US House Democrat slams ‘very concerning’ $1.6 billion US rare earths trade deal

By Jarrett Renshaw, Ernest Scheyder and Gram Slattery

WASHINGTON, March 20 (Reuters) – A top House Democrat on Thursday accused U.S. Commerce Secretary Howard Lutnick of structuring Washington’s $1.58 billion investment in USA Rare Earth in a way that gives the government “very concerning” leverage over the company, while boosting Lutnick’s family investment firm.

In a 10-page letter, Rep. Zoe Lofgren, ranking member of the House Science, Space and Technology Committee, wrote that the proposed deal would allow the Commerce Department to maintain an equity stake even if it decides not to invest while also leaving the company dependent on a $1.5 billion private capital raise led by Cantor Fitzgerald, the financial firm formerly run by Lutnick and now run by his sons.

“This agreement creates an enormous personal conflict by giving the Secretary of Commerce overwhelming influence to influence the behavior of a private company while simultaneously positioning him to promote the interests of his children as a condition of his support,” wrote Lofgren, a California Democrat.

The letter offers ‌a look at the types of investigations Democrats could pursue if they regain power in Washington after the November midterm elections, as lawmakers scrutinize the administration’s aggressive use of federal funding and equity stakes to reshape the supply chains of critical minerals and other strategic industries.

CEO Barbara Humpton and a spokesperson for USA Rare Earth were not immediately available for comment. The Commerce Department did not immediately respond to requests for comment.

FINANCING IN EXCHANGE FOR PARTICIPATION IN THE EQUITY

The Department of Commerce’s CHIPS Program Office signed a non-binding letter of intent in January to provide up to $1.58 billion in financing to USA Rare Earth, including a $277 million grant and a $1.3 billion loan, in exchange for an equity stake of between 8% and 16%.

The funds are planned to help the company develop a mine in Sierra Blanca, Texas, scheduled to open in 2028, and a magnet manufacturing plant in Stillwater, Oklahoma, expected to open this year.

According to the company’s regulatory filings, the government could retain its equity stake even if the deal falls through or funding is recovered, a provision Lofgren called “deeply strange” for a federal investment.

The company must meet a number of milestones to receive the financing, including raising additional private capital, completing technical studies and demonstrating market demand for its manufacturing plans, according to the document.

Lofgren argues that such conditions could leave the company dependent on the discretion of Commerce officials and create the potential for undue influence, especially given that Cantor Fitzgerald’s private capital increase is a condition of ending the government investment.

“The interplay between the company’s vulnerability and your personal conflict is an obvious red flag,” Lofgren wrote.

The lawmaker also questioned whether the Commerce Department has legal authority to acquire equity stakes in companies under the CHIPS and Science Act, arguing that the law’s authority for “other transactions” does not allow government stakes in private companies.

The Trump administration has used similar structures to take equity positions in a variety of companies, arguing that the investments are necessary to strengthen domestic supply chains and national security.

Lofgren asked the department to provide the committee with documents related to the negotiation of the agreement by April 3.

Reuters reported in January that a US Senate committee is separately reviewing at least one other stock deal in the critical minerals sector.

(Reporting by Jarrett Renshaw and Ernest Scheyder; Editing by Sergio Non, Rod Nickel)