WEBVTT - Department of Cerberus 0:00:00.440 --> 0:00:06.080 Department of Cerberus. Deputy Defense Secretary Stephen Feinberg wants America's 0:00:06.120 --> 0:00:09.680 war machine to get cozier with companies. The private equity 0:00:09.720 --> 0:00:12.760 firm he co founded is building a constellation of next 0:00:12.760 --> 0:00:18.040 generation businesses to answer the call by Caleb Melby read 0:00:18.079 --> 0:00:22.919 aloud by Mark Leedorf. Late last year, Deputy Secretary of 0:00:22.960 --> 0:00:26.200 Defense Stephen Feinberg walked on stage at the National War 0:00:26.280 --> 0:00:29.920 College in Washington and announced that the military was overhauling 0:00:30.000 --> 0:00:33.360 how it buys weapons. It was a rare public appearance 0:00:33.400 --> 0:00:37.360 for Feinberg, a billionaire financial engineer who eschews the limelight 0:00:37.440 --> 0:00:40.599 as much as his boss, former Fox News host Pete Hegseth, 0:00:40.920 --> 0:00:46.080 embraces it. Speaking haltingly, Feinberg warned that America's adversaries have 0:00:46.200 --> 0:00:49.279 never been stronger and that the Pentagon wasn't keeping up. 0:00:49.800 --> 0:00:52.960 We do things in a very old manner, a slow manner, 0:00:53.159 --> 0:00:55.760 a bureaucratic manner, and we must change. 0:00:55.480 --> 0:00:57.120 That, Feinberg said. 0:00:57.360 --> 0:00:59.840 He put private businesses that sell to the government on 0:01:00.160 --> 0:01:03.320 notice two. The contractors who are willing to change with 0:01:03.440 --> 0:01:06.680 us will prosper and grow, he said. Those who don't 0:01:06.880 --> 0:01:10.560 and resist it will be gone. The new initiative included 0:01:10.560 --> 0:01:14.440 the creation of an Economic Defense Unit, or EDU, reporting 0:01:14.480 --> 0:01:18.040 to Feinberg that would accelerate the production of weapons, bolster 0:01:18.080 --> 0:01:22.800 domestic supply chains, and counter China's economic power. Before entering 0:01:22.880 --> 0:01:26.480 government last year, Feinberg was the co chief executive officer 0:01:26.560 --> 0:01:30.200 of Cerberus Capital Management, a private equity firm he co 0:01:30.280 --> 0:01:34.040 founded that has seventy billion dollars of assets under management, 0:01:34.440 --> 0:01:38.759 including investments in Albertson's supermarkets and dozens of other companies. 0:01:39.520 --> 0:01:41.360 In function and design, the. 0:01:41.520 --> 0:01:44.920 EDU looked a lot like Cerberus. There was good reason 0:01:45.000 --> 0:01:48.639 for that. In Weinberg's first weeks in office, Pentagon staff 0:01:48.640 --> 0:01:51.680 were dispatched to the company's New York headquarters, where they 0:01:51.720 --> 0:01:55.680 met with executives overseeing investments in defense related businesses with 0:01:55.800 --> 0:01:58.480 the goal of learning how the Pentagon could better engage 0:01:58.520 --> 0:02:02.240 private investors. According to a person familiar with the conversations 0:02:02.440 --> 0:02:06.320 who wasn't authorized to speak about them, in January, an 0:02:06.360 --> 0:02:09.639 opinion piece in The Hill highlighted key details about how 0:02:09.639 --> 0:02:13.320 the EDU would accomplish its mission, months before Finberg's own 0:02:13.360 --> 0:02:17.040 memo on the topic. The author, Paul Miller, had recently 0:02:17.160 --> 0:02:20.480 left Cerberus, where he'd helped oversee the firm's investments in 0:02:20.600 --> 0:02:25.480 national security businesses. The edu, Miller wrote, would avoid bureaucracy 0:02:25.520 --> 0:02:31.160 and move capital rapidly like a private equity partner. George Kalatidis, 0:02:31.440 --> 0:02:34.680 one of four Cerberus veterans Finberg had brought into the Pentagon, 0:02:35.080 --> 0:02:38.519 was selected to run the new office. Another, David Lorch, 0:02:38.880 --> 0:02:42.160 was tapped to lead the Office of Strategic Capital OSC, 0:02:42.560 --> 0:02:46.040 which has a two hundred billion dollar lending budget. In 0:02:46.040 --> 0:02:48.760 Feinberg's assent to the number two job at the Pentagon, 0:02:49.120 --> 0:02:53.000 former Cerberus executives have gained remarkable access to the largest 0:02:53.120 --> 0:02:57.680 US government agency that presents potential conflicts. Unlike any the 0:02:57.720 --> 0:03:01.919 Defense Department has seen. In an administration teaming with billionaires 0:03:01.960 --> 0:03:05.760 and rife with crypto enrichment, stock trading in companies interacting 0:03:05.800 --> 0:03:09.880 with the government, and public transactions that benefit the president's suns, 0:03:10.320 --> 0:03:16.080 Feinberg has quietly achieved something different in personnel, priorities and policy. 