Defense secretary nominee Chuck Hagel remains invested in a private equity firm that raised red flags with the Senate Ethics Committee in 1997, according to an analysis of Hagel’s most recent financial disclosure report.
According to the Associated Press, Hagel will cut ties and investments with the group within 90 days if he is confirmed.
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Hagel has long been invested in the McCarthy Group, an Omaha-based private equity firm, where Hagel currently serves as a senior adviser of one of its subsidiaries, McCarthy Capital Corporation, and previously served as president of a subsidiary company.
Hagel’s continued investment in a firm criticized for a lack of transparency is again raising red flags on Capitol Hill.
These investments also attracted scrutiny in the past.
From 1996 to 2008, Hagel reported assets each year between $1,000,001-$5,000,000 in McCarthy Group, a non-publicly traded investment group.
Rather than providing full disclosure of the group's underlying assets, Hagel in his initial 1996 financial disclosure form categorized the group as an "excepted investment fund" despite its murky nature.
Hagel was contacted in May 1997 by the Senate Ethics Committee to provide it with "additional clarifying information" regarding his financial stake in the firm, according to the Hill.
The committee questioned whether it was legitimate for Hagel to designate the McCarthy Group as an "excepted investment fund," a categorization that depends on whether a firm’s holdings are publicly available.
Multiple ethics lawyers argued that the McCarthy Group was overreaching in using this designation.
Ethics lawyer Stanley Brand told the Hill it would be hard to show that an investment is excepted if "it's so closely held that it doesn't have a readily ascertainable value and there's not a way to trade it on a market, even a regional market or in an electronic way."
Hagel began to attach a letter from Michael McCarthy, chairman of the group, to his financial disclosure reports following the Hill‘s report. The letter argued the McCarthy Group holdings were publicly available because the firm’s financials were available to a small group of local banks.
The letter included in his final Senate financial disclosure explained that the group’s "financials were available to: First National Bank of Nebraska, Pershing LLC and Salomon Smith Barney."
The availability of the information to a select few banks in Nebraska makes the information publicly available, McCarthy argued. The attachment letter was included in each of Hagel’s disclosure reports since 2003.
When contacted by the Washington Free Beacon, however, the banks were not willing or able to provide this information to a third party. According to a representative at Pershing LLC, nobody at Pershing would give any information about a client to a third party. A representative at Salomon Smith Barney said any financial details would be covered by client-privilege and would not be available to an outside source without a court subpoena.
McCarthy and Hagel have long been allies.
He has deep ties with Hagel’s political career and was the treasurer for his Senate campaign. McCarthy’s son then received a job working in Hagel’s press office.
Hagel continued to categorize the McCarthy Group as an "excepted investment fund" for the remainder of his time as a senator.
However, in the financial disclosure report filed in advance of this week’s confirmation hearing the McCarthy Group no longer receives this designation.
The details of McCarthy Group’s financial holdings remain unclear.