Ted Cruz Failed To Disclose Ties To Caribbean Holding Company

An old college friendship led to financial entanglement with a Jamaican private equity firm and a British Virgin Islands holding company. Neither was disclosed during his 2012 campaign.

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Texas Republican Senator Ted Cruz potentially violated ethics rules by failing to publicly disclose his financial relationship with a Caribbean-based holding company during the 2012 campaign, a review of financial disclosure and company documents by TIME shows. The relationship originated with a $6,000 investment Cruz made more than a decade ago in a Jamaican private equity firm founded by his college roommate.

When Cruz later reported the financial relationship in 2013, he failed to comply with Senate rules requiring full identification of the holding company and its location, triggering an inquiry by Senate Select Committee on Ethics staff and a second amended disclosure. After additional inquiries by TIME this week, Cruz said he is now in the process making further corrections to his disclosure.

Cruz told TIME Thursday that the initial failure to report the financial relationship was an oversight that he corrected last May on his own initiative in his first filing after his election to the Senate. “It was an omission that was inadvertent,” Cruz said.

He said the later amendment to the May filing was part of the normal interaction with Senate ethics committee staffers. “There is a routine back and forth with the staff with whom you file the report where they make inquiries,” Cruz says. He provided TIME with copies of a number of relevant documents supporting his explanation of the incorrect disclosures.

The legally required disclosures arise from an apparently dormant business relationship, according to documents reviewed by TIME. When his wife, Heidi Nelson Cruz, served in George W. Bush’s Treasury Department in 2003, Ted Cruz went to considerable lengths to disclose his positions to the government, and to divest himself of his Caribbean holdings. But there was one exception.

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In an amended financial disclosure form filed Oct. 1, Cruz said he still holds a promissory note from a Kingston-based company called Caribbean Equity Partners Investment Holdings LTD, worth between $100,000 and $250,000. No company with that name is registered in Jamaica. There is however a dormant Jamaica-based private equity firm called Caribbean Equity Partners Limited of which Cruz was a founding director and preferential shareholder, according to documents filed with the Jamaican government and reviewed by TIME. The firm held $100 million in assets under management in the mid-2000s, according to local news reports, with a focus on service and tourism investments in Jamaica and the Caribbean.

Cruz says he has not had any relationship with the private equity firm since he cashed out an initial investment of $6,000 for a total return of $100,000 a decade ago in a private agreement with his former college roommate, a Jamaican Rhodes scholar named David Panton, with whom Cruz co-founded the firm. Cruz says the agreement yielded him $25,000 in cash and $75,000 in the form of a promissory note on the holding company. The agreement included an oral provision for the accrual of reasonable interest on the debt, Cruz says. He says he initially deferred and then paid capital gains taxes on his profits from the investment.

After inquiries from TIME, Cruz provided a copy of the promissory note, which gives the name of the holding company as CEP Investments Holdings Limited. Cruz says the agreement is effectively an IOU to him from Panton, who is the owner of the holding company. Cruz says that while the holding company operates out of Jamaica, it is in fact domiciled in the British Virgin Islands.

Cruz says he failed to include the promissory note among his assets on his first financial disclosure in July 2012 when he was a candidate for the U.S. Senate because he had forgotten about it. “In 2011, there was an inadvertent omission of this promissory note, and after a conversation with my college roommate I remembered it,” Cruz says. Cruz’s initial filing was made in the heat of his campaign. He was fined $200 for filing the document late.

On his financial disclosure form for the year 2012, filed in May this year, Cruz listed the promissory note and said he received no income from it or the company. Cruz identified the note as a non-publicly traded asset among other holdings, which he listed by their ticker symbols. Cruz said the asset was a “Promissory Note from CEP investments holdings LTD.” Caribbean Equity Partners has no connection to Constellation Energy Partners, the American company with the ticker symbol CEP.

Cruz then received an inquiry from the Senate ethics committee staff about the listing, Cruz and his staff told TIME. The ethics staff told Cruz to amend his filing to indicate the nature of the promissory note, the entity that had issued it, the city in which the entity was located and the date the note had been issued.