0:03:16.280 --> 0:03:19.040 He has remade the Pentagon with its one trillion dollar 0:03:19.120 --> 0:03:24.000 budget in Cerberus's image. Those changes have implications for American 0:03:24.040 --> 0:03:27.440 industry and national security that will be felt for years 0:03:27.480 --> 0:03:31.160 to come, and as Feinberg shakes up how the military 0:03:31.200 --> 0:03:35.520 does business. Cerberus and Tracker Capital, Management, of venture capital 0:03:35.560 --> 0:03:39.600 firm he founded, are building next generation national security businesses 0:03:39.840 --> 0:03:43.520 poised to profit in a new era of warfare. This 0:03:43.680 --> 0:03:46.840 isn't Cerberus's first attempt to become a business partner for 0:03:46.880 --> 0:03:50.600 America's war machine. As recently as twenty nineteen, it was 0:03:50.680 --> 0:03:54.320 the twenty fifth largest defense contractor, with one point nine 0:03:54.360 --> 0:03:57.960 billion dollars in awards, according to an annual government list 0:03:57.960 --> 0:04:01.080 of the top one hundred. As one of its companies, 0:04:01.200 --> 0:04:05.000 which built barracks and trained police in Afghanistan, went sideways, 0:04:05.400 --> 0:04:09.000 the flow of money dwindled in twenty twenty, when Cerberus 0:04:09.040 --> 0:04:12.800 sold the company Dine Corp International for an undisclosed amount. 0:04:13.200 --> 0:04:16.240 Its revenue from the Defense Department collapsed to six hundred 0:04:16.240 --> 0:04:19.799 and twenty five million dollars. It remained below five hundred 0:04:19.800 --> 0:04:22.640 million dollars a year through twenty twenty four, the last 0:04:22.720 --> 0:04:26.520 year for which such data is available. Cerberus's pivot from 0:04:26.520 --> 0:04:30.679 investing in big contractors to more cutting edge technologies began 0:04:30.800 --> 0:04:34.760 during Donald Trump's first administration, when Feinberg chaired the President's 0:04:34.760 --> 0:04:38.760 Intelligence Advisory Board and received top secret briefings that increased 0:04:38.760 --> 0:04:42.560 his alarm about China. Although most of Cerberus's assets are 0:04:42.600 --> 0:04:45.640 still in non defense companies, the private equity firm and 0:04:45.720 --> 0:04:48.920 Tracker went on a buying spree starting in twenty eighteen, 0:04:49.120 --> 0:04:53.240 acquiring or investing in more than two dozen national security businesses. 0:04:53.520 --> 0:04:58.120 An examination of company documents and public filings shows one 0:04:58.320 --> 0:05:03.800 tests hypersonic weapons, another installs undersea communications cables, a third 0:05:03.920 --> 0:05:07.440 manages a strategic shipyard in the Pacific. Five have been 0:05:07.480 --> 0:05:11.159 selected to bid on Trump's Golden Dome missile shield initiative. 0:05:11.800 --> 0:05:15.320 A tiny start up Feinberg championed before taking office below 0:05:15.360 --> 0:05:19.080 the radar of most telecommunications analysts, has been integrated into 0:05:19.080 --> 0:05:22.280 efforts encouraged by the Defense Department to build a six 0:05:22.360 --> 0:05:25.480 G wireless network that could be worth billions of dollars. 0:05:26.320 --> 0:05:29.240 While Feinberg has said he has divested his stakes in 0:05:29.320 --> 0:05:32.960 Cerberus and Tracker, his published ethics agreement reserved the right 0:05:33.040 --> 0:05:36.120 to place those assets in trusts for his adult children. 0:05:36.440 --> 0:05:39.960 The Feinberg trusts planned to donate incentive fees received from 0:05:39.960 --> 0:05:43.640 Cerberus funds to charities benefiting US veterans. According to a 0:05:43.680 --> 0:05:47.680 trustee in his filings, Feinberg has left open the possibility 0:05:47.680 --> 0:05:50.240 that he could return to the company, saying he would 0:05:50.240 --> 0:05:55.360 consult with ethics officials before repurchasing any assets. Feinberg declined 0:05:55.400 --> 0:05:59.760 requests for an interview. Sean Parnell, the chief Pentagon spokesman, 0:06:00.040 --> 0:06:03.520 said Feinberg follows all federal laws and avoids any conflict 0:06:03.520 --> 0:06:07.280 of interest. Deputy Secretary of War Steve Feinberg is a 0:06:07.279 --> 0:06:10.599 man of integrity who has conducted himself ethically throughout his 0:06:10.800 --> 0:06:13.839 entire career and has had a