The business practices that made President Barack Obama’s defense secretary nominee Chuck Hagel worth as much $11 million were once denounced by some of his Democratic supporters.
Vanguard Cellular Systems, Inc., a cell phone company Hagel co-founded, came under fire for its FCC licensing strategy in the mid-1980s. Vanguard was one of many companies competing in a lottery process for a limited number of FCC radio spectrum licenses.
While other companies filed single license applications, Vanguard investors filed separate applications in multiple markets. Lee Lovett, an attorney who was later convicted in a mail fraud case, reportedly devised the controversial plan.
The company made millions after winning several licenses. But critics complained it skewed the lottery process and potentially ran afoul of the law. Applicants who failed to procure a license sued Vanguard, eventually settling the case out of court.
Hagel’s company’s tactics also raised alarms at the FCC.
“The allegations raised there might overlap criminal statutes,” said FCC Common Carrier Bureau Chief Albert Halprin at the time.
Although criminal charges never materialized and the FCC later said Vanguard was not attempting to skew or manipulate the lottery, the commission changed its rules to prohibit explicitly the controversial practice going forward.
Democrats revived criticism of the Vanguard plan during Hagel’s 1996 Senate campaign against Democrat Ben Nelson.
Nelson accused Hagel of “fraud” in a campaign ad, blasting the tactics as an “apparent violation of the law.”
“Did he play by the rules?'’ Nelson said, according to an Omaha World Herald report. “I'm comfortable saying that what he did was inappropriate, and that it was a scheme, and that it improved his odds of winning.”
Former Nebraska Sen. Bob Kerrey, who said last month that Hagel “has everything any president would want in a secretary of defense,” echoed Nelson’s attack during the 1996 campaign.
“Kerrey said Hagel and the company he founded, Vanguard Cellular Systems Inc., clearly took a liberal view of the law in an effort to increase the company's chances of winning a federal lottery for cellular phone licenses,” reported the Omaha World Herald at the time.
When asked whether he still stood by his comments about Hagel, Kerrey told the Washington Free Beacon, "I was wrong."
Democrats also took aim at Hagel’s tax record.
Vanguard took advantage of loopholes to avoid federal income taxes from 1988 to 1992 while Hagel was on its board. Nelson conceded during the 1996 campaign that this was legal but complained to the Omaha World Herald that most Americans do not have access to these kinds of tax breaks.
Pentagon spokesperson George Little defended Hagel’s record and dismissed past Democratic attacks on his business career.
"The fact of the matter is that Chuck Hagel has been successful in every aspect of his professional life, including in business,” Little said. “He's not focused on comments from 1996. He's squarely focused on the issues that matter today to the U.S. military and our national security as he prepares for next week's confirmation hearing."
A spokesperson for Nelson did not respond when asked if the former senator stands by his criticism of Hagel.
Hagel entered the cell phone industry in 1982, investing in a startup called Collins, Hagel, and Clarke Inc. The company consolidated with a group of North Carolina investors in 1984 to form Vanguard. Hagel held the role of director and executive vice president at Vanguard until 1987 and remained on the company’s board until 1992. AT&T later bought Vanguard.
Hagel’s meteoric rise in the cellular world was aided, in part, by his ability to leverage political connections from his years in government. "The connections Hagel had made while working in Congress and, especially, for Firestone, became an important asset” for the company, wrote Charlyne Berens in her biography Chuck Hagel: Moving Forward.
“He has a Rolodex the size of an oil drum,” former Vanguard chairman Stuart ‘Dick’ Richardson told the Omaha World Herald in 1996.
Hagel used the money he earned from cashing out of the cellular industry to help launch his political career. He spent nearly $3.4 million on his successful 1996 Senate bid, $1 million of which was self-financed.