When billionaire Robert Smith ended his 2019 Morehouse College commencement speech by vowing to pay off student debt for the entire graduating class, cheers of “MVP, MVP, MVP!” rose from students and faculty on the Atlanta campus.

What the audience didn’t know was that Smith was harboring a financial secret. He was being pursued by Justice Department prosecutors and Internal Revenue Service agents for potential tax crimes, according to four people familiar with the matter.

Federal authorities have spent four years examining whether Smith failed to pay U.S. taxes on about $200 million in assets that moved through offshore structures, some of those people said. Smith hasn’t been charged, and prosecutors may conclude he owes no taxes on those assets.

The matter hinges largely on whether Smith was actually the beneficial owner of Caribbean entities that received proceeds from his company’s first private equity fund, according to two of the people. A portion eventually flowed through the offshore entities into a U.S. charitable foundation where Smith is president and founding director.

U.S. citizens are required to pay taxes on income anywhere in the world. When the IRS catches mistakes on a return, taxpayers generally rectify the problem and reach a civil settlement. Prosecutors can bring criminal cases, however, against those who willfully fail to pay taxes or fail to declare their foreign assets.

Smith is trying to persuade the Justice Department to forgo criminal charges and resolve his case with a civil settlement, according to three of the people. A conviction could send him to prison and force him out of Vista Equity Partners, a money management firm with $65 billion in assets that has brought him fame and a luxe lifestyle.

Part of his defense rests on a reported pledge by the private equity fund to direct proceeds to charity. If prosecutors determine that the proceeds were designated for charity all along, it could bolster the argument that Smith was never the beneficial owner and not liable for taxes.

Recently, Smith has talked to prosecutors about possibly cooperating with their investigations in exchange for leniency, one of the people familiar with the matter said.

That’s because prosecutors are building what may be a larger tax case against a Smith associate — Robert T. Brockman, a Houston businessman — according to Bermuda court records and people familiar with the matter. The Brockman investigation was reported by the Sydney Morning Herald, though the inquiry into Smith hasn’t been disclosed previously. The two men’s business connections involve a jumble of offshore entities, trusts and foundations, much of it opaque to anyone without subpoena power.

In 2000, Brockman helped provide $1 billion for Smith to begin a private equity firm, a person familiar with the matter said. The funds came out of an entity held by a charitable trust based in Bermuda in which Brockman is a beneficiary, the person said.

The men met through business dealings at Goldman Sachs Group Inc. and shared a passion for the potential of software in business. Brockman made his name with software widely used by auto dealerships and is the chairman and chief executive officer of Reynolds and Reynolds, based in Dayton, Ohio. He didn’t respond to requests for comment sent by email or made through his company and its outside public relations firm.

Smith and Vista declined to comment for this article. A spokesman for the Justice Department declined to comment on whether an investigation exists. An IRS spokesman didn’t respond to emails seeking comment.

The Justice Department has discretion in deciding whom to charge, weighing factors such as the prosecution’s evidence, the strength of the defense and the way a jury would likely respond to the facts. Smith, a prominent Black businessman and philanthropist, may be viewed sympathetically by a jury in a time of protests for racial justice, lawyers said.

“The issue of jury appeal is often considered by prosecutors in cases that are a close call,” said David S. Weinstein, a former federal prosecutor in Miami who isn’t involved in the case. “If 12 jurors believe they want to acquit a defendant based on something other than the evidence, that’s their inherent right. They may believe it’s not the right time or place to bring a case against a particular defendant.”

As prosecutorial scrutiny of Smith has intensified the last few years, so has his wealth and his public profile, evidenced by his $34 million pledge to the families of nearly 400 Morehouse graduates. In an interview with Business Insider, Smith said the goal of his gifts is “liberating the human spirit.”

The co-founder of San Francisco-based Vista, Smith chairs Carnegie Hall and has received awards from Harvard, Cornell and Columbia universities. He’s graced the cover of Forbes magazine twice and was named to Bloomberg’s 50 people who defined 2019. Smith is also the only Black American who’s signed Warren Buffett’s Giving Pledge. In the past five years, his personal net worth has nearly tripled, to $6 billion, Bloomberg data indicates, making him the wealthiest Black person in the country.