generational impact on the 0:06:13.839 --> 0:06:18.120 Department of War, he said. Throughout his entire professional journey, 0:06:18.320 --> 0:06:21.480 including his service as Deputy Secretary of War, he has 0:06:21.560 --> 0:06:25.400 maintained an impeccable record of public trust, entirely free from 0:06:25.440 --> 0:06:28.840 any conflict of interest. He has been successful in his 0:06:28.880 --> 0:06:32.479 career before serving in government, during his service, and will 0:06:32.520 --> 0:06:35.200 continue to be successful after he decides to move on. 0:06:36.080 --> 0:06:39.320 A spokesman for Cerberus said Feinberg divested his stake in 0:06:39.400 --> 0:06:42.440 Cerberus and any funds it manages, and is not involved 0:06:42.440 --> 0:06:45.440 in the operations of Cerberus or its portfolio companies in 0:06:45.520 --> 0:06:49.960 any way. The company has taken proactive steps to establish 0:06:49.960 --> 0:06:53.880 a comprehensive compliance program designed to address any potential or 0:06:53.880 --> 0:06:59.720 perceived conflicts. The spokesman said, including protocols prohibiting contact concerning 0:06:59.720 --> 0:07:03.800 service investments with mister Feinberg and Cerber's alumni serving at 0:07:03.800 --> 0:07:08.120 the department. Tracker Capital didn't respond to requests for comment. 0:07:09.040 --> 0:07:11.880 The question of whether what's good for Feinberg and Cerberus 0:07:12.000 --> 0:07:14.560 is good for the military is being tested as the 0:07:14.560 --> 0:07:18.680 Pentagon deploys more capital than ever. Although he's now managing 0:07:18.760 --> 0:07:22.720 taxpayer dollars, Feinberg has brought a Wall Street appetite for risk. 0:07:23.360 --> 0:07:26.280 His team has negotiated deals to buy equity stakes in 0:07:26.320 --> 0:07:29.920 companies and is exploring lease back arrangements to build housing 0:07:30.000 --> 0:07:33.560 and data centers on military bases. People familiar with his 0:07:33.680 --> 0:07:37.080 thinking say he'll consider the Pentagon's investments a success if 0:07:37.200 --> 0:07:40.160 one in five succeed, in line with the world of 0:07:40.240 --> 0:07:43.880 venture capital, where money is invested across startups and a 0:07:43.920 --> 0:07:47.280 few winners can more than make up for failures. Defense 0:07:47.360 --> 0:07:51.680 industry executives and government employees praised Feinberg for his willingness 0:07:51.680 --> 0:07:55.880 to challenge the military's long standing deficiencies. The Pentagon has 0:07:55.880 --> 0:07:59.640 had trouble tracking how it spends money, failing every financial 0:07:59.680 --> 0:08:03.000 audit it is conducted in the past decade. It remains 0:08:03.040 --> 0:08:06.680 dependent on a handful of large corporations such as Lockheed 0:08:06.720 --> 0:08:10.360 Martin and Boeing, and key projects frequently come in behind 0:08:10.400 --> 0:08:13.880 schedule or over budget. Feinberg's team has pushed what it 0:08:13.960 --> 0:08:18.960 calls an acquisition transformation strategy across all the military services 0:08:19.200 --> 0:08:22.560 to make the process faster, more flexible, and contingent on 0:08:22.640 --> 0:08:27.480 rigorous benchmarks. The effort has ushered new companies, including startups, 0:08:27.520 --> 0:08:31.720 into the Pentagon's contracting base, but the Cerberus deal makers 0:08:31.720 --> 0:08:35.600 he's brought into the Pentagon have sidelined acquisition experts and 0:08:35.679 --> 0:08:38.800 are unfamiliar with the nuts and bolts of government processes, 0:08:39.120 --> 0:08:42.440 according to half a dozen current and former officials interviewed 0:08:42.440 --> 0:08:45.320 by Bloomberg BusinessWeek who ask not to be named for 0:08:45.400 --> 0:08:48.920 fear of retribution. That's led to some rushed deals with 0:08:48.960 --> 0:08:53.959 inadequate due diligence and bets on unproven technologies. One early 0:08:54.040 --> 0:08:58.160 winner was Vulcan Elements, a producer of highly specialized commercial 0:08:58.160 --> 0:09:01.320 magnets backed by a company in which Donald Trump Junior 0:09:01.400 --> 0:09:05.680 is an investor. Former Cerberus executives now serve as Feinberg's 0:09:05.720 --> 0:09:08.480 deputy chief of staff and as heads of both the 0:09:08.679 --> 0:09:13.000 EDU and the OSC Cerberus, meanwhile, has a history of 0:09:13.080 --> 0:09:16.400 hiring leaders close to the government. In twenty twenty three, 0:09:16.520 --> 0:09:19.640 it added the former CEO of in q Tel, the 0:09:19.720 --> 0:09:23.360 nonprofit venture capital firm created by the CIA, and the 0:09:23.440 --> 0:09:27.160 highest ranking officer in the Space Force. Since Finberg joined 0:09:27.200 --> 0:09:30.640 the government, Cerberus has recruited the first US Ambassador for 0:09:30.679 --> 0:09:35.040 cybersecurity and the former acting director of the National Security Agency. 