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Internet Picks Presidential Candidate If Ackerman Gets His Way

By Kambiz Foroohar
January 04, 2012 12:01 AM EST
Peter Ackerman, chairman of Americans Elect, second left, speaks  while Chief Leadership Officer Wendy Drake, left, Chief Executive Officer Kahlil Byrd, second right, and Elliot Ackerman, chief operating officer of Americans Elect, right, listen at company headquarters in New York,  Nov. 22, 2011.
Photographer: Brian Finke/Bloomberg Markets via Bloomberg
Peter Ackerman, chairman of Americans Elect, second left, speaks while Chief Leadership Officer Wendy Drake, left, Chief Executive Officer Kahlil Byrd, second right, and Elliot Ackerman, chief operating officer of Americans Elect, right, listen at company headquarters in New York, Nov. 22, 2011.

It’s just after 8 a.m. on Nov. 11, and Peter Ackerman is staring at red numbers flashing on an electronic board. He sees 2,008,069.

“That’s 2 million Americans who have signed on to having another candidate on the presidential ballot,’’ he says, beaming, in the Manhattan offices of the marketing agency for Americans Elect, the group he’s backing with more than $5 million.

Ackerman, 65, who made more than $300 million working alongside Michael Milken at Drexel Burnham Lambert Inc.’s Beverly Hills, California, offices in the 1980s, is Americans Elect’s chairman and top donor. He wants to circumvent U.S. politics-as-usual by letting voters choose a presidential candidate via the Internet who, with a running mate from a different political party, will appear on every state ballot for the 2012 election, Bloomberg Markets magazine reports in its February issue.

Americans Elect is the latest manifestation of Ackerman’s passion for grass-roots democracy -- an interest that has divided his attention during his career as a financier. At Drexel, he raised billions of dollars for junk-bond-fueled takeovers in the 1980s. He helped secure $5 billion for Kohlberg Kravis Roberts & Co.’s $31.3 billion buyout of RJR Nabisco Inc., (2547Q) the deal immortalized in “Barbarians at the Gate.”

‘Nonviolent Conflict’

Today, he’s the majority shareholder of FreshDirect Holdings Inc., a Web-based grocer operating around New York. Former FreshDirect Chief Executive Officer Rick Braddock says he saw another side of Ackerman in 2011 when Ackerman promoted a nephew as CEO after summarily ousting Braddock and three directors.

Ackerman embraces the idea that nonviolent resistance works better than armed conflict to effect political change -- a concept gaining ground around the world. He says strikes, boycotts and protests can undermine despotic governments.

“The whole idea of nonviolent conflict is to get elements inside the authoritarian regime to defect,’’ he says.

In 1983, he helped set up the Albert Einstein Institution in Cambridge, Massachusetts, run by political science professor Gene Sharp, whose “From Dictatorship to Democracy” advises pro-democracy activists on how to topple dictators via protests and mock elections. The work has been translated into 34 languages.

‘He’s Unstoppable’

Ackerman, who has co-written two books on nonviolent resistance, formed the Washington-based International Center on Non-violent Conflict in 2002. In 2005, he co-wrote a study showing that non-violent action had been instrumental in 50 of 67 transitions to democracy since 1972, including in Chile, the Philippines and Poland.

He has funded workshops for dissidents from Central Asia, Iran, Iraq and North Korea, says Robert Helvey, a former U.S. Army colonel who taught some sessions. Ackerman also funded the Center for Applied NonViolent Action and Strategies, which was started in 2003 by student leaders who’d helped bring down Serbian dictator Slobodan Milosevic three years earlier. Some members of Egypt’s April 6 movement, which toppled President Hosni Mubarak, took civil resistance training from Canvas organizers in Belgrade.

“When he’s passionate about something, he’s unstoppable,’’ says Mark Palmer, a former U.S. ambassador to Hungary.

Ending Partisanship

With Americans Elect, Ackerman wants to reduce the partisanship that he says makes U.S. politics dysfunctional. The group gained its first candidate on Nov. 30: former Louisiana Governor Buddy Roemer, a Republican.

“The American people are far more moderate than the two parties,’’ Ackerman says, wearing a navy sweater over a pinstriped shirt during a rare media interview at LBi International NV (LBI), where Ackerman has come to track Americans Elect’s progress. “There is a strong sense of disenfranchisement.’’

A third-party victory is highly unlikely, says John Sides, a political science professor at George Washington University. The best showing in the past century was by a former president, Theodore Roosevelt. He went on to run as the Progressive Party nominee in 1912 and placed second in that election. In 1992, billionaire Ross Perot captured 19 percent of the popular vote and finished third.