Over that same period, Smith and the U.S. charitable foundation he helped create have given away at least $300 million. He used his own money to pay off the Morehouse debt and to donate $20 million to the Smithsonian National Museum of African American History Culture. This year, he joined Tyler Perry and Floyd Mayweather in helping to pay funeral expenses for George Floyd.

The foundation, of which he is president and founding director, gave $54 million to the National Park Foundation to acquire the homes of Martin Luther King Jr. and other prominent African-Americans, $48 million to the United Negro College Fund and $37 million to the Susan G. Komen Foundation, according to its U.S. tax filings. Proceeds that flowed from his first private equity fund through the offshore entities were ultimately transferred to the foundation that made the gifts, the tax filings show.

Two years ago, Forbes offered this glimpse of Smith’s charitable drive. “I will never forget that my path was paved by my parents, grandparents and generations of African-Americans whose names I will never know,” Smith wrote when he signed the Giving Pledge to contribute half of his net worth to philanthropic causes during his lifetime. “We will only grasp the staggering potential of our time if we create on-ramps that empower ALL people to participate, regardless of background, country of origin, religious practice, gender, or color of skin.”

From seemingly different backgrounds, Smith, 57, and Brockman, 79, bonded two decades ago. The son of two high school principals in a predominantly Black neighborhood, Smith told his Morehouse audience that he got a break in grade school when he rode a bus across Denver to a wealthy neighborhood with the sort of quality education unavailable to many of his neighbors.

As a young man with a degree from Cornell, he found success as a chemical engineer at Goodyear Tire and Rubber and then at Kraft General Foods. An MBA from Columbia followed, and Smith realized he could make more money on Wall Street. After what he described as more than 100 interviews with banks, he joined Goldman Sachs in 1994 in mergers and acquisitions. Goldman later moved him from New York to be a technology investment banker in Silicon Valley. His star was rising at Goldman when he began working with Brockman, a Goldman client and code-writing whiz.

Brockman, a former Marine and IBM salesman, started his own software company in 1970 and ultimately gobbled up several other companies. Though the Texan generally shuns the spotlight, he’s also a philanthropist, creating a scholarship program at Texas AM and serving on the board of the Baylor College of Medicine.

He decided to make a Texas-size bet on Smith, helping to lure the investment banker out of Goldman Sachs in his late 30s. Smith set up Vista with two partners in San Francisco.

Its first fund, Vista Equity Fund II, had a single limited partner, Point Investments, a British Virgin Islands entity, which made the $1 billion commitment in 2000, a person familiar with the matter said. Point Investments was held as part of the A. Eugene Brockman Charitable Trust, named for Brockman’s late father, according to Bermudian court records.

The ownership of the trust was complex, but Brockman is identified in U.K. court records as a beneficiary. The arrangement is typical of those used to help rich Americans lower their taxes. It was owned by another offshore entity, the St. John’s Trust Company, which is at the heart of the U.S. investigation, Bermudian court records indicate.

Over time, Smith, Vista and Brockman grew more intertwined. In 2006, the company that Brockman had founded 36 years earlier launched a buyout of a larger rival, Reynolds and Reynolds. Equity financing was provided by Goldman Sachs’s private equity arm, GS Capital Partners; Smith’s Vista Equity Fund II; and another Brockman trust called Spanish Steps. Prosecutors have studied that transaction, according to a person familiar with the matter.

Back at Vista, Smith racked up an astounding winning streak. In all, he’s completed more than $120 billion in deals and produced some of the highest returns in the industry over the last two decades. Vista has started a score of private equity, debt and hedge funds. Its clients include big investors like the state pension funds in New York and Illinois and the City of Los Angeles.

Life grew more complicated for Smith in 2013 when his wife filed for divorce, citing adultery. Jamaican-born Suzanne McFayden had met Smith while studying French literature at Cornell. They married in 1988 and had three children.

Experts on both sides of the divorce pored over the family finances. In 2014, Smith approached the IRS seeking amnesty from prosecution under a program used by more than 56,000 Americans who failed to report offshore assets, according to two of the people familiar with the matter. Through the program, the IRS collected more than $11 billion in back taxes, fines and penalties, while learning who enabled offshore tax evaders.

But the IRS rejected Smith, according to people familiar with the matter. The agency typically turned down taxpayers if it already knew they had undeclared offshore accounts.