0:09:35.800 --> 0:09:39.280 Feinberg's allies in government and business wave away concerns that 0:09:39.320 --> 0:09:41.920 his time in the Pentagon might be a boon for Cerberus, 0:09:42.360 --> 0:09:45.120 saying he's a patriot who's losing money to be there. 0:09:45.679 --> 0:09:49.000 But Eileen Applebaum, co director of the Center for Economic 0:09:49.080 --> 0:09:53.360 and Policy Research, who's testified before Congress about Cerberus, says 0:09:53.400 --> 0:09:57.400 it isn't that simple. Cerberus looks out for itself. She says, 0:09:57.920 --> 0:10:01.400 whatever is happening, whatever it's doing, they're thinking about how 0:10:01.400 --> 0:10:05.120 they make money and come out on top. Feinberg has 0:10:05.160 --> 0:10:07.840 been fascinated with the military since at least as far 0:10:07.880 --> 0:10:11.200 back as his days at Princeton University, where he captained 0:10:11.240 --> 0:10:14.120 the tennis team and enrolled in the Army Reserve Officers 0:10:14.160 --> 0:10:17.839 Training Corps. He co founded Cerberus in nineteen ninety two, 0:10:18.440 --> 0:10:21.280 naming it after the multi headed dog in Greek mythology 0:10:21.559 --> 0:10:25.160 that guards the underworld. The firm's core businesses are in 0:10:25.240 --> 0:10:29.400 private credit and real estate, but over time Feinberg directed 0:10:29.440 --> 0:10:33.000 his company's expansion into the business of war, leading hours 0:10:33.000 --> 0:10:36.920 long meetings about even small defense adjacent businesses and recruiting 0:10:36.960 --> 0:10:41.000 executives from the CIA and the military. Now sixty six, 0:10:41.240 --> 0:10:44.599 Feinberg is worth four point four billion dollars according to 0:10:44.600 --> 0:10:48.160 the Bloomberg Billionaire's Index. But as he built that fortune, 0:10:48.320 --> 0:10:52.040 he was always hunting for a bargain. One former employee 0:10:52.080 --> 0:10:55.080 recalls him getting excited about buying four suits for the 0:10:55.080 --> 0:10:58.400 price of three at jose Bank, the men's clothing store. 0:10:58.960 --> 0:11:01.320 It's like your aunt who brags about the deal she 0:11:01.360 --> 0:11:05.120 got on Jeanes at TJ Max, says the employee. It's 0:11:05.120 --> 0:11:07.640 not about the genes, it's about the pursuit of a 0:11:07.679 --> 0:11:11.920 good deal. Other Cerberus alumni talk about the pool his 0:11:11.960 --> 0:11:15.320 wife requested at his modest ranch house in Stamford, Connecticut. 0:11:15.800 --> 0:11:18.800 Feinberg took a week off to dig it himself before 0:11:18.840 --> 0:11:22.800 giving up after one day and hiring a contractor. He's 0:11:22.840 --> 0:11:27.240 since upgraded to Fancier Diggs. These tales of a finance 0:11:27.320 --> 0:11:31.120 titan devoted to making money while also being uncomfortable spending 0:11:31.160 --> 0:11:34.920 it underpin the respect he gets from former employees, even 0:11:34.960 --> 0:11:38.680 liberal ones, who describe him as a Rockefeller Republican with 0:11:38.760 --> 0:11:42.679 a sense of nobless obliege and a patriotic streak. Many 0:11:42.760 --> 0:11:46.360 recall Cerberus holiday parties where festivities were halted so the 0:11:46.440 --> 0:11:47.520 national anthem. 0:11:47.280 --> 0:11:48.000 Could be played. 0:11:48.960 --> 0:11:52.440 Over the years, Feinberg has constructed an anti publicity shield 0:11:52.480 --> 0:11:56.560 as effective as any missile defense system. He once told investors. 0:11:56.679 --> 0:11:59.720 The New York Times reported that if anyone at Cerberus 0:11:59.720 --> 0:12:01.680 has his picture in the paper and a picture of 0:12:01.720 --> 0:12:04.640 his apartment, we will do more than fire that person. 0:12:05.040 --> 0:12:06.280 We will kill him. 0:12:06.800 --> 0:12:10.720 That aversion to transparency has permeated the Defense Department, which 0:12:10.720 --> 0:12:13.800 has stripped credentials from reporters who refuse to submit their 0:12:13.800 --> 0:12:18.320 stories to the agency prior to publication. Investigations of leaks 0:12:18.440 --> 0:12:21.360 led to the suspension and eventual firing of Feinberg's first 0:12:21.440 --> 0:12:24.559 chief of staff, though there was no finding of wrongdoing. 