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Factcheck: Allyson Schwartz ad misrepresents Wolf

Allyson Schwartz misrepresents her opponent's business dealings in a TV ad in Pennsylvania's Democratic gubernatorial primary.

Her ad says Tom Wolf  "walked away with $20 million" after selling his company, but fails to mention that he later reinvested $11 million to save it. The ad also says hundreds "lost their jobs" because of debt the company needed to buy out Wolf, but it doesn't mention the recession that hurt his kitchen cabinet business. The ad inflates how much the company needed to borrow to buy out Wolf by a factor of nearly three.

A Wolf response ad, meanwhile, mentions the economic crash that "really hurt" the business, but it says nothing of the buyout debt the company couldn't repay.

Both Schwartz, who has held a House seat since 2005, and fellow Democratic candidate Rob McCord, the state treasurer, have attacked Wolf, the frontrunner in the primary, for his role in the family company. McCord's TV spot made misleading claims about Wolf's record on pensions, and we wrote about that in a May 8 article. The Schwartz ad attacks Wolf for debt the company took on to buy out Wolf and two cousins, and jobs that were later lost when Wolf was no longer with the company. The Democratic primary is May 20.

The Wolf Organization Story

The Wolf Organization, a kitchen cabinet and building supply company, was founded in 1843 and has been in the Wolf family almost ever since. The few recent years in which a family member — in this case, Tom Wolf — was not heading the company, 2006 to 2009, are the focus of Schwartz's attack ad.

The ad says that "Wolf ran his family business, but in order to sell it, he forced it deep into debt." On screen are the words "Wolf company's loans 'totaled $64 million' " and a citation for an April 2014 Philadelphia Inquirer story. That's misleading: The company took on debt to buy out Wolf and his two cousins but needed $23 million for that — not $64 million, which was the total amount the company owed in 2009, years after Wolf had left.

The fact is the buyout occurred in 2006, before the 2007-2009 recession, which hurt many companies, especially those, like the Wolf Organization, in the housing and construction industries.

The Inquirer tells Wolf's story of what happened, as conveyed in an hour-long interview. In 2006, Wolf and two cousins were ready to retire from the family business and had no children who wanted to continue running it. The three cousins wanted to sell two-thirds interest in the company for $60 million. The deal would give them each $20 million and a remaining 11 percent stake each. But they needed a private equity firm and bank loan to get the deal done.

Inquirer, April 5, 2014:
Weston Presidio Fund V, formed the previous year, agreed to buy a 47 percent stake in the Wolf Organization, for $32 million.
Wolf Organization managers committed an additional $5 million, and got 20 percent in stock, including options.
That didn't make $60 million, the cousins' sale price. So the company borrowed the remaining $23 million from M&T Bank. Indeed, state records show M&T Bank lent $50 million to pay the cousins and other creditors, and agreed to lend more if needed.
— The cousins wanted the managers to buy in. But they knew that group wouldn’t be able to raise the whole $60 million. So they hired an investment banking firm — Boenning & Scattergood, of West Conshohocken — to interview buyout funds, which invest in private companies in hopes of selling later at a profit. …

The economic recession that followed a year later likely was not predicted by Wolf, the company or, for that matter, M&T Bank. Wolf Organization suffered. It consolidated and eventually closed its business-to-business outlets — called The Lumber Yard — that sold supplies to contractors, a division of the company that employed most of its workers. The Inquirer reported: "[I]n January 2009, amid the national recession, Wolf Organization managers told Wolf they had been unable to keep current on their M&T loans, which by now totaled $64 million." Weston Presidio, which had invested $41 million in the company, said it had a resale value of zero dollars, and the bank was going to foreclose on the business.

The Schwartz ad says Wolf "walked away with $20 million for himself," but that ignores the fact that Wolf rejoined the struggling company in 2009 as CEO and chairman of the board, invested $11 million of his money back into it, and saved it from foreclosure. On screen, the ad accurately quotes the Inquirer as saying, "a chunk of that debt had ended up in Wolf's pocket." But Wolf ended up putting a good chunk of that $20 million back into the company.

