The Pentagon Buyout King

Last week, Stephen Feinberg, the Pentagon’s number two civilian official who manages much of the military’s trillion-dollar budget, sat down for his first on-the-record newspaper interview in nearly two decades. Feinberg’s “media shyness” has been a throwaway line in practically every article written about him. The only other major media appearance he allowed in his long tenure as CEO of one of Wall Street’s most infamous private equity firms, Cerberus Capital Management, and a major figure in both Trump administrations, was in April 2008, when he sat down with Andrew Ross Sorkin of The New York Times.

That Times article appeared under the header “A Recluse Lifts the Veil a Little,” and the rare moment of public introspection represented Feinberg’s attempt to calm the furor over Cerberus’s handling of two massive debt-financed buyouts of American car icons Chrysler and General Motors. Chrysler had just fired more than 10,000 employees, and even Wall Street was starting to feel “downright anxious about all that debt” Cerberus had used for the buyouts, in Sorkin’s words. Feinberg at the time was conciliatory, though he insisted the whole thing was one big misunderstanding. “I don’t blame anyone who doesn’t know me from thinking a lot of things,” he said. “Our approach may have been a mistake with the public.”

The rest we all know well: The stock market crashed five months later, bringing the global economy down with it. Cerberus’s risky bluff on Chrysler and GM had been called, and both sunk into deep bankruptcies before getting a late-inning rescue from the feds.

Feinberg’s sit-down with The Wall Street Journal last week offered a bit of déjà vu. “I’m sure I’m going to make the mistakes, OK?” he told the Journal’s reporters. “And I’m sure everyone will talk about the mistakes when we make them. But that’s part of trying to make changes and being urgent.” Sound familiar?

The “mistakes” Feinberg was referencing in this case appear to encompass nearly his entire approach to the Pentagon job, a “Wall Street playbook” that anonymous skeptics within the Defense Department cited in the article suggested may work better in wringing profits out of bankrupt companies than running the most expensive military in the history of the world, one engaged in war on three continents. The criticism around Feinberg’s tenure at the Pentagon, which only weeks ago seemed to be boiling over to a point where the administration was reviewing candidates to replace him, has attacked his strategic decisions on the merits and the apparent conflicts of interest swirling around the billionaire investor’s inner circle, which the Prospect has been reporting on.

Feinberg has been doing a little of everything at the Pentagon, overseeing nearly all of the administration’s pet projects. He supervises its investment units, which, staffed with former Cerberus execs, have been buying equity in and making huge loans to companies in the military supply chain, many of them with ties to the Trump family and other well-connected private investors. One of those investment offices, which the Biden administration stood up to make low-interest loans to backstop domestic defense production, is now involved in managing the United States’ Venezuela oil deal. It recently floated issuing a $5 billion loan for AI infrastructure development, in partnership with a new bank founded by defense tech billionaire Palmer Luckey. Another one is called the Economic Defense Unit; Feinberg created it himself earlier this year and installed George Kollitides, a former aide-de-camp at Cerberus, as its head. Kollitides also leads Feinberg’s new Business Operators for National Defense consortium, which plans to “embed” hundreds of defense executives in Pentagon offices.

Feinberg has meanwhile been tasked with overhauling the military’s contracting edifice, boosting missile production to replenish stockpiles drained during the Iran war, and leading the administration’s trillion-dollar Golden Dome program, which would create a domestic missile defense system akin to Israel’s Iron Dome. Feinberg has also inserted himself in the chain of command overseeing the Pentagon’s shipbuilding program, a historic boondoggle that typically falls under the purview of the Navy secretary and will be shelling out hundreds of billions of dollars to construct a new “Golden Fleet” of “Trump Class” nuclear-powered battle cruisers, as well as a new office spearheading the military’s buildup of drones. He also holds significant sway over the Defense Department’s civilian workforce, which the administration, in private equity fashion, has cut by more than 10 percent, and has been given a mandate to pursue, according to a department report from last year, “consolidated functions, flattened hierarchies” and engage in a strategy of “speed over process.”

