President Donald Trump's former acting chief of staff, Mick Mulvaney, once bet that he could dismantle a groundbreaking consumer regulatory agency. Now, he is betting that he can monetize his knowledge.
Mulvaney is starting a hedge fund, Exegis Capital, with a focus on financial services regulations. In addition to serving as director of the Office of Management and Budget, Mulvaney was acting head of the Consumer Financial Protection Bureau, an agency he once denounced as a “sick, sad joke” while serving as a South Carolina Congressman.
“Politics is going to be a very turbulent thing for the near future, and I think it creates opportunities for those who understand how Washington works," Mulvaney said on an S&P Global Market Intelligence podcast last week, during which the new venture was announced.
In his time at the helm of the CFPB, Mulvaney pushed to have its budget dictated by Congress instead of the Federal Reserve, and install a five-person panel instead of a single director. Critics of these and other changes Mulvaney made to weaken the Bureau’s rulemaking and enforcement abilities say the budgeting and leadership shakeup would politicize the agency by making it subject to the whims of lawmakers and give the banking industry a path to water down regulations.
"I can't think of anyone better to read the tea leaves, if you will, of what is going to come next from Congress or any one of the slew of federal regulators out there," Mulvaney’s partner, veteran investor Andrew Wessel said.
“His pitch to investors is going to be that he and his fund have a better idea than anybody else in the marketplace, based on that experience,” said Craig Cowie, assistant professor of law and director of the Blewett Consumer Law & Protection Program at the University of Montana. “He’s been one of three people in charge of that agency, so he’s got a unique perspective other people don’t have, even as he gets further away from the agency.”
Ethics experts warn, though, that Mulvaney’s plan to capitalize on a public service job risks running afoul of the law.
“This is another serious problem with this administration — he’s going to use information he’s learned in the course of his work for the government,” said Richard Painter, a professor of corporate law at the University of Minnesota and former chief ethics lawyer for the White House during George W. Bush’s second term.
“The question is — if he’s going to use information he’s learned when he was in the government and it’s nonpublic information, then we’re in direct violation of securities law,” Painter said.
The move from White House to Wall Street is not uncommon. Former Obama officials who made the jump include Treasury Secretary Timothy Geithner, who joined a private equity firm, and chief of staff William Daley, who joined a Switzerland-based hedge fund.
Days before Mulvaney's announcement, former Speaker of the House Paul Ryan debuted his new investment venture, a special purpose acquisition company (SPAC) planning a $300 million IPO. Also referred to as “blank-check firms,” SPACs are shell companies that raise money to finance acquisitions.
Painter said Mulvaney’s move to a hedge fund is riskier than other former White House officials who move into investment banking or private equity — particularly given that the focus of the fund, financial services regulation, mirrors the purpose of the agency he once helmed.
“I think hedge funds are particularly problematic,” Painter said, because hedge funds focus on short-term gains, and they place bets both for and against companies.
“They could be betting against financial services companies if they think regulators are going to move in on them,” Painter said. “That’s a big factor because if you know the regulators are going to start clamping down, if you short that stock in advance, you have a huge advantage.”
Ethics experts point to the extraordinary cadre of loyalists Mulvaney cultivated — and compensated — while at the Bureau. Between November 2017 and April 2018, Mulvaney added at least eight political appointees to the CFPB’s ranks, at least two of whom were installed into new positions created during Mulvaney’s tenure, according to the Associated Press, and at least four of whom had salaries in the $260,000 range.
“I think if there's value there, it's in the fact that he has relationships with people he put in power at the staff level. He moved around a lot of key upper management staff, so he has relationships with those people,” said Prentiss Cox, a law professor at the University of Minnesota and former CFPB consumer advisory board member.
Cox, though, is skeptical that Mulvaney would have gleaned enough relevant insight to guide an investing strategy from his time at the CFPB, given that he held the position of acting director in a part-time, two-days-a-week role. Mulvaney was also directing the Office of Management and Budget at the time, and split his workweek between the two.
Who wins the White House in November is another X factor in the success of Mulvaney’s pitch, in that his handpicked director — a key element of his insight, Cowie said — would likely only remain if Trump is elected to a second term.
“He used to work with Kathy Kraninger at OMB. She reported to him. I think he has a pretty good understanding of her priorities,” Cowie said. “The CFPB is driven by the director. That person wields a tremendous amount of influence over the agency.”
Ironically, the GOP’s push to have the CFPB declared unconstitutional in court might stymie Mulvaney’s ambitions. The Supreme Court ruled earlier this year that the president could remove the agency’s director at will, making it all but inevitable that a Biden administration would replace Kraninger in short order.
“Those relationships aren't going to stay if Elizabeth Warren gets to have an influence in who the next director is, which I would assume would be the case,” Cox said. “With Biden in and Kraninger out, I’m having a hard time seeing the value proposition.”
