NBC financial reporter Gretchen Morgenson first posted a story about the lawsuit Thursday morning after it was filed Aug. 3 in Delaware by the Pittsburgh Comprehensive Municipal Pension Trust Fund. The 136-page suit alleges that Youngkin received about $8.5 million of a $344 million payday engineered for a small group of top executives in 2019 and 2020, when he served as co-CEO.

The executives “were unjustly enriched at the expense of and to the detriment of Carlyle and its stockholders,” according to the suit. The trust fund is a Carlyle shareholder, investing retirement accounts for municipal employees such as firefighters and police officers.

“Many are first responders putting their lives on the line every day,” the suit said. “They depend on the integrity of the financial markets to provide for their retirements. The kind of impunity that Carlyle’s Control Group acted with is shocking and unacceptable.”

Youngkin stepped down from Carlyle in September 2020 to run for governor of Virginia. His role as a multimillionaire private equity chief executive has been both a political asset and a liability, as Republicans laud his business success while Democrats have criticized his firm’s practice of buying and selling companies and sometimes cutting employees to maximize profit.

Inside gubernatorial contender Glenn Youngkin’s long career at Carlyle Group

On Thursday, spokeswoman Macaulay Porter defended Youngkin’s role in the financial scenario targeted by the lawsuit. “When Mr. Youngkin was a member of Carlyle’s leadership, the Carlyle board and an independent special committee retained independent experts and advisers to consider and approve a transaction that had significant benefits for the company and its shareholders,” Porter said via text message.

She declined to comment further, saying the matter is under active litigation.

Youngkin is among 15 current and former executives named as defendants in the suit, along with Carlyle. It does not allege that the activity was illegal, but seeks to recover unspecified damages, including making the executives reimburse their gains.

A spokesman for Carlyle issued a written statement in response to questions about the suit, “Carlyle was the first U.S. private equity firm to convert to a one share one vote, best-in-class governance model creating better alignment with public shareholders who now have a greater vote and voice.”

Democrats zeroed in on the suit to paint Youngkin as out of touch with ordinary people. Calling it a “stunning development,” House Minority Leader Del. Don L. Scott Jr. (D-Portsmouth) tweeted that “most workers play by the rules and pay their taxes. Apparently Youngkin does not. While his party was slashing teacher pay, he was lining his pockets at the expense of public servants.”

A spokesman for Scott said the reference to teacher pay was based on the fact that former governor Ralph Northam (D) introduced a budget that included 10 percent raises for teachers, while the budget signed by Youngkin included 8 percent raises and 2 percent bonuses over the next two years. That budget was a compromise between a Republican-controlled House and Democratic-controlled Senate.

Del. Marcus B. Simon (D-Fairfax) tweeted that the tactics outlined by the lawsuit amount to “slimy stuff.”

According to the suit, the private equity giant used a complicated financial technique to get a big payday for top executives and avoid paying taxes instead of passing benefits along to investors, such as the pension fund.

Carlyle was privately owned until 2012, when it held an initial public offering of stock. Several longtime executives — including Youngkin and founders David Rubenstein, William Conway and Daniel D’Aniello — had private shares that could be converted to public shares. Typically, according to the suit, converting the shares is done in a way that’s subjected to taxation. The tax payments can be used by the company to offset its tax liabilities.

In a maneuver called a tax receivable agreement, the executives who convert their shares from private to public can be compensated for the value of the tax asset that they create for the company. According to the suit, an executive might typically get 85 percent of the value of the tax asset, and the remaining 15 percent would revert to the company and its shareholders.

But the Pittsburgh pension fund alleges that Carlyle’s executives converted their shares in a way that avoided some $1 billion in taxes, which created no tax benefit for the company. Then the executives turned around and took compensation for the tax receivable agreement anyway, even though — according to the suit — it had no value. Youngkin’s portion of the $344 million payout was about $8.5 million; the suit says the three founders saw far more — more than $66 million each for Conway and D’Aniello and more than $70 million for Rubenstein.

Kewsong Lee, who served as co-CEO with Youngkin but stepped down from the company this week, arrived in 2013, a year after the company went public. He is named in the suit as having facilitated the payday for the other executives.

Youngkin has faced scrutiny before over taxes. The acreage around his home in Great Falls is under a conservation easement, drastically reducing the amount of taxes he pays on the property. Last year Youngkin’s campaign released a summary of his past five years of income taxes, showing income over that period of some $127 million.

Because much of his income was in capital gains on investments, which is taxed at a lower rate than salaried income, Youngkin’s effective tax rate fluctuated over the period between a high of 31.7 percent and a low of 15.4 percent, according to the summary provided by his campaign. The Washington Post could not independently verify the figures.