Month: December 2024

Trump Recruits Regulatory Rulebreakers

The new Trump Administration will not be the first to staff many of its top positions from the private sector; Trump himself filled his first cabinet with various corporate types. This time around, however, these business figures are coming aboard amid an atmosphere in which norms and rules regarding conflicts of interest and ethics are falling by the wayside.

This starts, of course, at the top. Trump has signaled that he will do even less than in 2017 to separate himself from his family’s ventures. Now, as ProPublica points out, he will also be the first president to take office as the majority owner of a publicly traded company, Trump Media & Technology Group.

In its most recent 10-Q quarterly filing, issued on election day, Trump Media listed as one of the risk factors for its investors the fact that Trump was the subject of numerous legal proceedings. By getting himself elected, Trump has in effect removed many of these risks, given the Justice Department prohibition against prosecuting a sitting president.

The question now is what steps he may take once in office to protect the company itself from oversight. Trump’s choice of Paul Atkins, described as a “regulatory skeptic,” to head the Securities and Exchange Commission will be a boon both to Trump Media and all publicly traded companies.

Trump’s picks for his cabinet and other top positions include numerous figures from the private sector who are currently affiliated with corporations that stand to benefit from a weakening of regulatory protections in various areas. These include companies with a history of misconduct. Here are some examples, drawing on data from Violation Tracker.

Howard Lutnick: Secretary of Commerce. Lutnick is the chief executive of the investment banking and brokerage firm Cantor Fitzgerald, which has racked up more than $50 million in penalties. This includes a $10 million fine paid to the SEC in 2022 for failing to comply with recordkeeping requirements.

Chris Wright: Secretary of Energy. Wright, an executive at Liberty Energy, which does business as Liberty Oilfield Services, is an outspoken defender of fracking and an ardent climate denier. Earlier this year, the company paid $265,000 to settle allegations from the Equal Employment Opportunity Commission that Black and Latino workers at its operations in Odessa, Texas were subjected to a hostile environment, including racial slurs. According to the EEOC, management took no correction action when informed of the problem. Liberty has also been cited numerous times by the Occupational Safety and Health Administration, including a 2021 case in which it was fined $55,000 for serious and repeated infringements.

Stephen Feinberg: Deputy Defense Secretary. Feinberg is the co-chief executive of the private equity firm Cerberus Capital Management. The portfolio firms controlled by Cerberus include Hospitality Staffing Solutions, which was fined $58,000 by the Labor Department for wage and hour violations, and Cyanco, which was fined $52,000 by the EPA. Cerberus used to own military contractor DynCorp, which has been involved in numerous controversies, including a case in which it paid $7.7 million to settle allegations of submitting false claims to the Department of State.

Frank Bisignano: Commissioner of the Social Security Administration. Bisignano is the chief executive of the payments company Fiserv. In 2020 Fiserv subsidiary First Data paid $40.2 million to the Federal Trade Commission to resolve allegations it knowingly processed payments and laundered credit card transactions for scams that targeted hundreds of thousands of consumers.

Additional examples come from the make-believe agency known as the Department of Government Efficiency, whose main cheerleader, Elon Musk, heads companies such as Tesla that have clashed with regulators and paid fines.

Not all of Trump’s picks are migrants from the corporate sector. There are also Fox News hosts, rightwing public officials and MAGA ideologues. There is even the wild card RFK Jr., who is critical of the food and drug industries.

Yet the new Trump government will have plenty of people who have come through the reverse revolving door and are likely to promote policies that benefit their former employers and Corporate America in general. The fact that many of them will be veterans of companies with a history of misconduct should make them enthusiastic supporters of Trump’s assault on regulatory safeguards.

If there is an opposite to economic populism, this is it.

The DOGE Blind Spot

Donald Trump and Elon Musk, both masters at making grandiose statements that usually have little substance, are at it again in the creation of the Department of Government Efficiency. The two, along with provocateur Vivek Ramaswamy, are dressing up the prosaic act of creating an advisory committee into something that will supposedly transform the federal government.

In a manifesto published in the Wall Street Journal, Musk and Ramaswamy vowed that DOGE will “cut the federal government down to size.” Saying the entity will work closely with the Trump Administration’s Office of Management and Budget, they plan to “pursue three major kinds of reform: regulatory rescissions, administrative reductions and cost savings.”

At this point it is difficult to assess whether Musk and Ramaswamy, who seem to be largely ignorant of federal regulatory and budgetary processes, can make any of this happen. Yet what strikes me as most significant is the issue missing from their stated agenda: federal procurement.

The DOGE principals have been taking repeated potshots at federal agencies and civil servants but have been largely silent about the other major player when it comes to public spending: the companies that are paid some $759 billion each year to provide goods and services.

Musk and Ramaswamy make passing reference to procurement in their manifesto, suggesting the issue is poor agency management of the process. Yet the real problem is contractor fraud.

A Government Accountability Office report published in April estimated total direct financial losses to the federal government from fraud at $233 billion to $521 billion per year. While some of this comes from corrupt activities of individuals or criminal enterprises, a substantial portion can be attributed to mainstream corporations, including many household names.

When such companies are found to be cheating, they are usually charged under the False Claims Act, an 1863 law that had its origins in the prosecution of unscrupulous suppliers to the Union Army during the Civil War. Today, the FCA is used to get misbehaving firms to pay a monetary penalty without facing the risk of criminal prosecution.

In Violation Tracker we document nearly 4,000 federal and related state FCA cases over the past 25 years, with total penalties of $58 billion. Healthcare companies such as Tenet, HCA, and Centene have penalty totals in excess of $1 billion. Pentagon contractors Boeing, Northrop Grumman, General Dynamics, and Lockheed Martin have each paid out hundreds of millions. Also high on the list are pharmaceutical producers such as Pfizer and Merck as well as information technology firms such as Oracle and Hewlett Packard Enterprise.

These penalties do not arise from isolated examples. Many of the big firms are penalized over and over for contracting offenses. Lockheed Martin, for example, has paid FCA penalties in 16 different cases. Large companies are almost never debarred from continuing as federal contractors.

Pentagon contractors seem to have little to worry about from DOGE or the Trump Administration. The president-elect reportedly plans to nominate Stephen Feinberg to the job of deputy defense secretary. Feinberg is the co-chief executive of Cerberus Capital Management, a private equity firm with a history of investing in weapons producers.

It is not surprising that DOGE is choosing to target federal employees rather than contractors. After all, Musk is the head of companies that do a great deal of business with Uncle Sam. SolarCity Corporation, acquired by Musk and now part of Tesla Energy, had previously paid $29 million in an FCA case.

Contractors in general are poised to thrive under Trump 2.0. In fact, one might view DOGE not as an effort to shrink government but rather as a way of generating more work for contractors. If the headcount of some agencies is reduced, those functions may not disappear but instead could be outsourced to the private sector.

That would be a boon to service contractors such as Booz Allen Hamilton, which last year paid $377 million to settle an FCA case involving improper billing, and Conduent, which in 2022 paid $7.9 million to settle an FCA case involving the submission of false claims to the Department of Education.

By paving the way for more federal contracting and thus more contractor fraud, DOGE may end up increasing rather than reducing government waste and abuse.