0:12:25.320 --> 0:12:27.920 Feinberg has played a key role in everything from the 0:12:27.920 --> 0:12:31.440 Pentagon's push for its largest budget ever to overseeing its 0:12:31.520 --> 0:12:36.280 artificial intelligence initiative, but except for his speech on acquisition reform. 0:12:36.640 --> 0:12:39.720 He's let others handle the public conversation while. 0:12:39.480 --> 0:12:40.840 He works behind the scenes. 0:12:41.600 --> 0:12:44.160 You can't see the black hole, but you know it's 0:12:44.200 --> 0:12:47.520 there because the planets around it wobble, says one former 0:12:47.559 --> 0:12:53.040 Defense Department employee, describing Feinberg's management style. Behind that veil, 0:12:53.360 --> 0:12:56.680 Feinberg's team of former Serberus executives has been focused on 0:12:56.800 --> 0:13:01.320 reshaping how the Pentagon interacts with private businesses. Feinberg believes 0:13:01.440 --> 0:13:05.079 Chinese companies are dominant in strategic industries as a result 0:13:05.160 --> 0:13:08.280 of government backing, and he doesn't think US companies can 0:13:08.280 --> 0:13:11.840 outrun them without their own government support. People familiar with 0:13:11.840 --> 0:13:14.960 his thinking say a conviction that's led the Pentagon to 0:13:14.960 --> 0:13:19.240 take ownership stakes in at least six companies, including Vulcan Elements, 0:13:19.600 --> 0:13:23.360 Rare Earth's producer MP Materials, and rocket motor maker L 0:13:23.400 --> 0:13:28.200 three Harris Technologies. His primary tools for drawing government and 0:13:28.280 --> 0:13:31.680 business closer are the Economic Defense Unit and the Office 0:13:31.679 --> 0:13:35.160 of Strategic Capital, which was created during the Biden administration 0:13:35.280 --> 0:13:37.960 to make loans to companies that can help secure domestic 0:13:37.960 --> 0:13:42.560 supply chains. Under Trump, the office's lending capacity has ballooned 0:13:42.559 --> 0:13:45.760 to two hundred billion dollars, which Feinberg's team wants to 0:13:45.800 --> 0:13:50.040 deploy over three years. Feinberg's arrival at the Pentagon was 0:13:50.080 --> 0:13:53.400 met with excitement he'd done his research. Current and former 0:13:53.440 --> 0:13:57.120 staff say his deal making expertise was sorely needed and 0:13:57.200 --> 0:14:00.600 he was considered a more serious person than Hegsev, but 0:14:00.720 --> 0:14:03.720 that good will began to fade when he spurned closer 0:14:03.720 --> 0:14:08.160 collaboration with other government agencies, hired more Cerberus staff, and 0:14:08.240 --> 0:14:11.280 came to rely on them over the department's career employees. 0:14:11.440 --> 0:14:12.160 The people say. 0:14:12.800 --> 0:14:16.280 While a formal application process still exists, they say the 0:14:16.320 --> 0:14:19.760 Cerberus alumni prefer to source their own deals, relying on 0:14:19.800 --> 0:14:23.440 their personal networks to find them. That, coupled with the 0:14:23.480 --> 0:14:26.960 massive budget increase, is creating a bottleneck that's keeping money 0:14:26.960 --> 0:14:30.960 from moving, the people say. By contrast, Cerberus has more 0:14:31.000 --> 0:14:34.200 than one hundred and twenty managing directors to handle assets 0:14:34.520 --> 0:14:37.880 equal to one third of the OSC's lending budget, and 0:14:38.000 --> 0:14:41.760 without the aggressive timeline to deploy the cash. To ease 0:14:41.800 --> 0:14:46.320 the backlog, Feinberg's team hired thirty investment bankers. The pitch 0:14:46.360 --> 0:14:49.320 to potential employees made clear how the job would ultimately 0:14:49.360 --> 0:14:52.560 pay off. According to a head hunting presentation put together 0:14:52.600 --> 0:14:56.720 by recruitment firm hydrichen Struggles International on the Pentagon's behalf, 0:14:57.480 --> 0:15:01.320 your exit opportunities will be exceptional, including the potential to 0:15:01.360 --> 0:15:03.880 launch a new fund with members of this team, The 0:15:03.960 --> 0:15:07.800 document says you will gain access to fundraising channels that 0:15:07.880 --> 0:15:13.320 include royal families and foreign sovereign contacts. Feinberg's rush to 0:15:13.360 --> 0:15:16.520 rebuild a domestic supply chain for their critical minerals used 0:15:16.520 --> 0:15:19.920 in making components essential for warfare has led to some 0:15:20.040 --> 0:15:23.400 sloppy deal making that's exposed