Trump officials Mnuchin and Esper overruled staff on loan to Yellow Corp.

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Senior Trump administration officials overruled Pentagon staffers to provide a politically connected trucking firm with hundreds of millions of dollars in pandemic aid after a concerted lobbying effort, according to documents released by House Democrats on Wednesday.

In 2020, career employees at the Defense Department decided that they should not certify that Kansas-based Yellow Corp. was critical to maintaining national security, which would mean the company could not qualify for a loan program created by Congress earlier in the pandemic, the investigation found. They communicated that decision to the Treasury Department on June 24, 2020, according to emails quoted in the report.

But the Trump appointees ignored that decision after a newly revealed phone call between Treasury Secretary Steven Mnuchin and Defense Secretary Mark T. Esper on June 26, 2020, that was set up to discuss “YRC and DOD certification,” according to the Democrats’ report . (Yellow Corp. was formerly named YRC Worldwide.) Esper then certified the company as “critical to maintaining national security” for the purposes of the loan.

“As we’ve previously stated, one of the ways companies could be considered for Treasury loans was a certification from DOD that the applicant business was critical to maintaining national security,” said Defense Department spokesperson Jessica Maxwell. “DOD used the same criteria used for other CARES Act funding opportunities to assess companies for DOD certification for Treasury loans. However, DOD did not make any final decisions regarding granting these loans. Department of Treasury made final determinations and decisions. ”

The $ 700 million loan to Yellow Corp. was by far the largest provided to any company through the program for businesses critical to national security, and the Treasury Department received a nearly 30 percent equity stake in the company in return for the loan. The loan came after several Democrats and Republicans in Congress wrote letters to the Treasury Department and the Pentagon advocating on Yellow’s behalf. Prior emails released by the coronavirus subcommittee showed that lobbyists for the International Brotherhood of Teamsters, which represents Yellow drivers, were also involved in discussions over the loan.

Two years into the pandemic, lawmakers and government watchdogs are just beginning to uncover how trillions of dollars in aid approved by Congress were spent – or misspent – as federal agencies raced unevenly to plug massive holes in the US economy. Last month, for instance, the Justice Department reported it had found nearly $ 8 billion in allegedly fraudulent claims for pandemic aid.

In a letter to the committee responding to the report’s findings, which Yellow provided to The Post, the company’s lawyer, Marc E. Kasowitz, said the committee had taken a “partisan approach” and was peddling “baseless speculation and innuendo,” and that the trucking company had sought its certification from the Pentagon in a “completely transparent manner.”

“Yellow strove hand-in-hand with senior union leadership to garner support for its loan application, and in fact received broad support from numerous Members of Congress on both sides of the aisle who recognized Yellow’s criticality and urged Treasury to approve Yellow’s application,” Kasowitz wrote.

The loan to Yellow was intended to cover pandemic-related losses, and the subcommittee took issue with the fact that the company used more than half of the money went to new investments in tractors, trailers and technology.

Jamie Pierson, Yellow’s then-chief financial officer, later wrote to investors that “while we had our hand in the cookie jar, we thought we would try to get a little ‘catch up’ capex while we were at it,” according to an email obtained by House Democrats. “Capex” refers to capital expenditures.

“Yellow’s intended use of the loan funds, including for capital expenditures, was the subject of extensive negotiations with Treasury,” Kasowitz wrote. In an apparent reference to Pierson, Kasowitz said “a former employee” had made an “off hand and flippant remark.”

“The YRC loan saved 25,000 union jobs in the midst of the largest economic crisis since the Great Depression and preserved the health care benefits of 30,000 American families at the height of the pandemic,” said a former senior Treasury official. “It prevented a massive disruption to the nationwide supply chain on which the Defense Department and millions of US businesses and consumers depended and was made on a fully collateralized basis on terms that are yielding a substantial profit to the US taxpayer.”

Almost as soon as the Yellow loan was announced in July 2020, it prompted serious questions by officials charged with oversight. The Congressional Oversight Commission, a separate body created by the Cares Act, wrote last year that it believed Treasury and the Pentagon made “missteps” in deeming the company eligible for the loan.

“I do not believe this company was eligible for this financing,” Rep. French Hill (R-Ark.), A member of the commission, said in a recent interview, noting that Yellow received the vast majority of the $ 735.9 million total lent under the national security program. “Ninety-five percent of the money in this pot went to one company that I do not believe is fundamentally eligible for it.”

