What if the President of the United States flagrantly broke federal law to the financial benefit of his campaign contributors, ultimately costing U.S. taxpayers millions, but there was no way to hold him accountable?
That is exactly what happened when California solar panel manufacture Solyndra threatened bankruptcy in late 2010 and the Obama Energy Department agreed to illegally restructure their loan. But unless he is defeated at the ballot box this November, President Obama will get away with it.
Solyndra first sought a loan guarantee pursuant to the 2005 Energy Policy Act in 2008, but they were rejected by the Bush Energy Department. Solyndra then reapplied for another loan from the Obama administration and was awarded a $535 million guarantee in September 2009. Solyndra was the first company ever to get a loan guarantee pursuant to the Energy Policy Act and Obama made the company the signature showcase of his green energy economic stimulus plan.
But by December 2010, Solyndra had already burned through $440 million in taxpayer money and another $175 million in private money. Unless they got more private and public cash immediately, Solyndra would have to declare bankruptcy, causing major political embarrassment for the Obama administration. So on December 7th, Solyndra executives met with DOE officials and Obama donor/Solyndra investor Steve Mitchell, who represented Obama megadonor/Solyndra investor George Kaiser.
Mitchell and Kaiser came into the meeting willing to commit another $75 million to Solyndra, but only if DOE agreed to prioritize their new investment (and the remaining unspent taxpayer money) over the already spent taxpayer money. In other words, if Solyndra eventually went bankrupt Mitchell and Kaiser would get their $75 million back first, and taxpayers would have to come second. Problem is, DOE did not have the legal authority to make this deal and the DOE officials knew it. Mitchell reported back to Kaiser in an email:
Unfortunately our proposal with the DOE did not fly. They acknowledge that they should be increasing the loan to provide additional capital or asking us to contribute to a fully funded plan in conjunction with the DOE loan being reduced to create incentive for new investment. However, they also acknowledge that politically they have no will or ability to get this done. The DOE really thinks politically before it thinks economically….
At this point Mitchell decided to play hardball with the DOE:
After the DOE summarily shot down our proposal, we politely moved the conversation toward how we should use the time to start discussing the bankruptcy process since all of the relevant parties were in the room . . . . To me is was clear that the DOE folks were somewhat caught off guard that we weren’t going to bail out the company. We broke from this meeting and Frances [Nwachuku], the lead decision maker for the DOE at this week’s negotiations (Jonathan Silver did not attend the meetings), grabbed me and wanted to discuss one final proposal from the DOE. She suggested that we (current investors) commit to fund $75 million now and in exchange the DOE would fund the remaining $95 million (all of the variables described in the transaction last night would apply lower in the capital stack). Under her new proposal, in a downside situation – i.e. a liquidation scenario – our $75 million would receive 100% of the liquidation proceeds until we were made whole and her $95 million would stand behind us.
Two things on this para: 1) When Mitchell says “her $95 million” what he really means is taxpayers $95 million. But when government agencies play venture capitalist we can see how government officials might get confused about this. In other words, the DOE caved. 2) The deal Nwachuku offered up here is blatantly illegal. Section 1702(d)(3) of the 2005 Energy Policy Act clearly states: SEC. 1702. TERMS AND CONDITIONS. (d) REPAYMENT.— (3) SUBORDINATION.— The obligation shall be subject to the condition that the obligation is not subordinate to other financing.
And the Obama administration knew it. The next day, DOE Chief Counsel Susan Richardson emailed DOE General Counsel Scott Blake Harris writing, “We have a serious problem at Solyndra and need to brief Scott as soon as possible.” DOE asked their outside counsel, Morrison & Foerster LLP, for their opinion. And on January 3, 2011, Morrison & Foerster sent DOE a memo clearly stating that “Subordination of DOE-Guaranteed Loans is Prohibited,” and that “the Act and the Applicable Regulations prohibit subordination of the DOE-Guaranteed Loans.”
DOE was not the only Obama administration entity aware the law was being broken. White House Office of Management and Budget Analyst Kelly Colyar, formerly the Credit Policy Director at DOE, sent an email to OMB Deputy Associate Director Richard Mertens on December 14th, 2010, informing him of a problem “regarding the proposed structure’s compliance with the statutory requirement that the DOE guaranteed debt not be subordinate to other financing.” And by January 4th, OMB staff had produced a memo concluding that the Solydra subordination was not consistent with the Energy Policy Act.
Separately, OMB also concluded that the Solyndra loan modification was not the best deal for the taxpayers. Ms. Colyar estimated that if Solyndra was immediately liquidated, taxpayers would only lose $141 million. But, if DOE went ahead with the new deal, Ms. Colyar estimated taxpayers would lose $385 million due in no small part to the subordination of the taxpayer loan.
Despite all this, Obama’s DOE went ahead with the Solyndra loan restructure anyway. In direct opposition to the plain meaning of the statute, and OMB guidelines on government contracting, DOE lawyers invented a new legal theory that the ban on subordination applied only at loan origination and was not a “continuing obligation.” In other words, since the Solyndra restructuring was a loan modification, DOE could do whatever they wanted. Upon hearing this novel interpretation, the OMB Energy Branch Chief Kevin Carroll said the DOE’s reasoning meant “that basically DOE could modify to allow subordination on any loan, at any time, for any reason.”
Energy Secretary Steven Chu would eventually sign off on the Solyndra restructuring on February 22, 2011. Solyndra went bankrupt on September 1, 2011. U.S. taxpayers lost all $535 million of their investment.
“It’s pretty clear to me that I’m responsible for folks who are working in the federal government,” Obama told ABC News last month. Ad he is right. He is legally responsible for everything his Department of Energy did. Problem is, there is no way to hold Obama legally accountable for violating the Energy Policy Act.
Nothing in the Act grants anyone the standing to sue the federal government if it is violated. There is no ‘citizen suit’ provision like their is in the Clean Water Act, for example. If another company had been harmed by Solyndra’s eventual success, then they would have standing to sue. But since Solyndra went bankrupt, nobody in the solar industry was really harmed by Obama’s waste.
True, every single taxpayer in America was harmed by Obama’s decision to wast $535 million on Solyndra. But precisely because all of us are hurt, legal precedent denies any single person the standing to sue in court.
The only way Obama can be held accountable for breaking federal law and costing taxpayers hundreds of millions of dollars is at the ballot box. If he wins reelection this fall, he will be perfectly free to continue breaking federal law and wasting taxpayer dollars. And at that point, since he is term limited, we will not even have a political check on his lawlessness.