fissures in the Trump administration 0:15:23.760 --> 0:15:27.400 about how to tackle the problem. In November, the OSC 0:15:27.440 --> 0:15:31.000 announced an eighty million dollar loan to re Element Technologies, 0:15:31.320 --> 0:15:34.160 a rare earth's processor in Indiana, as part of a 0:15:34.240 --> 0:15:38.040 larger one point four billion dollar venture into magnet manufacturing, 0:15:38.640 --> 0:15:41.880 but the memorandum of intent was signed before due diligence 0:15:41.880 --> 0:15:45.960 had been completed. Since then, Pentagon officials vetting the company 0:15:46.080 --> 0:15:49.520 have raised red flags about its financial soundness and its 0:15:49.560 --> 0:15:51.440 ability to scale up its technology. 0:15:51.560 --> 0:15:53.040 Bloomberg News has reported. 0:15:53.880 --> 0:15:56.960 At the time of the announcement, John Gallagher was Feinberg's 0:15:57.040 --> 0:15:57.840 lead man. 0:15:57.640 --> 0:15:59.120 For critical minerals deals. 0:15:59.600 --> 0:16:02.520 A West Point graduate and thirty year U. S. Army veteran, 0:16:02.840 --> 0:16:07.280 Gallagher is among Finberg's most trusted lieutenants. Before entering government, 0:16:07.520 --> 0:16:10.680 he'd been on Trump's transition team and served as Feinberg's 0:16:10.720 --> 0:16:14.080 assistant when he chaired the Intelligence Advisory Board during the 0:16:14.080 --> 0:16:17.800 first Trump administration. He'd worked as a managing director at 0:16:17.800 --> 0:16:21.840 both Tracker and Cerberus Supply Chain Fund, a two point 0:16:21.880 --> 0:16:25.400 five billion dollar vehicle that counts cutters in Saudi Arabia's 0:16:25.400 --> 0:16:28.760 sovereign wealth funds among its backers. According to three people 0:16:28.800 --> 0:16:31.640 familiar with the investments, who asked not to be identified 0:16:31.840 --> 0:16:35.880 because they weren't authorized to speak about the financing, Gallagher's 0:16:35.920 --> 0:16:39.600 expertise lay in understanding what the government needed and thinking 0:16:39.600 --> 0:16:43.040 about how to provide it. According to former Serberus employees, 0:16:43.720 --> 0:16:47.320 deal making was not his primary focus. The same month 0:16:47.360 --> 0:16:50.680 the deal was announced, Lorch was named director of the OSSE. 0:16:51.520 --> 0:16:53.920 A mid level deal maker at the Supply Chain Fund, 0:16:54.320 --> 0:16:57.760 Lorch was known for being able to keep Feinberg's long hours. 0:16:58.200 --> 0:17:01.960 He was also viewed by former colleague as cautious. Lorch 0:17:02.200 --> 0:17:04.520 wants to know exactly what the outcome will be. In 0:17:04.600 --> 0:17:08.000 five years, says one former employee who worked with him 0:17:08.000 --> 0:17:12.360 at Cerber's. You can't price risk that way. Soon there 0:17:12.359 --> 0:17:15.320 were signs that the OSSE was rethinking how it approached 0:17:15.400 --> 0:17:18.880 risk too. Earlier this year, the office sent out two 0:17:18.920 --> 0:17:23.600 requests for proposals, according to documents reviewed by BusinessWeek, One 0:17:23.720 --> 0:17:27.479 asked potential contractors for assistance in monitoring a portfolio of 0:17:27.520 --> 0:17:31.159 forty to fifty deals. The other sought help redeveloping the 0:17:31.160 --> 0:17:35.760 office's probability of default risk rating model. Lorch's team at 0:17:35.800 --> 0:17:38.720 the OSSE gave the re Element deal a deeper look. 0:17:39.200 --> 0:17:42.040 By May, it was on the rocks. It turned out 0:17:42.040 --> 0:17:45.280 the company's CEO, Mark Jensen, had an ally in the 0:17:45.280 --> 0:17:48.720 White House. When Bloomberg News reported that the Pentagon was 0:17:48.760 --> 0:17:52.840 reevaluating the re Element loan, Trump trade advisor Peter Navarro, 0:17:53.080 --> 0:17:57.800 who'd been pushing to make critical minerals investments, blasted Feinberg's team. 0:17:58.359 --> 0:18:01.240 He said they had no experience and how to manage 0:18:01.240 --> 0:18:04.399 a crisis at warp speed, and accuse the os of 0:18:04.400 --> 0:18:09.080 subjecting companies to overburdensome reviews. Two months later, when the 0:18:09.119 --> 0:18:12.320 Economic Defense Unit announced a twenty five million dollar investment 0:18:12.320 --> 0:18:15.719 in the company, Lorch's Office of Strategic Capital was not 0:18:15.880 --> 0:18:19.920 named in the release. Parnell, depending on spokesman declined to 0:18:19.960 --> 0:18:24.000 answer questions about re Element, Gallagher, Lorch, Navarro, and re 