In a statement Tuesday, Hill added that the commission is now focusing on how to prevent such awards in the future.

The new findings, released in a 28-page report, show the lengths to which senior Trump officials went behind the scenes to overrule career employees and provide the money.

“Today’s Select Subcommittee staff report reveals yet another example of the Trump Administration disregarding their obligation to be responsible stewards of taxpayer dollars,” Rep. James E. Clyburn (DS.C.), who leads a committee of lawmakers investigating federal spending on pandemic aid, said in a statement. “Political appointees risked hundreds of millions of dollars in public funds against the recommendations of career DOD officials and in clear disregard of provisions of the Cares Act intended to protect national security and American taxpayers.”

Pandemic loan to troubled trucking company had Trump White House backing, emails show

In his response to the committee, Kasowitz noted that Treasury’s equity stake in the company is now worth close to $ 70 million, an approximately 50 percent increase in value since the loan began, and that the company had paid more than $ 25 million in interest on the loan.

According to the committee, Yellow lobbyists identified then-White House Chief of Staff Mark Meadows as “the key actor” on the matter and said they spoke directly to him on at least three occasions. Meadows offered to call Mnuchin about the loan application on May 25, 2020. On the day the loan was announced, Mnuchin emailed Meadows highlighting the decision. A spokesman for Meadows declined to comment.

Earlier oversight reports examining the loan had at times expressed incredulity over senior Pentagon officials’ answers on why Yellow was deemed critical to national security, noting that the agency had informed Congress that it “did not even consider whether the services it obtains from YRC could be obtained elsewhere. ” But the documents released Wednesday revealed that lower-level defense officials did consider that factor in their determination that Yellow was not eligible for the loan.

“There are plenty of other trucking companies that do this,” one memo from career staffers said.

Yellow had claimed that it provided 68 percent of “less than truckload” shipping – a category of freight size – to the Defense Department. The career staffers’ review, however, found the company handled only 34 percent of such shipments – half of what Yellow claimed in its application. Treasury cited the 68 percent figure in its news release announcing the loan.

In his letter to the congressional committee, Kasowitz said that Yellow “stands firmly behind its assertion that it was then responsible for handling 68% of DoD’s LTL freight,” and that any claim that the company had overstated the percentage of business it handles for the The Pentagon is “patently meritless.”

In a separate statement to The Post, a company spokeswoman said the lower estimate the Pentagon staffers had made was based on an “incomplete picture” of all the shipping services that Yellow provides to the Defense Department through multiple contracts.

Career officials also expressed concern about a Justice Department lawsuit against the trucking company, the investigation found. The fact that other companies provided the same service, combined with the lawsuit, led the staffers to believe “we should not provide a DOD recommendation and certification for them,” according to a memo excerpt in the subcommittee report. Last month, the company agreed to a $ 6.85 million payment to resolve the allegations without admitting liability.

Defense Department spokesperson Jessica Maxwell said in a statement that Treasury was responsible for making any final decisions over the loans. Treasury career staffers were not involved in the decision, according to one person familiar with the matter, who spoke on the condition of anonymity to reflect internal deliberations.

That staff memo also noted the political pressure over the loan, stating that multiple members of Congress had contacted the Pentagon asking for Yellow to be certified. An oversight report last year also cited letters from eight members of Congress, Democrats and Republicans, to Mnuchin throughout April 2020. Yellow significantly increased its spending on lobbying in 2020, ultimately paying lobbyists $ 570,000 that year compared to zero in 2019, according to federal disclosures .

After the career staffers recommended not certifying Yellow for the loan, Mnuchin requested a call with Esper, which was held on June 26 – two days after Pentagon staffers communicated their determination to Treasury. Pentagon officials initially prepared talking points for Esper, who was not familiar with the certification issue, that reflected career officials’ recommendation.

But Ellen Lord, appointed by President Donald Trump as the top acquisitions official at the Pentagon, asked Esper’s chief of staff to replace those talking points with new ones, according to emails cited by the subcommittee. The new materials omitted the point that other companies could provide the same services and recommended that Yellow be certified “to both support force readiness and national economic security.”

Lord did not respond to a request for comment.

Shortly after Esper’s call with Mnuchin, Esper signed a letter to the Treasury certifying that Yellow was “critical to maintaining national security,” clearing the way for the loan.

Tony Romm and Aaron Gregg contributed to this report.

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