The divorce was final in 2014. The next year, Smith married Hope Dworacyzk, Playboy’s 2010 Playmate of the Year and a “Celebrity Apprentice” participant until Donald Trump fired her. For the wedding, at a five-star hotel along Italy’s Amalfi Coast, the couple’s seven-month-old son floated down the aisle atop an artificial cloud. John Legend and Seal entertained the crowd.

Smith also sold about one-third of Vista to Dyal Capital Partners beginning that year for an undisclosed amount.

A criminal inquiry soon emerged. In 2016, near the end of the Obama administration, prosecutors sent out subpoenas from a San Francisco grand jury to witnesses, people familiar with the matter said. The investigation is being conducted by the Justice Department’s Tax Division and the U.S. attorney’s office for the Northern District of California. A veteran Tax Division prosecutor, Corey Smith, is working on both the Smith and Brockman cases, the people said.

Among other matters, investigators have focused on the winding down of Smith’s first fund in 2014, the year of his divorce, the people said. Two offshore entities began transferring $247 million in proceeds from Vista Equity Fund II to Fund II Foundation, the charity where Smith is president.

One of those offshore entities was St. Kitts- and Nevis-based Flash Holdings LLC, tax filings show. At issue is who beneficially owned Flash, the people said. Also under scrutiny is an unusual agreement driving the transfer to the foundation, the people added. The foundation has said a promise was made in 2000 by Vista’s first fund to transfer its remaining assets to charity after covering its obligations to its limited partner. It’s unclear whether there’s a written agreement from the fund’s inception outlining the pledge.

None of this artful financial work could have been achieved without advisers and lawyers. Prosecutors found at least one and applied pressure a couple of years ago.

Evatt Tamine, an Australian lawyer, lived in Bermuda and worked for various offshore trusts and companies. Tamine was a director of St. John’s Trust Company, which oversaw Brockman’s trust. His wife, Sophie Tod, also an attorney, became a director of the foundation led by Smith.

The Tamine family was in the U.K. when Bermuda police and IRS agents raided their home in September 2018 at the request of the U.S. Justice Department. A housekeeper met the agents, who spent hours seizing documents and encrypted electronic devices, according to a person who described the scene. Prosecutors later raided a storage locker, court records show.

Ultimately, Tamine received immunity to help U.S. prosecutors unravel the financial matters, according to court records. He has testified three times before the grand jury in San Francisco and has provided emails and other documents to prosecutors, according to a person familiar with the matter.

Court actions followed in Bermuda and the U.K. over which of the lawyer’s documents were protected by privilege, whether Tamine stole money and who should be appointed trustees.

The scope of the U.S. investigation emerged at a court hearing in Bermuda on Feb. 20. A Bermudian lawyer, Jan Woloniecki, spoke on behalf of the Justice Department. He said prosecutors were investigating “a major and very large tax fraud on the United States” that could “set a record” because prosecutors believe $1.5 billion of revenue was concealed fraudulently from the U.S. government.

Woloniecki also said St. John’s Trust had engaged in a “cynical attempt” to block the investigation by attacking Tamine. The trust and related entities have accused Tamine in Bermuda and London courts of stealing $20 million. Tamine‘s lawyers said he “vigorously denied” any suggestion of unlawful conduct.

“Mr. Tamine is an important cooperating witness into a U.S. Department of Justice (DOJ) investigation in relation to Bob Brockman,” a spokesperson for Tamine’s lawyers, Mishcon de Reya, said in a statement. “The bogus allegations of theft were raised by entities associated with Mr. Brockman only after he agreed to assist the DOJ and are clearly designed to undermine his credibility as a witness. Those same entities tried (ultimately without success) to delay access to key documents by Mr. Tamine and the DOJ.”

Speaking on behalf of the U.S. government, Woloniecki said it would be “very damaging to the reputation of Bermuda” if the plaintiffs were to use their claims against Tamine to derail the investigation.

If the U.S. decides to charge Smith or Brockman with tax crimes, their cases could surpass one against another billionaire known for charitable giving. Ty Warner, the founder of the company that makes Beanie Babies, pleaded guilty in 2013 to evading almost $6 million in taxes on $107 million held offshore. It was the largest of 150 cases in a U.S. crackdown on offshore tax evasion.

At Warner’s sentencing, a judge praised his philanthropy and imposed a sentence of probation rather than the nearly five years in prison he faced under a plea agreement. Smith is represented by one of Warner’s former lawyers.

— With assistance from Jonathan Browning