Here's the full passage from the Inquirer:

Inquirer, April 5:
Even though a chunk of that debt had ended up in Wolf's pocket, he had no legal obligation to pay it back, he said. But he felt responsible to his workers, family, customers, and the town.
Wolf said he met with M&T and agreed to raise money to pay down the debt, surprising bankers who had been ready to take over the company's assets.
He sold his securities investments and collected $11 million – all his assets except a much smaller amount of "illiquid" investments he couldn't readily turn into cash.
The two cousins each kicked in $3 million to $4 million, Wolf says. Weston Presidio agreed to put up several million more, though noting in reports to investors that the Wolf Organization, at that moment, had zero resale value.
The millions enabled the Wolf Organization to pay down its bank debt so it could at least break even.
— Wolf looked over the books. He found “too much debt, and not enough sales,” he said.

The Schwartz ad wraps up its critique of Wolf with: "The result? Hundreds of employees lost their jobs." Between 2006, when Wolf left, and 2009, when he returned, the company did shed hundreds of jobs. A May 2 report from, which covers Pennsylvania news, says Wolf himself said the company went from 585 to 218 employees in that time and now has 260-270 employees.

But the Inquirer article finds a different "result" in the whole episode. "The result: As of Dec. 31, 2013, Weston Presidio — in reports to clients — values its total $41 million investment in the Wolf Organization at $22 million," the paper reported. "That's up from zero, Wolf notes, though it's still a lot less than the fund paid."

Since returning, Wolf has restructured the company and launched a home products division, according to reports in, a building-supply industry publication.

Lost Jobs Due to Debt or Recession?

The Schwartz campaign argues the debt that the Wolf Organization took on in order to buy out Wolf and his cousins hurt the company financially and led to lost jobs. Schwartz campaign spokesman Mark Bergman pointed us to a paper on leveraged buyouts from Dartmouth University's Tuck School of Business, which said financing buyouts with "significant amounts of debt" had both advantages and risks — the "most obvious risk" being "financial distress."

The document says: "Unforeseen events such as recession, litigation, or changes in the regulatory environment can lead to difficulties meeting scheduled interest payments, technical default (the violation of the terms of a debt covenant) or outright liquidation."

Certainly owing tens of millions of dollars as a major economic recession hit was not ideal. And, as the Dartmouth document warns, an unforeseen recession led the company to be unable to make its payments. But was that because the buyout required too much debt, or because the recession hit companies in the housing business particularly hard? Even in the absence of the $23 million buyout-related debt, would the Wolf Organization — which ultimately owed $64 million — have been in financial trouble?

We may not be able to determine the answers to those questions. Other building-supply companies struggled during the recession, too. When the Wolf Organization was closing its Lumber Yard retail locations in 2008, other companies were closing similar operations, according to a January 2009 story by

Bergman points out that Wolf told the Central Penn Business Journal in 2009 that the only issue the company had when he returned was debt. "What we had was a great company (that) … had already figured out how to make money with the reduced sales that are out there in the housing market right now," Wolf said, in talking about plans to expand the company into southern states.

But Wolf also discussed the economy in an opinion piece for ProSalesMagazine in April 2009: "The rapid collapse of the housing market led The Wolf Organization to make several painful business decisions and eventually led me back to a leadership position with the company," he wrote. "Our story represents just one example of how the rapid contraction in housing has affected all of us."

And in a May 8 gubernatorial debate, according to, Wolf responded to Schwartz's criticism of the buyout debt and shrinking workforce at the company. "I went back voluntarily," Wolf said. "And I did not have to go back and I did and I saved those jobs. As for the people who lost their jobs when I wasn't there, there was a huge recession in the United States and it hit the residential building products … the unemployment rate went up by a shocking amount throughout the United States."

The two issues — a major recession coming at a time when the company carried millions in loans — are related. The Schwartz campaign, however, focuses on only one aspect. It argues that Wolf does the same in his response ad, in which the debt load isn't mentioned. Fair enough. Wolf's ad, which features Wolf Organization employees defending their boss, says "the economy fell apart and that really hurt a business like ours." A company, it doesn't say, that unfortunately had taken on debt to buy out Wolf.

But we think voters deserve the opportunity to evaluate Wolf based on the full story. The debt-strapped company may have lost hundreds of jobs, but that came during a major economic and housing industry crash. And when Wolf rejoined the company, injecting millions back into it to stave off foreclosure, he "saved jobs," as one of his employees says in his campaign ad. is a nonpartisan, nonprofit “consumer advocate” for voters that aims to reduce the level of deception and confusion in U.S. politics. Based in Philadelphia, Factcheck monitors the factual accuracy of what is said by major U.S. political players in the form of TV ads, debates, speeches, interviews and news releases. Its goal is to apply the best practices of both journalism and scholarship, and to increase public knowledge and understanding. Find a list of funders here.