Cruz did so in his Oct. 1 amendment, but that filing also contained errors, misnaming the holding company, incorrectly saying it was domiciled in Jamaica, and giving the wrong date for the promissory note. In the filing, Cruz, a former lawyer and magna cum laude graduate of Harvard Law School, lists a wide variety of assets held jointly with his wife, including mutual funds and blue chip stocks totaling between $1.5 million and $4 million. Heidi Nelson Cruz is now an executive at Goldman Sachs.

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There are no absolute Senate prohibitions on being a director of a company or holding shares in, or notes on, a private equity firm or a holding company, according to the Senate ethics rules. However, Senators are not allowed to receive remuneration for directorships or any other positions outside of their government service. While some serve pro bono on the boards of charities, the Senate Ethics Committee advises Senators not to serve on any boards because of potential conflicts of interest that might arise during their service on Senate committees of jurisdiction.

The ethics committee requires [pdf] full disclosure of all financial holdings including any subsidiary investments held by private equity firms and holding companies. The committee requires Senators to provide sufficient information to indicate the locations and nature of the businesses in which they invest.

The Senate ethics committee, which is governed by the Ethics in Government Act, routinely and frequently reviews and requests clarification of public disclosure filings from Senators, and there is nothing unusual about their doing so in the case of Cruz’s May filing. But ethics experts and Cruz’s staff agree that the nature of the relationship Cruz disclosed is unusual.

Cruz’s relationship with Caribbean Equity Partners LTD stems from his long-time friendship with Panton, who was Cruz’s debating partner and roommate at Princeton and Harvard. Panton and Cruz co-founded the company in 1998, and Cruz took a large minority share in the company, according to the firm’s articles of association.

Earlier this year, Panton discussed the relationship in an interview with TIME for a magazine profile of Cruz. When Panton set up a business in Jamaica, he said Cruz was working for a small law firm and “wasn’t making a lot of money.” But, Panton added, “Ted invested a fairly sizable amount of money in my business.”

In 2003, Panton told an established Jamaican newspaper, the Gleaner, that the firm focused on buyouts and mergers and acquisitions in the Caribbean basin and had $100 million in investments under management. The firm’s investments included a $6 million stake in the “Atlantis” tourist attraction in the Caribbean, and positions in a Jamaica-based coffee distributor as well as a hotel chain, according to the newspaper.

Among the firm’s additional sources of capital, according to the paper, were international development organizations, including the Inter-American Development Bank and the Caribbean Development Bank, which contributed to an investment fund established by the Jamaican government that was managed by Caribbean Equity Partners. Other investors included Delta Airlines, according to the paper.

Cruz says that he was only involved in the management of the firm part-time at its early stages. Cruz remains one of four preferential shareholders in Caribbean Equity Partners, according to the firm’s last filing with the Jamaican Office of the Registrar of Companies, which was made on Dec. 31, 2001. Annual filings are required by Jamaican law, according to officials at the Ministry of Industry, Investment and Commerce. Cruz says he does not know the current state of the private equity firm. Cruz says he has not had any relationship with the private equity firm in a decade, is no longer a director or a shareholder, and never received any remuneration other than the $25,000 and the promissory note.

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Cruz says he severed his ties with the company when his wife went to work at the Treasury Department during the administration of George W. Bush. “I sold my interest in it years ago,” he says. He provided TIME with a letter from an official at the Office of Government Ethics certifying his divestiture from three blocks of shares in two separate firms. The letter allowed Cruz to defer taxes on the capital gains from his initial $6,000 investment when he rolled the cash profits into another investment, Cruz says. Eventually, he says, he paid capital gains on the profits, using a $6,000 basis for the calculation.

One of the firms listed on the divestiture certification was Caribbean Equity Partners Limited (Jamaica), the firm in which Cruz was a director and in which he held ordinary and preferential shares. The other was Caribbean Equity Partners Limited (British Virgin Islands), an entity about which little is known. Cruz says it is not the same as CEP Investment Holdings Limited, the company on which Cruz currently holds the promissory note.

Panton now lives in Atlanta, Ga., where he is a partner and co-founder of Navigation Capital Partners. He did not return repeated calls requesting an interview this week. Cruz said he spoke with Panton this week to clarify his disclosure. Company documents list two directors of Caribbean Equity Partners in addition to Cruz and Panton. Neither returned calls for this story.

With reporting by Alex Altman/Washington, D.C.

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