0:18:24.080 --> 0:18:29.120 Element didn't respond to requests for comment. Creating a domestic 0:18:29.160 --> 0:18:33.080 critical minerals industry would be trying under the best of circumstances, 0:18:33.520 --> 0:18:36.280 but the US off short its supply chain for decades, 0:18:36.680 --> 0:18:39.159 meaning it's not only the rocks that are in short supply, 0:18:39.560 --> 0:18:43.960 but also the refining capacity and expertise. Feinberg's team has 0:18:44.000 --> 0:18:47.480 made targeted equity investments and loans because that's what they 0:18:47.520 --> 0:18:49.879 know how to do, but it isn't clear that the 0:18:49.880 --> 0:18:53.720 strategy of trying to out China China can succeed. One 0:18:53.800 --> 0:18:56.520 former defense official says it would be easier to guarantee 0:18:56.560 --> 0:19:00.399 loans underwritten by large US banks, gaining acts to their 0:19:00.520 --> 0:19:06.199 underwriting and due diligence departments. It's extraordinarily susceptible to partisan manipulation, 0:19:06.800 --> 0:19:10.000 as with the Pentagon's backing of vulcan elements. The official 0:19:10.040 --> 0:19:14.199 says of Feinberg's strategy state directed capitalism with a whiff 0:19:14.240 --> 0:19:17.920 of feudalism. There are favorable terms and conditions going out 0:19:17.920 --> 0:19:22.200 to industries and actors who are nominally aligned with the party. 0:19:22.480 --> 0:19:29.280 We'll be right back with Department of Cerberus. Welcome back 0:19:29.320 --> 0:19:34.160 to Department of Cerberus. At his confirmation hearing last year, 0:19:34.359 --> 0:19:40.240 Feinberg touted his experience operating defense contractors in our DoD companies. 0:19:39.760 --> 0:19:41.240 Which we have bought over the years. 0:19:41.520 --> 0:19:44.440 Certainly we were insiders, but I also have an outside 0:19:44.480 --> 0:19:48.159 perspective to bring, he said. He offered his career in 0:19:48.240 --> 0:19:50.800 corporate turnarounds as a reason why he would be able 0:19:50.800 --> 0:19:54.840 to help the Pentagon improve its efficiency, cost structure, and operations. 0:19:55.440 --> 0:19:56.160 This is in my. 0:19:56.160 --> 0:19:59.600 Wheelhouse, hopefully, he told members of the Senate, while noting 0:19:59.680 --> 0:20:03.360 that I have certainly made my share of mistakes. Some 0:20:03.400 --> 0:20:07.360 of those mistakes involved companies with defense contracts. In two 0:20:07.400 --> 0:20:11.280 thousand and six, Feinberg led Cerberus on a gun buying spree. 0:20:11.560 --> 0:20:16.240 It acquired thirteen firearms brands, including Remington and Bushmaster, to 0:20:16.320 --> 0:20:19.560 form Freedom Group, which became the largest US gun and 0:20:19.600 --> 0:20:23.880 ammunition maker by revenue. A major customer the Army, which 0:20:23.920 --> 0:20:27.240 bought Remington M twenty four sniper rifles by the thousands. 0:20:28.000 --> 0:20:30.639 Cerberus filed to take the company public in two thousand 0:20:30.680 --> 0:20:34.320 and nine, but domestic gun sales dropped, and Remington was 0:20:34.359 --> 0:20:37.320 haunted by claims that its rifles fired without the trigger 0:20:37.400 --> 0:20:41.359 being pulled. A CNBC documentary revealed that the Marine Corps 0:20:41.480 --> 0:20:44.760 Elite Sniper Training School had found the guns misfired as 0:20:44.800 --> 0:20:48.640 often as twice every twenty rounds, posing a safety hazard. 0:20:49.359 --> 0:20:52.520 Settlements with civilian users kept the outcome of the claims 0:20:52.560 --> 0:20:55.240 from public view, and Remington said at the time that 0:20:55.320 --> 0:20:59.159 its guns were safe, trusted, and reliable. The initial public 0:20:59.200 --> 0:21:03.920 offering never happened. Then, in twenty twelve, a Bushmaster was 0:21:04.040 --> 0:21:07.080 used to massacre twenty children and six adults at Sandy 0:21:07.080 --> 0:21:10.680 Hook Elementary School in Connecticut, a few miles from where 0:21:10.760 --> 0:21:15.240 Finberg's father lived. Four days later, Feinberg put Freedom up 0:21:15.320 --> 0:21:18.480 for sale, but few buyers wanted to touch the company 0:21:18.840 --> 0:21:22.200 even after its which the name back to Remington. Cerberus 0:21:22.280 --> 0:21:25.520 ultimately told investors they could sell their shares to the gunmaker. 