­dus­try, [this bill] can­not prom­ise a sys­tem with a sub­stan­tial re­duc­tion in pre­trial de­ten­tion,” the ex­ec­u­tive di­rec­tors of Cal­i­for­nia’s ACLU af­fil­i­ates said in a state­ment. “We op­pose the bill be­cause it seeks to re­place the cur­rent deeply flawed sys­tem with an overly broad pre­sump­tion of pre­ven­tive de­ten­tion.”

Jeff Clay­ton, ex­ec­u­tive di­rec­tor of an in­dus­try group known as the Amer­i­can Bail Coali­tion, echoed the ACLU, say­ing the new sys­tem will mean that more peo­ple — not fewer — will be locked up pend­ing trial.

“They’re go­ing to lock ev­ery­one up. They’re go­ing to have an al­go­rithm to de­cide who stays in jail. And no one’s go­ing to be able to post bail,” Clay­ton said. “On all three counts, it’s a fail­ure.”

Out in the shop­ping cen­ters where sig­na­tures were be­ing gath­ered, how­ever, the is­sue aroused mainly con­fu­sion or ap­a­thy or worka­day greed. Some sig­na­ture col­lec­tors were un­sure of what the pe­ti­tion would do. If they couldn’t an­swer a ques­tion, they shrugged and said, “We’re just try­ing to let the vot­ers de­cide.”

They were clear, how­ever, on the mone­tary value of each sig­na­ture.

Steve Burke, a re­tired IT worker, was ap­proached by a pe­ti­tion so­lic­i­tor last week as he was leav­ing a store.

“No, I won’t sign your pe­ti­tion,” he said.

Turns out, he’s in the pe­ti­tion busi­ness him­self. “I could make a few bucks on my own name,” he ex­plained.

Whether the pe­ti­tion gath­er­ers un­der­stand or care about the law or its re­peal is also dif­fi­cult to fathom. A so­lic­i­tor out­side the Wal­mart in Na­tional City was asked which side he sup­ported.

“Toe-may-toes, toe-mah-toes,” he said, shrug­ging. “It’s just money to me.”

“The re­al­ity is that Cal­i­for­nia is the big­gest bail mar­ket and has the high­est bail rates in the coun­try. If these com­pa­nies can de­lay [the new law] for a year, they can make money for a year.” Robert M. Hertzberg (D), state sen­a­tor who spon­sored the bail-re­form bill


Bail-bond com­pa­nies owned by a pri­vate-eq­uity firm are pay­ing peo­ple in Cal­i­for­nia to gather sig­na­tures for a bal­lot mea­sure to over­turn a new law that elim­i­nates the use of cash bail in the state.

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