Commerce pick found problems, profits in Rust Belt
WASHINGTON — Wilbur Ross, Donald Trump’s choice for Commerce secretary, has a history of salvaging failing ventures — including, at one point, Trump’s own.
Now worth an estimated $2.9 billion, Ross grew up in an affluent New Jersey suburb before heading to Yale University, Harvard Business School and Wall Street. A specialist in bankruptcies, Ross headed the restructuring practice at investment banking firm Rothschild Inc. when Trump’s bad bets in the Atlantic City casino industry had put him on the verge of losing everything. Ross convinced creditors to drop a plan to strip Trump’s name and ownership from the Taj Mahal Casino, a victory that set the stage for Trump’s eventual resurrection.
“The Trump name added value,” Ross told Businessweek in 1992.
In 2000, Ross departed Rothschild to launch his own private equity firm. The work brought Ross to the heart of struggling industries including textiles, subprime mortgage servicing, steel and coal: the more troubled, the better. But his time in the coal industry included a disaster that cost 12 lives at the Sago Mine in West Virginia, and the mortgage servicing business drew complaints about business practices that ended in a national legal settlement.
The essence of the work was to buy failing companies, repair them to make them presentable to investors and then exit the investment through a sale or public offering; Ross’ venture into coal mining followed the same pattern and achieved similar financial success. Starting in 2001, Ross began buying up coal companies and merging them into the International Coal Group, or ICG. The company declared itself to have an excellent safety record before it raised $250 million in a 2005 public offering.
Just weeks later, a methane explosion killed one miner at the company’s Sago Mine in West Virginia and trapped a dozen others — 11 of whom later died of carbon monoxide poisoning before rescuers could reach them. In the aftermath of the disaster, attention turned to the mine’s past safety violations — including ventilation failures, the excessive buildup of flammable gases and partial collapses of the mine’s roof.
Ross acknowledged that he was aware of the mine’s history of safety violations but said he believed its operation was safe.
“Oh, my God, it’s the worst week of my entire life,” Wilbur Ross said at the time. The publicly traded International Coal Group gave $2 million to the miners’ families — and Ross personally matched donations to a fund, according to Don Nestor, an attorney who oversaw it.
The fund raised $1.36 million, according to New York state tax filings, suggesting that Ross’s contribution was less than $700,000.
Ross’ company also formed International Steel Group in 2002 through the purchase of LTV Steel and Acme Steel. ISG also owned the former Weirton Steel Corp. until being acquired by Mittal Steel in 2005.
Ross did not respond to a request for an interview made to his firm, WL Ross & Co. The firm sold International Coal Group in 2011, for $3.4 billion.
After the disaster, the AFL-CIO accused International Coal Group of hiding the safety risks of its mining operations ahead of the initial public stock offering.
“We believe that the failure of ICG to disclose material information relating to mine safety prevented the normal processes of oversight and accountability by the capital markets from addressing mine safety at ICG’s Sago Mine, substantially contributing to the deaths of 12 miners,” the secretary of the AFL-CIO wrote in a letter cited by the Charleston Gazette-Mail.
Family members of the miners who died sued Ross, ICG and the manufacturers of equipment that allegedly failed to perform as expected. Central to the lawsuit were details about more than 200 documented safety lapses that occurred at the mine in the year leading up to the disaster.
Arch Coal, which inherited some of the lawsuits, settled the last of them in 2011.
The Sago mine disaster prompted a re-evaluation of regulation and safety protocols for coal mining. But it doesn’t appear to have altered Ross’s approach to regulation.
“There is no evidence that more regulation makes things better,” Ross told Fortune Magazine in a 2010 conversation about the financial crisis.
Ross also bought a mortgage services company that was faulted for misconduct following the housing market collapse. After acquiring subprime mortgage specialist Homeward Residential from a 2007 bankruptcy, Ross’s investment firm pushed heavily into the business of servicing troubled mortgage loans.
But the mortgage-servicer ran into trouble and was sold in 2012 amid investigations into its business practices. The company’s new owner, Ocwen Financial Corp., settled a lawsuit with 49 attorneys general and the U.S. Consumer Financial Protection Bureau alleging falsified affidavits and misconduct both by Ocwen and Homeward during the time it was under Ross’s control.