0:21:26.119 --> 0:21:30.680 Inventory piled up and Remington's bonds plummeted. In twenty eighteen, 0:21:30.800 --> 0:21:33.680 the company, which first sold rifles to the US military 0:21:33.680 --> 0:21:38.880 in eighteen forty five, filed for bankruptcy. Cerberus's attempted turnaround 0:21:38.920 --> 0:21:42.560 of Dyne Corp in twenty ten also ended badly. At 0:21:42.560 --> 0:21:45.360 the time of the purchase, Dnecorp was the largest US 0:21:45.480 --> 0:21:50.440 contractor in Afghanistan, training police and building garrisons. The government 0:21:50.480 --> 0:21:53.320 had accused Dyne Corp of overcharging the State Department for 0:21:53.400 --> 0:21:56.840 its services in Iraq. A member of the Bipartisan Commission 0:21:56.920 --> 0:22:00.439 on Wartime Contracting said dine Corp's billing it maybe the 0:22:00.520 --> 0:22:04.240 single most outrageous example of how contractors received billions of 0:22:04.240 --> 0:22:08.639 dollars in the Iraq War without even basic documentation. The 0:22:08.720 --> 0:22:12.719 dispute was resolved last year without a determination of liability, 0:22:13.000 --> 0:22:15.119 when Dyne Corp agreed to pay a twenty one million 0:22:15.160 --> 0:22:20.120 dollars settlement. Feinberg shuffled through Diyne Corp CEOs, going through 0:22:20.200 --> 0:22:23.040 four in little more than a year, but his turnaround 0:22:23.119 --> 0:22:25.920 artists were unable to write the ship and Dyne Corp 0:22:26.080 --> 0:22:29.280 was sold for an undisclosed amount in twenty twenty. Four 0:22:29.320 --> 0:22:32.960 years later, Cerberus jumped back into the military services business, 0:22:33.000 --> 0:22:36.320 acquiring M one Support Services, which had scooped up a 0:22:36.320 --> 0:22:40.360 major dine Corp contract. M One, run by several dine 0:22:40.400 --> 0:22:44.080 Corp executives, was awarded nine hundred million dollars for servicing 0:22:44.119 --> 0:22:48.199 military aircraft. In twenty twenty four, federal data show it 0:22:48.240 --> 0:22:53.160 became Cerberus's largest Defense Department contractor by publicly available revenue. 0:22:53.760 --> 0:22:57.200 Cerberus also owns Tier One Group, a military and law 0:22:57.280 --> 0:23:00.480 enforcement training company with a complex in arkhan Saw that 0:23:00.600 --> 0:23:04.200 offers urban sniper courses and a thirty acre model of 0:23:04.240 --> 0:23:08.360 a village where troops engage in mock combat. Four Saudis 0:23:08.400 --> 0:23:11.440 who participated in the twenty eighteen killing of Washington Post 0:23:11.520 --> 0:23:16.240 journalist Jamal Koshoji, also trained there. The Cerberus spokesman said 0:23:16.240 --> 0:23:19.440 the State Department vets all foreign partners trained by Tier One, 0:23:20.000 --> 0:23:23.199 and that Cerberus and Tier One condemned the murder and 0:23:23.280 --> 0:23:27.800 ceased all contracts with Saudi Arabia. Tier One was started 0:23:27.840 --> 0:23:30.840 in two thousand and six by Steve Reikert, a former 0:23:30.880 --> 0:23:34.760 Marine who secured an investment from Cerberus after guiding Feinberg 0:23:34.840 --> 0:23:38.120 at a land navigation training session at Marine Corps Base 0:23:38.200 --> 0:23:41.840 Camp Lejune in North Carolina. In a twenty twenty blog 0:23:41.880 --> 0:23:44.960 post about a client he calls SF, who worked in 0:23:45.040 --> 0:23:48.640 capital management in New York, Rykert described how he grabbed 0:23:48.800 --> 0:23:50.920 SF by the collar to get him out of the 0:23:51.000 --> 0:23:54.280 way of a poisonous cottonmouth snake. That would have been 0:23:54.280 --> 0:23:57.520 a hard one to explain to my command, Riiker wrote. 0:23:58.200 --> 0:24:02.000 When Paul Allen, the billionaire co founder of Microsoft, died 0:24:02.040 --> 0:24:05.200 in twenty eighteen, there was something inside his twenty six 0:24:05.280 --> 0:24:09.760 billion dollar estate that Feinberg wanted. It wasn't the Seattle Seahawks, 0:24:09.800 --> 0:24:14.600 which Allan owned, or his collection of French Impressionist paintings. Instead, 0:24:14.640 --> 0:24:18.040 it was the world's largest aircraft, with a wingspan longer 0:24:18.080 --> 0:24:21.200 than a football field, Stashed in a hangar in California's 0:24:21.200 --> 0:24:25.760 Mojave Desert. The Rock, a twin fuselage behemoth that incorporated 0:24:25.800 --> 0:24:29.080 parts from two Boeing seven forty sevens, was designed to 0:24:29.119 --> 0:24:33.520 carry air launch to orbit rockets and satellites. Allan died 0:24:33.560 --> 0:24:36.000 before he ever got to see the Rock fly, and 0:24:36.040 --> 0:24:39.800 without access to Alan's fortune, the company that built it, Stradalaunch, 0:24:39.960 --> 0:24:43.640