The President’s argonaut
The FBI conducted a dramatic raid today on a California solar company, Solyndra, that received a loan of $527 million from the Federal Financing Bank (FFB), a subsidiary of the U.S. Treasury. The FBI raid followed the filing of Solyndra’s bankruptcy yesterday.
There are numerous parts of this story that don’t fit together well and suggest favoritism and political influence. Two executive branch agenciesÂ and a congressional committee are looking into the activities of the firm and their connection to the White House. The FBI raid was jointly conducted by the Department of Energy’s Office of Inspector General and the FBI. TheÂ House Energy and Commerce Committee’s investigative panelÂ will hold a hearing on September 14.
Like many political scandals this one involves influence and money. There is a lot to sort out here.
The first question for investigators and Congress is why Solyndra received a $537 million loan from the U.S. Treasury. Were those responsible in the DOE aware that Solyndra couldn’t find private-sector financing? The FFB is a government corporation, created by Congress in 1973 under the general supervision of the Secretary of the Treasury. It can fund loans that areÂ guaranteedÂ by agencies of the U.S. government. As of 2010 it had made loans on behalf of the DOE for $2.9 billion (FFB 2010 Financial Statements, page 15). Solyndra made up about 20% of that amount. Prior to the Treasury’s loan, the firm had done nine rounds of private financing and filed for an IPO which was subsequently withdrawn.
Two of Solyndra’s largest investors areÂ Argonaut Ventures I, L.L.C. and theÂ GKFF Investment Company, LLC. Both firms are represented on the Solyndra board of directors by Steven R. Mitchell (see Solyndra S-1 page 119). Both are investment vehicles of the George Kaiser Family Foundation of Tulsa, Oklahoma.
George Kaiser was a bundler for President Barack Obama in 2008 election. The Daily Caller has done an excellent job of establishing that Mr. Kaiser visited the White House 16 of the 20 times that Solyndra investors or management visited there. From the Daily Caller (emphasis mine):
According to White House visitor logs, between March 12, 2009, and April 14, 2011, Solyndra officials and investors made no fewer than 20 trips to the West Wing. In the week before the administration awarded Solyndra with the first-ever alternative energy loan guarantee on March 20, four separate visits were logged.
George Kaiser, who has in the past been labeled a major Solyndra investor as well as aÂ Obama donor, made three visits to the White House on March 12, 2009, and one on March 13. Kaiser hasÂ denied any direct involvement in the Solyndra deal and through a statement from his foundation said he â€śdid not participate in any discussions with the U.S. government regarding the loan.â€ť
George Kaiser alleges that he didn’t discuss Solyndra with any White House officials but his investment vehicles were very hot for Solyndra. I went back into Solyndra’s IPO filing and totaled up the amount of funding Kaiser’s investment businesses gave Solyndra. Over 9 rounds of financing it investedÂ approximately $337 million, or 48% of all equity raised for the business. Although Kaiser, through Argonaut and GKFF Investment Company, LLC, did not participate in the initial two private financing rounds, they dominated the following funding rounds and were the major venture capital investors in the firm.
Which brings us to the bankruptcy Solyndra filed yesterday in Delaware federal bankruptcy court. Like many bankruptcies there are a lot of creditors in line to be repaid by disposing of Solyndra’s assets. What is unusual is the order of precedence of creditors. When the Solyndra loan wasÂ guaranteedÂ by the Department of Energy and paid out by the U.S. Treasury according to US lawÂ 10 C.F.R. Â§609.10(d)(13), the government should have become first in line for repayment (page 2):
Any Guaranteed Obligation may not be subordinate toÂ any other debt and must have a first lien position on allÂ assets of the project and all additional collateral pledgedÂ as security for any project debt.
But when I read the bankrutpcy filing it turns out George Kaiser’s investment firm isÂ actuallyÂ first in line, ahead of the U.S. government, for $69 million. Here is the ordering:
- Tranche A: Â $69,302,901 – Â Argonaut Ventures I, L.L.C
- Tranche B/D Term Loan Facility: Â $527,808,544 Â - Â U.S. Department of Energy
- Tranche E Credit Documents: $186,481,645 -Â ArgonautÂ Ventures I, L.L.C.
The financing documents were rewritten in February 2011 and gave priority toÂ Argonaut for Tranche A. Several commentators have raised the question of why the Department of Energy would have allowed the government to become subordinate to Argonaut given the law.
It turns out that argonaut was a person who participated in the California Gold Rush. George Kaiser seems to be a man who has participated in many gold rushes and was making a very large bet on solar energy through Solyndra. There are a lot of loose threads here that need to be tied together. Taxpayers money must be recovered first. I hope everything was on the up-and-up and Solyndra was funded entirely on its potential merits rather than political influence. Alleged political favoritism will kill public enthusiasm for reorienting policy towards renewable energy. Solyndra seems to be a tale of dirty solar. Hopefully it wonâ€™t block out the sun.