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— 'The Parsky team" is now famous -- as well as infamous -- in Rancho Santa Fe. There is another "Parsky team" in the secrecy- shrouded Caribbean tax haven of the Cayman Islands, but that's barely known at all, just as its creators intended.

Until recently, multimillionaire Gerald "Gerry" Parsky -- chairman of the University of California board of regents and George W. Bush's main advisor in California -- was better known in the state than he was in Rancho Santa Fe, where he has occupied a horsy estate for 16 years. He takes his own jet in the morning to Westwood, where he is chairman and a founding partner of Aurora Capital Group, which acquires companies with borrowed money and attempts to rake in bucks by offering the stock to the public.

He largely kept to himself in his well-heeled hometown hamlet until he took a leading role in Proposition H, the bitterly contested June 6 vote on a site for a new Rancho Santa Fe school. He vociferously opposed it, donating funds for its defeat and filing two lawsuits against it. He and his fellow opponents became known as the "Parsky team." Since traffic changes caused by the proposed school would discommode equestrians, school proponents said Parsky cared more about horses' comfort than children's education -- a rather hypocritical stance for the UC system's top regent.

Parsky claims he is not a hypocrite: his main point was that the new school would cost far more than the average school. Bond proponents grinned: Rancho Santa Fe's financial geniuses should realize that land in their area will cost more than land in, say, National City.

In any case, the proposition failed to get the 55 percent it needed to pass. Rancor will intensify. The current school was built for 600 students and has 837, housed in 17 portable classrooms. Whatever happens, Parsky will be both adored and despised. But he is used to that. As a moderate Republican, he is regularly assaulted by conservatives. They even have a website, Parskywatch.com, which flays him, although it hasn't been too active lately.

By contrast, his adventures in the Cayman Islands have been hush-hush, buried deep in turbid prose in the financial filings of companies that Aurora took over and subsequently took public. When taking control of companies, Aurora Capital set up entities in the Cayman Islands controlled by the Aurora partners, including Parsky.

This strategy raises numerous questions, as do most corporate adventures in offshore tax and secrecy havens. There are no capital gains taxes in the Caymans. Nor are there corporate or personal income taxes, withholding taxes, gift or inheritance taxes, sales taxes, or employment taxes.

I asked one of San Diego's foremost securities lawyers, who did not want to be identified, about Aurora's Cayman Islands entities. The response: "It probably means hidden ownership or tax avoidance," although there could be other explanations.

David Dunn of La Jolla's Idanta Partners has long been San Diego's most prominent venture capitalist. (Last fall he sold his La Jolla house for $24.5 million.) Without identifying Parsky or Aurora, I described to Dunn the Caymans structures. "There are several reasons people locate over there. I have never done it," says Dunn. "Lack of disclosure requirements is one, and two is tax avoidance." Such an offshore operation can relieve a U.S. company of "a lot of securities regulations in the U.S. and a lot of disclosure rules." The company may be able to delay disclosure of deals. Use of offshore havens can facilitate asset transfers within families too.

"It's bad to generalize," says Dunn. "There may be other reasons and valid reasons." The big tax advantage could be on relief from capital gains taxes when shares are sold, he says.

I both e-mailed and faxed detailed inquiries to Parsky, giving him more than four days to answer questions about Aurora's Cayman Islands units. I heard nothing.

I scoured documents filed with the Securities and Exchange Commission. In 1994, Aurora Capital organized a company called Aftermarket Technology, which distributes rebuilt auto and truck parts. To put the company together, Aurora purchased four auto parts companies. Aftermarket is now based near Chicago.

In late 1996, Aurora made a public offering of the shares. Aurora Equity Partners, based in the United States, had 10.7 million shares. A group of Cayman Islands-based entities with the name "Overseas" in them had 4.5 million shares. Parsky and his partners controlled much of the Caymans-domiciled shares. One filing put it coyly: "Parsky has a pecuniary interest in an indeterminable portion of these [Caymans] shares."

The insiders such as Aurora paid $1.67 per share, and outside investors paid $13.50 each.

By late March of 2005, the Aurora entities, including those based in the Caymans, had sold all their shares for between $14 and $18. Parsky shortly resigned from the board.

In late 2004, the Aurora group paid $1 billion for K&F Industries, which makes aircraft wheels, brakes, and brake-control systems. It's the largest supplier of wheels and brakes to the U.S. military. Aurora financed the buyout mainly with debt and in 2005 took the company public. Most of the proceeds from the offering went to pay off the debt incurred for the buyout and to pay a fat dividend to the insiders. The prospectus warned, "We do not intend to use any of the proceeds of this offering to grow our business or develop new products, which could negatively impact the value of your investment." In short, the leveraged buyout had little economic purpose other than to enrich the insiders. It's called financial engineering.

K&F had been spun off by Loral, a bankrupt aerospace company. When Aurora took K&F public, there were accounting changes made. "It's buyer beware on this kind of stuff," analyst Francis Gaskins of Ipodesktop.com told Reuters at the time. In addition, he was concerned about the debt piled up in the buyout. K&F warns in its filings that it has "substantial debt," now two-thirds of its capitalization.

The Aurora partners, including Parsky, own more than half of K&F (now called K&F Industries Holdings) through both domestic and Cayman Islands entities. The Caymans units have names like Aurora Overseas Equity Partners II and Aurora Overseas Capital Partners II.

The K&F insiders, including the Caymans units, paid $2.16 a share, and the new investors paid $17.50. When Aurora partners start selling their shares, questions will be raised: Are capital gains taxes being paid? Is Aurora taking advantage of other offshore tax breaks? Is Aurora dodging some disclosure requirements? Are there hidden partners taking shelter in the Caymans? If Aurora is not using the tax and secrecy advantages offered by the Caymans, why bother setting up these entities?

Parsky's Statement of Economic Interests for 2005, required for his UC post, shows that he had $10,001 to $100,000 in Aurora Overseas Capital Partners II. But the document doesn't list its address. Nor does it list other Aurora "Overseas" entities. It mentions that Parsky had stock and "indirect interests" in Aftermarket.

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