A report from the select subcommittee on the coronavirus crisis says the Trump administration went against the Defense Department’s recommendation to deny Yellow Corp’s $700 million request. under the Coronavirus Aid, Relief and Economic Security Act.
In a report titled “‘We Got Our Hands in the Cookie Jar’: The Trump Administration’s $700 Million ‘National Security’ Loan to Yellow Corp,” the select subcommittee on the coronavirus crisis said the Trump White House intervened with the trucking company’s CARES Act loan.
“The select subcommittee’s investigation uncovered troubling evidence that Trump administration appointees blatantly disregarded an assessment by experts at the Department of Defense’s industrial base that the company is not expected to be certified under the CARES Act as ‘essential to maintaining national security’ and provided generous loan terms that violated CARES Act risk and interest rate requirements interest,” the report said. “Evidence obtained by the select subcommittee suggests that these decisions were driven by the White House and President Trump himself.”
The subcommittee asks that the Treasury Department’s Office of Inspector General is investigating whether Yellow Corp. violated federal law by knowingly making false statements.
Yellow Corp. received the massive loan in July 2020 as part of a CARES Act program intended to keep businesses “essential to maintaining national security” operating. The Overland Park, Kansas-based company has been approved for $700 million, or 95% of the total funds disbursed under this program.
The company calls the claims in the report “unsubstantiated” and “demonstrably false.”
The company calls the claims in the report “unsubstantiated” and “demonstrably false.”
According to the report, Defense Secretary Mark Esper, White House Chief of Staff Mark Meadows, Treasury Secretary Steven Mnuchin and Trump all played a role in approving the $700 million tax bill. pandemic recovery.
The investigation reveals that about two months before receiving the loan, Meadows planned to call Mnuchin regarding Yellow Corp’s request. According to information provided by Yellow Corp. lobbyists, Meadows was the “key player” in the administration. Lobbyists have spoken to Meadows at least three times about the company.
Records obtained by the subcommittee show that other White House officials regularly communicated with the trucking company and its representatives about the loan request and sought to contact the Treasury on Yellow’s behalf in May. 2020.
Shortly before Esper certified Yellow Corp.’s loan, Trump had received a call pushing for the loan. Immediately after the loan was made, Mnuchin emailed the announcement to Meadows and other close Trump aides, highlighting Trump’s praise in news stories about the loan. Company lobbyists told investigators the White House political director was “almost giddy” working on the loan application.
Trump administration ignored Department of Defense recommendation
The intervention through high-level Trump appointees was necessary because career officials said the trucking company was not “essential to maintaining national security.”
In its analysis, the Department of Defense concluded that other companies could replace Yellow Corp.’s trucking services, making it ineligible to receive the $700 million under the CARES Act program for critical businesses. national security. The analysis said Yellow Corporation’s services “were less than half of what the company claimed.”
Yellow Corp. has a history of allegations accusing him of lying to the federal government. The trucking company was involved in a lawsuit filed by the US Department of Justice on behalf of the Department of Defense. The lawsuit accused the trucking company of a massive fraud scheme that overcharged the Department of Defense.
Company officials told the Treasury Department that the lawsuit was only a “contract dispute,” despite accusations of fraud worth millions of dollars. This lawsuit was only recently settled.
On June 24, 2020, Department of Defense officials told the Treasury that it would not certify the loan. Shortly after, Mnuchin requested a phone call with Esper and their respective general counsels about loan certification. After the call, Esper certified Yellow Corp’s loan application. on the basis of national security.
The phone call undermined Mnuchin’s testimony before the Congressional Oversight Committee in December 2020. Mnuchin told the committee that the Treasury simply “relyed” on the Department of Defense certification. Furthermore, he suggested that the allegedly independent certification of the loan by the Department of Defense caused the Treasury to prioritize Yellow’s loan request over requests from other companies. However, the phone call suggests Mnuchin may have prompted the certification.
Yellow Corp. caught in the act of “hand in the cookie tin”
By defying the recommendation of career leaders, the Trump administration may have violated the CARES Act it helped create.
According to the report, more than half of Yellow Corp. was used for long-term capital investments. However, the CARES Act requires loans to be made to offset “losses suffered as a result of the coronavirus”.
Essentially, the CARES Act is an economic recovery program, not an economic recovery program.
Yellow Corp. can use about $400 million of the loan for a long-term investment in replacing its fleet of trucks and trailers. However, this amount far exceeds what the company was spending annually on capital investments before the pandemic. Moreover, it is significantly larger than the initial Treasury loan offer to the company.
Documents obtained by the subcommittee show that Yellow Corp. Financial director Jamie Pierson wrote to a creditor to say: “While we had our hands in the cookie jar we thought we were going to try and get some ‘catch up’ capex (capital expenditure) while we were at it. were,” revealing that company executives intended the demand for capital expenditure to go beyond covering losses caused by the pandemic.
Additionally, the report says Yellow Corp.’s CARES Act loan. included an interest rate significantly lower than the rate it paid to private creditors, even though the government took on more risk than those creditors. The CARES Act required loans to be made at a “rate that reflects risk” and not lower than the rate the business would have received “prior to the outbreak of the coronavirus.”
“There are clear indications that President Trump and White House officials allowed political considerations – including the belief that providing relief funds to Yellow could be electorally advantageous – to override adherence to CARES Act requirements and agency policies in Yellow’s loan application review process,” the report said.
Response from Yellow Corp.
In a letter to subcommittee chairman James Clyburn, DS.C., dated April 26, the day before the report was released, a law firm representing Yellow Corp. attempted to erase the company name.
Marc Kasowitz of Kasowitz Benson Torres LLP told Clyburn that the company was “facing potentially crippling economic disruption caused by the coronavirus pandemic”. Kasowitz pointed out that Yellow Corp. had tried to save about 30,000 mostly American jobs, including 24,000 employees of the International Brotherhood of Teamsters. According to the letter, the company received broad support for the loan from members of Congress on both sides of the aisle.
Regarding allegations of ineligibility as a national security essential company, Yellow Corp. CEO Darren Hawkins told the congressional committee that the company is one of the largest carriers under trucks and a leading LTL service provider for the Department of Defense with expertise in critical military supply chain operations. Hawkins also says the company is a top carrier for the Department of Homeland Security and the Department of Energy.
Addressing the misuse of loan funds, Hawkins told the committee that “long-term capital investments” were part of negotiations with the Treasury Department. Therefore, says Yellow Corp., the terms of the loan definitely authorized such use of funds.
Yellow Corp. said she never denied her efforts to secure the loan.
Regarding questions about the interest rate of the loan, Kasowitz reminded the committee that the company had posted security in the form of a first lien on all equipment purchased with the proceeds of the loan, as well than a junior lien on all other assets. Additionally, Treasury received nearly a third of Yellow’s shares, totaling 15.9 million shares.
The equity stake is worth about $69.67 million, according to the letter. This has increased by about 50% in value since loan approval. Yellow Corp. paid more than $25 million in interest on the loan.
Referring to Pierson’s “cookie tin” comment, Yellow Corp. claims that the committee selects quotes to advance a political agenda.
“It is very unfortunate, indeed, that the committee, which had occasion to quote literally tens of thousands of pages of background material in the documents voluntarily produced by Yellow to the committee, chose instead to elevate rhetoric above substance for cheap political gain,” Kasowitz said in the letter. “Indeed, Yellow’s employees remain truckers, not politicians, which is why the company is happy to work with any party in the White House.”
To read the full letter, click here. LL