When Feinberg was first nominated for the Pentagon job, lawmakers questioned the wisdom of placing a private equity billionaire, whose former firm has staged disastrous buyouts in key sectors of the American economy and is deeply invested in the defense industry, at the nerve center of military administration and reform. In the year and a half since Feinberg was confirmed, those concerns have only been amplified. Months ago, M1 Mission First, a Cerberus-backed aircraft company, won a Defense Department contract worth up to $10 billion and good for 26 years, leading to some very public blowback from Trump ally and right-wing commentator Laura Loomer. And the day after Feinberg’s interview was published, ProPublica reported that the DOD had steered a no-bid contract worth many hundreds of millions of dollars to a financial services and advisory firm tied to Kollitides and Cerberus.

That firm, Alvarez & Marsal, which advertises its skills as a fixer for “aerospace, defense, aviation, and space” companies hunting for government contracts, will consult for the Pentagon investment office that Kollitides runs. To sign the firm up, the department used a fast-tracked contracting vehicle known as an “Other Transaction Authority” (OTA). Though originally meant to boost experimental weapons development, OTA has come to be the way the Trump administration wants most military contracting to go. For years, watchdogs have stressed how OTAs leave “the government at the mercy of vendors” and are “not subject to many of the federal laws and regulations governing procurement contracts that protect the government and taxpayers.”

ProPublica also reported that when the publication asked Alvarez & Marsal about Kollitides’s dual role as partner at the firm and at the Pentagon, the company said he had stopped working at Alvarez & Marsal just days earlier.

Weeks earlier, the Prospect had reported on another contract the Pentagon had awarded to the private equity law firm McDermott Will & Schulte, whose attorneys serve as top outside counsel to Cerberus. One of the McDermott attorneys contracted by the Defense Department has also been Feinberg’s personal lawyer for decades, and now manages his irrevocable trust, which was set up nominally to keep the private equity billionaire’s investments distinct from his day-to-day government role. McDermott had been brought on board to help negotiate the Pentagon’s direct equity stakes in critical minerals companies, which the administration has targeted as part of an effort to build a materials supply chain separate from China.

That agenda, which purports to be rebuilding America’s defense industrial capacity, has been met with skepticism from policy experts who view “one-off” deals as unlikely to turn back decades of Chinese market dominance and who point to a streak of rare earths projects outside of Chinese supply chains that have failed to turn a profit. Cerberus nonetheless has been investing in those businesses for years, including in Canada-based Torngat Metals, a rare earth mining company founded in 2018 that still has yet to build a mine.

A Pentagon spokesperson wrote to the Prospect at the time that the department’s decision to hire Feinberg’s and Cerberus’s top lawyer to broker its history-making direct equity deals with rare earth mining companies had gone through a “rigorous, multi-layered ethics framework.” A Pentagon spokesperson used that exact phrase again, commenting for ProPublica’s story.

When The Guardian profiled Feinberg’s inner circle of Cerberus alums over the summer, a spokesperson told the publication the same thing. A month later, it said the same in response to reporting about Donald Trump’s sons investing in drone companies set to contract with the Defense Department. And a DOD spokesperson repeated the line in response to two reports about the Pentagon’s chief technology officer, Emil Michael, a former Uber executive and tech investor, trading millions of dollars’ worth of AI stocks from his government perch overseeing military AI policy. Despite referring back to it over and over again, the Pentagon has not outlined what its ethics framework actually consists of, or addressed why that framework has failed to prevent the appearance of conflicts of interest up and down the department. The Pentagon did not respond to a request for comment about its ethics protocols.

Those apparent conflicts of interest have, of course, been everywhere throughout the administration, which has made no secret of its norm-breaking litany of ties to every kind of special interest. Ahead of the midterms, though, the White House seems to be growing at least a little anxious that the image of wide-open self-dealing doesn’t sit well with voters as gas and food prices spike. It seems to have cost Kimberly Guilfoyle her job as ambassador to Greece, after she got caught courting a Trump donor for help paying off a credit card.

A recent Fox News poll found 88 percent of voters “concerned about corruption.” A full 60 percent said they were “extremely concerned.” Democratic lawmakers have been gearing up to extend the pressure beyond Election Day should they win back control of committees, promising in particular to investigate the Pentagon, where Feinberg says he intends to remain through the end of Trump’s term. They took a first step last month, reportedly telling the Defense Department its investment units lacked the legal authority to make direct equity stakes in companies, though legislative action to explicitly ban the practice so far hasn’t materialized. But with the gavel poised to fall into Democratic hands, the next interview Feinberg has to sit down for may be with Congress.