At Cerberus, Feinberg Built a Web of National Security Ties

(Bloomberg) -- For a low-key financier who has spent a career managing money in Manhattan, Stephen Feinberg has a lot of friends in Washington.

Through his $30 billion investment firm, Cerberus Capital Management LP, Feinberg has bought companies that refuel spy planes, train Green Berets, make sniper rifles and watch America’s foes from space. He’s handed out jobs, lobbying contracts and campaign cash to some of the most powerful people in the nation’s capital.

Occasionally, these moves have generated controversy, such as when Feinberg showered cash on a congressman who saved a Navy contract benefiting his firm, or when Cerberus lobbied for a government bailout for an auto lender it owned. His biggest current investment in the defense industry, DynCorp International Inc., has struggled.

It’s against this backdrop that Feinberg, who has no experience in government, has been in discussions with White House officials about a senior job in national security.

At one point last year, he was under consideration to head the Department of Homeland Security, according to people with knowledge of the matter. More recently, talks turned to having Feinberg lead an overhaul of the sprawling U.S. intelligence community, these people said. Other options include a senior role in the Defense Department, one of the people said.

But no decision has been reached, and any such role would require Feinberg take steps to mitigate any conflicts of interest posed by his financial investments, these people said. Feinberg declined to comment for this story. His possible role in an intelligence overhaul was reported by Reuters last week.

Asked at a White House news conference Thursday if Feinberg would be tapped to lead an intelligence review, President Donald Trump said, “I think that we are gonna be able to straighten it out very easily on its own.”

Trump called Feinberg “a very talented man, very successful man,” and said, “he’s offered his services and you know, it’s something we may take advantage of.”

Training Ground

Feinberg’s most direct involvement with the military was a stint in the Army Reserve Officers’ Training Corps that ended in 1981, less than halfway through his senior year at Princeton University, where he majored in politics. But national security appears to have remained a passion.

A few years ago, he directed Cerberus to build a private, for-profit training ground for special-operations forces after visiting a Marine Corps facility and concluding it was subpar, according to New York magazine. After his firm came under pressure to sell a gunmaker known as Remington Outdoor Co., which is a military supplier, he allowed other investors to divest while retaining his personal stake.

“He really does feel deeply about duty to country,” said Leon Panetta, an adviser to Cerberus on intelligence and security matters who led the Central Intelligence Agency and Defense Department under President Barack Obama.

Concerns that Feinberg would facilitate White House political meddling in the intelligence agencies are misplaced, Panetta said.

“I think he would be committed to doing the right thing here. If somebody tried to influence him to do something differently, he’d tell ‘em to go to hell,” Panetta said. “He’s not a pawn, believe me.”

The New York Times reported Thursday that Feinberg was at one point being considered to lead the CIA’s clandestine service, generating a backlash within the agency.

“I have no idea what the hell was going on with that,” Panetta said. “Steve’s smart enough to know the only way this works is if he can do that as a review.”

An avid big-game hunter, Feinberg, 56, has forged a friendship with Trump’s son Donald Jr., who shares the hobby, according to a person with knowledge of the matter. He’s also close with Peter Thiel, an influential Trump adviser, another person said.

Trump Fundraiser

After backing Jeb Bush in last year’s Republican presidential primaries, Feinberg became one of the earliest Wall Street financiers to throw his support behind Trump after he clinched the nomination. Feinberg and his wife gave about $2.2 million to pro-Trump groups, far more than they’ve shelled out for other candidates, and co-hosted a $50,000-a-plate fundraiser at Manhattan’s Le Cirque restaurant in June.

Feinberg started Cerberus in 1992 and built it into one of the biggest and most successful investment firms in New York, amassing a fortune the Bloomberg Billionaires Index pegs at $1.6 billion.

He expanded beyond his early specialty, buying the debt of distressed companies, to orchestrate leveraged buyouts. His highest-profile bet was the 2007 takeover of Chrysler LLC, which went bankrupt less than two years later. Current investments include supermarket chain Albertsons Cos., bowling-alley operator Bowlmor AMF Corp. and a company that sells Avon beauty products.

“Steve has for years helped companies improve their performance,” Michael Morell, who worked for Feinberg after retiring as a senior CIA official in 2013, said in an e-mail. Using an abbreviation for the intelligence community, he added, “If the president asks him to look at the U.S. I.C., I’m certain he will have innovative ideas that will make a difference.”

Quayle, Snow

For such a big company, Cerberus keeps a low profile. Feinberg avoids public attention and rarely gives interviews. But he has surrounded himself with Washington players.

At the top of the list is Dan Quayle, the Republican vice president under George H.W. Bush, who acts as Feinberg’s point man on foreign deals from Tokyo to Frankfurt. John W. Snow, a former Treasury secretary under George W. Bush, is the firm’s chairman.

Other connections are less publicized. Feinberg has long been friends with Senator Orrin Hatch, according to associates of both men. The Utah Republican chairs the Senate Finance Committee, which handles matters such as taxes. Together, Feinberg and other Cerberus executives count as among the senator’s top sources of campaign funds.