‘Very Romantic’

“The idea that there are wealthy centrists who for the common good are prepared to enter the race is very romantic, like angels sent from heaven,’’ Sides says.

Even so, Ackerman isn’t alone in his frustration.

“I don’t have the confidence at this point that the major parties will really come to grips with our problems,’’ says John Burbank, founder of San Francisco hedge fund Passport Capital LLC, who sits on Americans Elect’s advisory board.

Upward Spiral, backed by Starbucks Corp. (SBUX) founder Howard Schultz, urges Americans to withhold donations from both parties to protest the divisive climate. He doesn’t advocate a third party.

To overcome partisanship, Americans Elect’s rules call for a ticket where the presidential candidate picks a vice president from a different party. Any registered voter who signs up on the group’s website becomes a delegate who can draft candidates, submit questions and vote in Americans Elect’s online primaries.

Americans Elect must meet state requirements for signatures from registered voters to get a candidate on the ballot, says J. David Gillespie, a professor at the College of Charleston in South Carolina who studies third parties. As of early January, the group, aided by Peter’s son, Chief Operating Officer Elliot Ackerman, had ballot slots in 13 states, including California. Americans Elect hasn’t yet secured a place on the presidential ballot in Iowa, where Republicans held caucuses on Jan. 3 to select their nominee.

‘Unique Experiment’

“It is a unique experiment,’’ says Larry Sabato, director of the Center for Politics at the University of Virginia.

Ackerman says he examined results from about 15 focus groups to gauge support for a third-party candidate.

“If there is a new way to elect our leaders, we are all in,’’ he says the findings show.

Americans Elect is not fully transparent with the American people, says Fred Wertheimer, president of Democracy 21, a Washington campaign finance advocacy group. Americans Elect changed its tax designation to be a 501(c)(4) group, named for a section of the U.S. tax code, meaning it’s a social welfare organization that doesn’t have to divulge donor identities.

“The idea that a political party, whose sole purpose is to nominate and elect candidates for office, can also be a social welfare organization for tax purposes is an oxymoron,“ Wertheimer says.

Tax Status Change

Until Oct. 1, 2010, Americans Elect was registered as a tax-exempt 527 political organization and its tax records were publicly available. Ackerman, the only major funder at that point, had donated $1.55 million. Based on those records, more than half of Americans Elect’s $1.3 million in expenditures from March to September 2010 went to members of its 50-strong advisory board.

All told, Americans Elect raised $22 million as of mid- December, mainly from about 55 people who have given more than $100,000 apiece, Ackerman says.

The status change gives donors the anonymity they want, says Kahlil Byrd, Americans Elect’s chief executive officer. Wendy Drake, the group’s chief leadership officer, is in charge of recruiting top donors. Wertheimer says he has written to the Internal Revenue Service challenging the legality of the change.

FreshDirect Infighting

At FreshDirect, Ackerman has shown an autocratic side, former CEO Braddock says. Braddock sued the company in July, accusing Ackerman of breach of fiduciary duty. He says Ackerman has refused to pay him severance, unfreeze his $6.5 million investment or even talk of settlement.

“Ackerman pulled out the rug,’’ Braddock says. “Ackerman has his son heading Americans Elect and his nephew running FreshDirect. Nepotism has apparently worked for him.’’ Jason Ackerman, 44, Peter’s brother’s only son, co-founded FreshDirect in 1999. Peter Ackerman invested $65 million and acquired 83 percent of the stock for a penny a share in 2000. He remained chairman until 2005, when Braddock got the post. Ackerman’s stake has declined to about 50 percent as the company has raised capital from other investors.

Braddock, formerly CEO of online travel company Priceline.com Inc., (PCLN) says FreshDirect was near failure when he took over as CEO in 2008. Many new customers were placing only one or two orders before they abandoned the website, he says. He focused on service and introduced daily reports to track operations. FreshDirect revenue grew 9 percent in 2009 and 20 percent a year later, Braddock says.

Surprise Call

Given the improvement, Braddock says he was surprised by a Feb. 6, 2011, phone call in which Ackerman complained in expletive-filled language that Braddock had changed a board meeting date without consulting him. Three weeks later, Ackerman fired three independent directors. Two days after that, Braddock says the winnowed board told him to leave the company. Jason Ackerman became CEO two months later.

FreshDirect’s shareholder agreement allows Ackerman to appoint and fire directors, says his lawyer, Thomas Richardson at Arnold & Porter LLP. Ackerman says the board had already agreed in January to seek a new CEO and he was exercising his right as majority shareholder to dismiss directors.

“They were independent in terms of view,’’ Ackerman says of the three he fired. “But they served because I had a right to pick them and a right to unpick them.’’

