New Disclosures Highlight Ashton Carter’s Ties to Investors

Ashton Carter, President Obama’s nominee for Secretary of Defense, received $20,000 last year from one of the top consulting firms offering political intelligence to investors. And his wife’s investments in the defense industry may at times require him to stay on the sidelines while he serves at the Pentagon.

Those are among the tidbits revealed in new disclosure reports posted online by the Office of Government Ethics.

Last week, the Project On Government Oversight wrote that Carter, “[w]hile working in the private sector...has held plum positions on government advisory boards that called for reforms with potential ramifications for his defense industry clients and other companies that receive [Department of Defense] dollars.” Like many members of Washington’s policy establishment, he has straddled the public and private sectors, keeping a foot in both worlds with the potential to gain inside information on, and influence over, government policy.

Carter’s latest ethics disclosures show another way for former government officials to cash in: giving speeches sponsored by companies in the investment world. The new disclosures detail Carter’s consulting and speaking engagements since he stepped down as Deputy Secretary of Defense in late 2013.

In addition to consulting for the Markle Foundation—where he worked on a task force to “enable improved decision making with regard to major security threats against our nation”—and lecturing at Stanford University, Carter gave several speeches arranged by investment firms and Pentagon-funded research labs.

For speeches given in 2014, Carter received $30,000 in honoraria from JMI Equity, $22,500 from Barclays Capital, $15,000 from Liberty Mutual, and $5,000 from Goldman Sachs, according to his financial disclosure form.

In May 2014, he received a $10,000 honorarium for giving a lecture hosted by MIT’s Lincoln Laboratory, a major research center that performs special projects for the Pentagon. (Carter also served on Lincoln’s advisory board from 1998 to 2009, during which time the lab received around $280 million in DoD contracts.) The following month, he received $5,000 from the Aerospace Corporation, which operates a Pentagon-funded research center—it received nearly $9.5 billion in DoD contracts over the past ten years—and works on national security space programs.

Then there’s the $20,000 honorarium that Carter received in June 2014 for giving a speech arranged by the Gerson Lehrman Group, one of the leading expert network consulting firms. These firms match experts from various companies and industries with hedge fund managers and other investors looking for an edge. They can also enable “Wall Street investors—hedge fund mavens, private equity executives, mutual fund analysts and others” to “gain special entrée to Washington’s vast federal bureaucracy,” as POGO wrote in 2011.

Some firms have enlisted the services of former government officials. Other experts at the Gerson Lehrman Group, for instance, include a former Director of Targeting and Combat Assessment at U.S. Central Command, a former Deputy Director of the Army’s Counter IED Operations Center, and a former Assistant Deputy Undersecretary of Defense who later served as a consultant to the Pentagon.

Carter’s disclosure forms do not provide any additional information about his remarks. But this is not the first time he has appeared at the intersection of government and the investment industry.

Several years ago, while serving as the Pentagon’s chief weapons buyer, he spoke to investors about mergers in the defense industry. “He told the assemblage that the Pentagon would frown on mergers among the five giant military contractors—the so-called primes: Lockheed Martin, General Dynamics, Raytheon, Northrop-Grumman and Boeing,” according to a 2011 article by New York Times business columnist Joe Nocera. “However, he added, the Defense Department was going to encourage mergers among smaller military contractors. And, he said, ‘we will be attentive’ to innovative smaller companies that provide services (as opposed to weapons systems) to the Pentagon.”

“For the last few months, beginning with a secret meeting last October, Defense Department officials have been making the rounds of analysts and investors,” Nocera wrote. “Their main message, to put it bluntly, is that even in an era of tighter budgets, the Pentagon is going to make sure the military industry remains profitable. ‘Taxpayers and shareholders are aligned,’ Mr. Carter intoned” in his remarks.

Carter’s newly posted forms shows that his wife has defense-related financial interests and lays out the steps he will take to avoid conflicts of interest related to her investments. As a partner at ABS Capital Partners, Inc., a venture capital firm, Carter’s wife has made “capital commitments” to funds established by the firm that “invest in small private companies with potential for growth,” Carter wrote in a letter to the Pentagon’s ethics official. Although she doesn’t know which companies the ABS funds will invest in, once the investments are made she must remain with the funds until they wind down, according to Carter’s disclosure. His new form shows that he and his wife have investments worth millions of dollars, including ABS fund assets valued between $1.9 and $6.8 million.

“Two current holdings of these funds, ISO Group and Athletes’ Performance, are on the DoD contractor list and are included in my screening arrangement,” Carter wrote. “Accordingly, for as long as my spouse owns these interests, I will not participate personally and substantially in any particular matter that to my knowledge has a direct and predictable effect on the financial interests of either of these entities, unless I first obtain a written waiver.” ISO Group is a spare parts company that provides “sustainment support, repair and replacement parts, and logistics services to the US Department of Defense, prime contractors, and international customers,” according to its website. The firm supports aircraft such as the A-10 Thunderbolt and the F-22 Raptor. The Pentagon has said it is committed to retiring the A-10 aircraft, although POGO and its allies have argued this decision would “defy combat needs and budgetary logic,” and Members of Congress are fighting to protect the aircraft from budgetary cuts. Athletes’ Performance, now known as EXOS, has worked with the Navy on a fitness and nutrition initiative.

Carter’s form says that, in order to comply with requirements of the Senate Armed Services Committee, neither he nor his wife would maintain investments in companies on the DoD contractor list—“with the exception of my spouse’s ABS funds.”

Carter, his wife, the Gerson Lehrman Group, and a Pentagon spokesperson did not respond to POGO’s requests for comment, but we will update this post with any comments they provide. Carter’s confirmation hearing is set to take place in early February, according to Politico.