‘This pushes the boundaries’: White House helped Pentagon explain the legality of its stock deals - Semafor

One month before the Pentagon announced its first equity stake in a company, its top lawyer asked the White House to explain why the deal wouldn’t break the law.

The White House budget office responded with a previously unreported legal opinion, reviewed by Semafor, that provides a crucial look at how the Trump administration justified one of its most controversial deployments of taxpayer money in the private sector.

A multibillion-dollar agreement with rare earth firm MP Materials is exempt from the law that bars the executive branch from spending taxpayer money without Congress, Office of Management and Budget General Counsel Mark Paoletta argued in June 2025, because it was “necessary to avoid an imminent threat to human life and government property.”

The Pentagon would be relying on authorities provided by the Defense Production Act and annual defense legislation from 2017, Paoletta continued, as well as Article II of the Constitution. The deal would be the latest in a “venerable tradition of presidential obligations in advance of appropriation,” he concluded, stretching back to 1792.

While the Pentagon went on to strike more deals for equity in companies — including its most recent agreement with Venezuelan oil company North American Blue Energy Partners — former Pentagon officials told Semafor they were skeptical of Paoletta’s reasoning. For the moment, the Defense Department’s investments are operating in a legal morass that lawmakers in both parties see as unsustainable.

The Senate Armed Services Committee wants Congress to pass its already-advancing plan to give the Pentagon’s Office of Strategic Capital explicit legal authority for its equity stakes, a spokesperson for Chair Roger Wicker, R-Miss., told Semafor. OSC, which was created to issue loans, has been involved in a majority of the equity agreements.

Wicker “believes that an appropriately scoped equity investment authority is important for continued positive work in restoring a free market for critical minerals,” the spokesperson added. “But he also believes the department must regularize the process surrounding equity-based deals and increase its transparency with the Congress to render this approach sustainable over the long term.”

One former Pentagon official said that the law barring taxpayer expenditures without Congress, known as the Antideficiency Act, was “one of the hurdles we thought was going to be insurmountable” for the MP Materials deal.

Another former OSC official said they were “surprised that the current team has discovered the authority to do this under the Defense Production Act,” adding that “laws can be elastic, but elasticity snaps at some point.”

“I think this pushes the boundaries,” the official continued.

OSC’s role in the MP Materials deal was limited to a $150 million loan under its statute, a Pentagon spokesperson told Semafor, while the Pentagon’s Acquisitions and Sustainment Unit made the $400 million equity investment using authorities granted by the Defense Production Act. Both agreements were authorized by law, the spokesperson said, ading that the latter has already netted more than $465 million.

But those comments are at odds with what a US official told reporters earlier this month in announcing the Venezuela oil deal — that the Trump administration wielded legal authority “granted to the OSC when it was created.”

The US official added that OSC “has taken several similar positions in other companies.” Press releases and SEC filings for other deals also seem to blur the line.

The Senate Armed Services panel has requested briefings from the OSC on the Pentagon’s legal authority to take equity, people familiar with the talks said. A spokesperson for the Pentagon said it subsequently responded in depth to questions that arose in the briefing on the MP Materials deal.

The White House did not respond to a request for comment on the conflicting explanations given for OSC’s role in the Pentagon’s equity deals.

The Pentagon has negotiated equity or some equivalent, like warrants, in at least 10 companies since Cerberus cofounder Steve Feinberg was confirmed as deputy defense secretary last year. At least seven of those agreements involved the OSC, which is helmed by Cerberus alumnus David Lorch.

Behind the scenes, former Pentagon officials described a rush to strike the deals that raised concerns about due diligence, which were heightened when a deal with rare earths startup Reelement faltered.

Feinberg negotiated the MP Materials equity stake without the OSC, the officials said, and involved it only after reaching a handshake agreement. The Pentagon spokesperson pushed back on that characterization, questioning how OSC could have played a role if that were the case.

Yet subsequent agreements have followed a similar pattern, the officials said, with Feinberg’s private-sector hires at OSC and the newer Economic Defense Unit sidelining career officials in order to ink deals as quickly as possible. The unit is helmed by a third Cerberus alumnus, George Kollitides.

Subsequent agreements have followed a similar pattern, the officials said, with Feinberg’s private-sector hires at OSC and the newer Economic Defense Unit sidelining career officials in order to ink deals as quickly as possible. The unit is helmed by a third Cerberus alumnus, George Kollitides.

Other questions that swirled around the deals, according to the officials: whether all firms were getting a fair shot at a deal, since Feinberg’s team prefers to rely on its own connections rather than a formal application, and whether OSC had the bandwidth to oversee agreements after they were signed.

“For months and months, I and several other people would raise it repeatedly,” one of the officials said of the MP Materials deal. “It was always: ‘This is going to be handled; don’t worry about it.’”

The clock could be ticking: Trump’s Defense Production Act authority is slated to lapse at the end of the month. If lawmakers don’t extend it, the cornerstone of the Pentagon’s legal argument will evaporate.

In Paoletta’s memo, he argues the MP Materials deal is “essential to the exercise of [the president’s] constitutional authorities and is supported by several congressional enactments.”

The Defense Production Act “authorizes the president to ‘make provision … for the encouragement of exploration, development, and mining of critical and strategic materials and other materials,’” Paoletta wrote, noting that “our adversary China” has created a need for the US to mine its own rare earth minerals.

Annual defense legislation for 2017, he wrote, gives the Pentagon grounds for equity deals by allowing “the Secretary of Defense broad authority to, among other things, ‘use contracts, grants, or other transaction authorities to support development, prototyping, and manufacturing capabilities.’”

Paoletta also invoked Article II of the Constitution, likening the MP Materials agreement to deals like former President Thomas Jefferson’s purchase of the Louisiana territory.

Free-market Republicans see it differently.

Sen. Mike Rounds, R-S.D., told Semafor that he supports government equity if it’s “the only way” to get “a particular product” — “but if you’ve got two companies out there that are competing, and you decide that you’re going to take equity ownership in one of the two, I don’t like that, I think that’s wrong.”

Others were more unequivocal: “Anybody that tries to defend it [is] going to get a hammer,” Sen. Thom Tillis, R-N.C., told Semafor. “I feel like I’m in a world where the conservatives no longer care about market manipulation.”

Feinberg’s supporters say his team is taking risks because it needs to.

“The risk of not having a supply chain is existential,” one industry representative said, “so I get the desire to be aggressive.”

OSC is “trying to solve hard problems,” the industry representative added. “I don’t think they’re getting everything right; I don’t think anyone can expect them to get everything right.”

Democrats across the Capitol are readying for oversight of OSC if they win back power this fall.

The top Democrats on the House Oversight and Natural Resources Committees plus the Senate Armed Services Committee have already requested more information about Vulcan and Reelement as well as NABEP, respectively.

“There’s an election in 49 days,” Sen. Elizabeth Warren of Massachusetts, the top Democrat on the Banking Committee, told Semafor. “When you break the law, it may come slowly, but there will be accountability.”