Ackerman’s actions raise a red flag, says Eleanor Bloxham, CEO of Value Alliance Co., a consulting firm in Westerville, Ohio.

‘No Radical’

“He may have had the right to fire the directors, but it’s not good corporate governance,’’ she says. “Directors are not just there to look after the interests of the major shareholder.’’

Ackerman has spent decades studying political power and how to challenge it. After getting a degree in political science at Colgate University in Hamilton, New York, he headed to Tufts University’s Fletcher School in Boston in 1968 to pursue international relations.

“Those were tumultuous times, but Peter was no radical,’’ says Hans Binnendijk, a fellow student who’s now vice president for research of the National Defense University.

Ackerman met Joanne Leedom, who became his wife, at Fletcher.

“For his first date, we all went to a lecture and then came back and played tabletop ice hockey,’’ Binnendijk recalls.

Ackerman remembers pondering why the U.S. was losing in Vietnam.

“I became interested in why people with more military hardware don’t necessarily win,’’ he says.

Studying Gandhi

Ackerman’s adviser sent him to see Sharp, who was teaching at Harvard University. Ackerman’s 1,100-page thesis focused on how Mahatma Gandhi used mass civil disobedience to win India’s independence from England. He turned the paper into a 1994 book, “Strategic Nonviolent Conflict.” PBS aired “A Force More Powerful,” which was based on the book, in 2000.

Ackerman took a job at Burnham & Co. in 1973 after meeting then-President Mark Kaplan. Burnham merged with Drexel two weeks later. Ackerman joined Milken’s junk-bond team in 1978. He headed special projects, raising money for restructurings and takeovers. Even as he was earning millions of dollars securing financing for deals such as Texan oilman T. Boone Pickens’s bid for Gulf Oil Corp., he was funding Sharp’s research.

Tax Disputes

He moved to London for Drexel in 1989. Drexel declared bankruptcy in February 1990. Milken eventually pleaded guilty to six counts of violating securities laws and paid $1.1 billion in fines and settlements.

Ackerman was never charged with any misdeed. He paid $73 million to settle a civil case by the Federal Deposit Insurance Corp. and Resolution Trust Corp. over losses at savings and loans that had invested in junk bonds without admitting any wrongdoing.

In 2005, he sued for a $5 million refund from California’s tax board, claiming he’d already paid taxes on the $73 million. The IRS allowed him to take deductions on future earnings. California also offered deductions, but he couldn’t claim them since he no longer lived in the state. He pushed for a bill that would have enabled him to get a refund retroactively. The proposal failed.

Ackerman, who’d set up a firm called Rockport Capital Ltd. in London, returned to the U.S. in 1995. He helped set up Crown Capital Group Inc. to invest in private companies. One success was a $30 million investment in 1999 in Thales Fund Management LLC, a New York-based hedge fund that had $1 billion in assets in 2011 when it closed its operations.

‘Cheese-Spread Advertising’

Others were flops, court documents show. Ackerman lost $14 million on Resort Theaters of America Inc. in 1999, which planned to build movie houses at vacation spots. A $15 million co-investment in a towel-making factory in Mexico also came to nothing. He invested $20 million in preferred shares of Los Angeles advertising company Emak Worldwide Inc. (EMAKQ) in 2000. Emak filed for bankruptcy protection in 2010, emerging in 2011. Ackerman still owns its most profitable unit, Chicago-based Upshot Inc.

Ackerman focused more on non-business pursuits than his companies, says former Emak CEO Jim Holbrooke.

“He is training dissidents to overthrow dictatorships, and I’m doing cheese-spread advertising for Kraft,’’ he says, referring to food company Kraft Foods Inc. (KFT)

Ackerman began targeting U.S. politics in 2007. He joined Unity08, which aimed to nominate a third-party presidential candidate. Fundraising stalled amid a legal fight with the Federal Election Commission over contribution limits.

Americans Elect’s Roots

Ackerman took over Unity08, which became Americans Elect, after an appeals court in 2010 overturned the FEC’s decision that required the group to register as a political action committee. The FEC decided not to take further action. That has allowed Americans Elect to raise millions of dollars and hire lawyers, pollsters and signature gatherers as it heads toward the 2012 election.

“What the iPhone did for communications, Americans Elect has the potential to do for politics,’’ says board member and former Hallmark Cards Inc. CEO Irvine Hockaday.

Doubters point to myriad obstacles, among them the dismal record for third-party candidates. Another hurdle may be Ackerman’s own inability to show he’s as democratic and transparent in business as he expects the rest of the world to be in politics.

To contact the reporter on this story: Kambiz Foroohar in New York at kforoohar@bloomberg.net

To contact the editor responsible for this story: Michael Serrill at mserrill@bloomberg.net.

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