Rep. Pat Harrigan fears 'unintended consequences' of Pentagon's investment stakes in defense firms

The Pentagon’s controversial plan to take financial stakes in private companies could inflict long-term “unintended consequences” on the U.S. defense industry, Rep. Pat Harrigan told NewsNGR’ Threat Status podcast in an exclusive interview.

The North Carolina Republican and combat-decorated Green Beret is the latest high-profile Republican member to raise questions about the Trump administration’s deepening financial footprint in the private defense sector. Some critics say the arrangements could unfairly tip the scales toward certain companies, which, in the long run, could erode marketplace competition and make it harder for the military to obtain the munitions and raw materials it needs.

“I’m not comfortable with it at all, and I haven’t been comfortable with it since it began,” Mr. Harrigan said on Friday’s episode of the Threat Status podcast.

“I think it’s brilliant in the sense that it solves legitimate short-term problems that we have, but I think the long-term problem that it creates in anti-competitiveness is going to boomerang around to bite the defense industry right in the rear end,” he said. “I’m never a fan of unintended consequences, and I think there’s a lot of unintended consequences possible with this type of structure.”

So far, the Pentagon has taken or intends to take direct equity stakes in at least four companies: one in an L3Harris spinoff company that will produce solid rocket motors for munitions, and the others in companies that mine and process rare earth elements and other critical minerals.

The Trump administration as a whole has taken direct equity stakes in more than 20 companies, many of which came from the Commerce Department or other federal agencies, according to a tally from the libertarian Cato Institute think tank.

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The Pentagon’s financial interactions with private industry are changing in other ways. The Pentagon’s increasingly powerful Office of Strategic Capital, for example, this month announced a new program to loan money to investment fund managers, who are then expected to invest in companies working to shore up America’s supply of critical minerals. That office, established in 2022, is a key Pentagon channel for providing loans to companies that supply products or capabilities to the military.

In a statement to The Times, a Defense Department official said the Office of Strategic Capital conducts proper due diligence on all loans but did not offer details on that process.

“Before any loan is disbursed, OSC conducts extensive due diligence on potential borrowers to fulfill all necessary conditions. To protect the integrity of this process and the proprietary information of potential borrowers, the department cannot comment on the specific commercial, contractual, financial, technical or legal considerations raised during the conditional loan commitment process,” the official said.

“OSC maintains a rigorous, multi-layered ethics framework that includes a detailed screening process and operates in full compliance with all federal ethics laws and regulations,” the official said.

Pushback on Capitol Hill

The Senate version of the $1.15 trillion National Defense Authorization Act, which has met fierce resistance from chamber Democrats, would codify the Pentagon’s authority to take ownership stakes in private companies. It would also set specific monetary caps and impose other restrictions to govern the Pentagon’s financial relationships with businesses.

Even leading Senate Republicans who support the broader NDAA have reservations about the Pentagon’s evolving financial relationships with the private sector.

“The concern that I have with it is that I don’t want to pick winners and losers necessarily. And at what point do you suddenly start using one company because you have an interest in it? I think there’s some discussion that’s going to occur yet on that,” Sen. Mike Rounds, South Dakota Republican, told The Times this month.

Sen. Rick Scott, Florida Republican, told The Times that the step should essentially be a last resort if the Pentagon has no other way to accelerate the production of a specific product or capability.

“It’s got to be rare,” Mr. Scott said.

Mr. Harrigan said the ownership stakes have set off “alarm bells” in the halls of Congress. He said the House and Senate have the final say over whether the Pentagon can take those steps.

“All of this is only as good as the legislative branch is willing to fund at the end of the day,” Mr. Harrigan said.

In January, the Pentagon announced a deal to invest $1 billion in a new company to be spun off from defense industry giant L3Harris, which will produce solid rocket motors. Solid rocket motors are key components of advanced missile systems.

U.S. stockpile of those systems has been dramatically reduced because of the Iran war and American arms transfers to Ukraine, Israel and other allies.

At the time of the announcement, Michael Duffey, undersecretary of war for acquisition and sustainment, said the investment signified a major strategic shift in how the Pentagon views its relationship with the industrial base.

“We are fundamentally shifting our approach to securing our munitions supply chain,” he said at the time.

The Pentagon also has taken a stake in MP Materials, which mines and refines the rare earth elements used in electric vehicles, cell phones, fighter jets, advanced weapons and other 21st-century products. The company said this month that the Pentagon “agreed to purchase $400 million of a newly created series of the company’s preferred stock convertible into shares of the company’s common stock, and a warrant permitting DoD to purchase additional shares of the company’s common stock.”

Warrants allow the Pentagon to buy additional stock at a locked-in price in the future. The Pentagon reportedly has such arrangements with companies such as Vulcan Elements and ReElement Technologies, despite not currently holding a direct stake in them.

Trilogy Metals said the Pentagon is making a $35.6 million strategic investment in the company’s domestic copper mining operations. That equity stake agreement is expected to close on July 31.

The Pentagon also will take a 40% stake in a $7.4 billion Tennessee mineral smelter in partnership with Korea Zinc, according to Reuters.

• John T. Seward contributed to this report.