DynCorp Trouble

Cerberus biggest current property in the defense industry is DynCorp, which sells services such as maintaining aircraft and training Iraqi police officers. Cerberus bought it for $1.7 billion in 2010, using mostly borrowed money. That left the company vulnerable when the military drew back from Iraq and Afghanistan and faced budget cuts known as sequestration. DynCorp saw sales drop to about $1.8 billion last year from from $4 billion in 2012, almost all of it from government agencies.

Another blow was the loss of a $10 billion aviation contract with the State Department, which DynCorp said in court papers is perhaps the largest in the department’s history. DynCorp is currently challenging the decision in the U.S. Court of Federal Claims.

Accountants warned in March that DynCorp might not be able to survive the year given its debt load, although it later refinanced and saw the value of its bonds recover. In November, the company’s chief executive officer told analysts he expected Trump to push for spending increases, “and I’m eager to see the new president and new Congress succeed in this regard.”

Defense Contracts

Like most big defense contractors, DynCorp employs a stable of retired military officers. John F. Kelly, a former Marine Corps general, became an adviser last year and agreed to step down from the role when he became Trump’s Homeland Security secretary last month.

Feinberg takes a personal interest in firearms and is said to be an advocate of the Second Amendment. He assembled Remington, one of the largest U.S. gunmakers, by buying a number of brands including Marlin and Bushmaster, the maker of the weapon used in the 2012 Sandy Hook school shooting. Its government products include sniper rifles for the Army.

It was another defense contract that won Feinberg’s firm unwanted attention more than a decade ago. In 2006, USA Today reported on a fundraising dinner Cerberus sponsored in New York for Jerry Lewis, a California Republican and chairman of the House Defense Appropriations Subcommittee. On one night in 2003, Feinberg’s colleagues and business associates gave more than $100,000 to a political action committee Lewis controlled, records show.

At the time, Cerberus owned a significant stake in MCI WorldCom, the bankrupt telecom company, which was helping build a computer network for the Navy and Marine Corps. Although Lewis had previously criticized MCI’s role, his subcommittee acted to preserve the project three weeks before the Cerberus fundraiser, USA Today reported.

Lewis acknowledged to USA Today that the fundraising dinner helped him ascend to the chairmanship of the powerful House Appropriations committee. He told the newspaper that his actions weren’t influenced by the fundraiser and that he didn’t know about Cerberus’s interest in the Navy contract.

The report led the FBI to open a corruption investigation, according to FBI documents later obtained by a nonprofit watchdog group, Citizens for Responsibility and Ethics in Washington, under a public-records request. The FBI closed the probe in 2008 without pursuing charges, the documents show. Lewis didn’t return two calls seeking comment.

Irish Payments

Cerberus was drawn into another scandal in Ireland in 2015, when a lawmaker took to the floor of parliament claiming improprieties in the government’s sale of a 1.3 billion pound ($1.6 billion) pool of troubled real estate loans to the company. The lawmaker, Mick Wallace, claimed that about 7 million pounds of Cerberus’s legal fees found their way to an offshore account allegedly intended for a politician.

All of the parties involved in the sale deny any wrongdoing. None of Cerberus’s money was used in any improper payments, Feinberg’s chief operating officer, Mark Neporent, testified in November before a parliamentary committee reviewing the deal, adding that Cerberus got assurances from local advisers that no such payments would be made. Neporent said the U.S. Justice Department and the Securities and Exchange Commission are examining the loan purchase.

Quayle and Snow met with senior government officials in Northern Ireland and the Irish Republic while Cerberus was pursuing its bid, Neporent testified.

Chrysler Bailout

Cerberus’s biggest foray into Washington took place in 2008, as the U.S. economy tipped into recession and the auto industry was near collapse. In the preceding years, Cerberus had placed a big bet on autos, buying General Motors Co.’s GMAC lending arm well as Chrysler.

As the industry appealed to Washington for a bailout, Cerberus poured millions of dollars into lobbyists’ coffers. The effort included a phone call from Snow, the former Treasury secretary, to his successor Hank Paulson, the New York Times reported at the time.

Both companies got bailouts, although Cerberus later gave up its Chrysler stake when the government put the automaker in bankruptcy. GMAC won regulators’ approval to become a bank holding company, helping it line up $17 billion in government aid. Cerberus was able to retain a stake in the company, now known as Ally Financial Inc.

Among the Washington hands who pressed Cerberus’s case on auto-finance issues in the Senate that year was Dan Coats, a former Republican senator from Indiana, lobbying records show. Coats is now Trump’s nominee for director of national intelligence, where he could find himself working with his former client.

--With assistance from Lizette Chapman Max Abelson David Carey Keri Geiger and Peter Flanagan

To contact the reporters on this story: Jennifer Jacobs in Washington at jjacobs68@bloomberg.net, Zachary Mider in New York at zmider1@bloomberg.net.

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Robert Friedman, Alan Goldstein