It’s not often that an employer sees fit to interject itself into the marital affairs of its executives.
But Capital Group Cos., the downtown Los Angeles money manager, is no ordinary employer. Fiercely private, the company convinced L.A. County Superior Court Judge John Sandoz to shield from public view sensitive parts of the divorce trial of one of its executives, Timothy Armour, and his wife, Nina Ritter.
Sandoz has closed the trial for opening statements and any testimony involving Capital’s financial information, including the testimony of James Rothenberg, Capital’s chief investment officer.
More than anything, the case highlights the extent by which Capital Group, a privately held company owned by 300 shareholders, is willing to go to keep information about its stock and executive compensation out of the hands of the public. The case also marks a trend in which wealthy individuals have sought to block public dissemination of financial information in contentious divorces
The divorce trial is focused on whether Ritter has the right, under California community property laws, to half of the private stock in Capital Group being held in a joint trust with her estranged husband.
Capital does not allow non-employees to hold its shares and has offered to cash out Ritter’s half of the trust. But Ritter wants to hold onto the shares she expects their value to rise dramatically and wants to avoid paying capital gains taxes. The trust is estimated to be worth as much as $100 million.
“This kind of information about corporations is revealed every day in courtrooms across the country,” said Susan Seager, a lawyer at Davis Wright Tremaine LLP, who represents the Los Angeles Times.
‘Trade secrets’
The Capital Group divorce case shares common elements with the high-profile divorce earlier this year of billionaire investor Ronald Burkle and his wife, Janet. In December, Burkle’s lawyers invoked a new state law to get dozens of documents in his divorce trial sealed. That case is still in litigation.
In court last week, Seager said Capital Group sought to block information that did not constitute “trade secrets.” She said there was no reason for the court to apply a different rule for family proceedings compared with civil trials.
Representing Capital Group, Latham & Watkins attorney Pamela Palmer had called for a gag order in the case. At one point, Palmer argued that any information Ritter learned about Capital during the couple’s 19 years of marriage could not be admissible in court.
“I would be willing to surmise that Mrs. Ritter is aware of the income and some of the financial details of the petitioner,” Sandoz said in agreeing to limit Ritter’s comments to the media to any information obtained prior to January 2003, when Armour moved out of the family residence.
Capital Group, the third-largest mutual fund company in the U.S. behind Fidelity Investments and Vanguard Group, maintains that as a private company it is entitled to keep its financial information private.
“Somebody who says that we are a secretive organization does not know us or understand us,” said Capital spokesman Chuck Freadhoff. “We’re privately owned and we’re quiet, we don’t seek to promote ourselves, we seek only to provide the best long-term investment results possible for our shareholders.”
Capital maintains a corporate culture that is based on the long-term investment strategy and values of its founder, Jonathan Bell Lovelace, who cashed out a 10 percent stake in a Detroit brokerage firm a month before the 1929 stock market crash.
Lovelace is considered a pioneer in the field of fundamental stock research. His son, Jon Lovelace Jr., helped create the firm’s “multiple portfolio counselor system,” which gives each money manager a slice of a fund to manage rather than the whole fund in order to smooth out volatility and guard against risky moves.
Low turnover
The company is known for being run by committee. It has a reputation for paying its employees so well that there is almost no turnover, and many workers stay for life. In just one example of the way in which it shuns the star system of most mutual fund companies, Capital Group’s management committee has a rotating non-executive chairman who holds the top title for two years. Its five subsidiaries American Funds, its marketing arm; Capital Guardian, which advises large institutions; Capital Research, Capital Bank and Trust and Capital International operate the same way.
Last year, Capital Group attracted $65 billion in new investments roughly one in every three new dollars invested in mutual funds. Its assets have ballooned to nearly $900 billion, from $200 billion in 1995, and $25 billion in 1985.
The company spends no money on advertising, and instead pays brokerage firms to sell its mutual funds. Last month, American Funds lost a bid to throw out a lawsuit by California Attorney General Bill Lockyer, who is seeking more disclosure of fees paid to brokers who sell them.
Freadhoff points out that Capital Group recently cut its management fees and placed the information on its Web site so the public would know about it.
Capital Group is also being investigated by the Securities and Exchange Commission and the National Association of Securities Dealers on allegations that it gave commissions to brokerage firms that sold its mutual funds.
In May, Capital hired Paul F. Roye, the former chief of the SEC’s mutual fund oversight unit; his duties include federal and state compliance.
