Invest1 publisher3 min readPublished
OMB's top lawyer justified the Pentagon's $400m MP Materials stake as emergency spending
Mark Paoletta's June 2025 opinion, reviewed by Semafor, called the deal necessary to avoid an imminent threat to human life and government property. The Pentagon has since taken equity or warrants in at least 10 companies.
The Investor · Invest desk
What happened
- A month before the Pentagon announced its first equity stake in a company, its top lawyer asked the White House budget office to explain why the deal would not break the law.
- OMB General Counsel Mark Paoletta argued in June 2025 that the MP Materials agreement escaped the ban on spending without Congress because it was necessary to avoid an imminent threat to human life and government property.
- A US official announcing the Venezuela oil deal this month said the administration used authority granted to OSC when it was created, and that OSC has taken several similar positions in other companies.
- Senate Armed Services Chair Roger Wicker's office said Congress should pass its advancing plan to give OSC explicit legal authority for equity stakes.
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Why it matters
- contradiction Two government accounts place the same stakes under different statutes, and press releases and SEC filings blur the same line, so a shareholder sitting alongside the Pentagon cannot tell which authority would be under challenge if one were challenged.
- precedent An emergency rationale built on threats to human life and government property is available to any sector an administration chooses to describe that way, and it sets the standard for the next stake taken before an appropriation.
- decision Congress has to choose between writing scoped equity authority for one office and leaving ten-plus existing stakes standing on the Defense Production Act and Article II.
- exposure Companies negotiating the next deal face a different instrument if Wicker's regularization demand lands: transparency and reporting duties attached to the authority reach the counterparty, not just the buyer.
The Pentagon has one number it volunteers about MP Materials: a spokesperson said the $400 million equity investment "has already netted more than $465 million" [15]. Take that as the position's current value and the gain on a $400 million cost is more than $65 million, about 16 percent [23]. Take it as the gain and the stake has more than doubled. The department did not say which reading is right. The same company also borrowed $150 million from the Office of Strategic Capital under OSC's own statute, so one deal drew $550 million through two separate legal authorities [14][22].
Those authorities are not equally settled. Paoletta's opinion rested the equity on the Defense Production Act, annual defense legislation from 2017 and Article II of the Constitution [4]. He called the deal the latest in a "venerable tradition of presidential obligations in advance of appropriation" reaching back to 1792 [4]. A former OSC official told Semafor 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" [12]. "I think this pushes the boundaries," the official said [13]. A former Pentagon official said the Antideficiency Act had been "one of the hurdles we thought was going to be insurmountable" on MP Materials [11].
The government's own account of which office is buying has moved [14][16]. Semafor reports that press releases and SEC filings for other deals blur the line too [17]. The White House did not respond to a request for comment on the conflicting explanations [19]. The Senate Armed Services panel has asked OSC for briefings on the legal basis, and a Pentagon spokesperson said the department answered the MP Materials questions in depth [18].
The program is bigger than one deal. The Pentagon has negotiated equity or an equivalent such as warrants in at least 10 companies since Cerberus cofounder Steve Feinberg was confirmed as deputy defense secretary last year [20]. At least seven of those went through OSC, which Cerberus alumnus David Lorch runs, roughly seven in ten [20][24]. Former Pentagon officials described a rush to strike the deals that raised concerns about due diligence, and the concerns sharpened when a deal with rare earths startup Reelement faltered [21].
Wicker's spokesperson said the chair "believes that an appropriately scoped equity investment authority is important for continued positive work in restoring a free market for critical minerals" [9]. The department, the spokesperson added, "must regularize the process surrounding equity-based deals and increase its transparency with the Congress to render this approach sustainable over the long term" [10]. Scoped and regularized are the words that change terms for the eleventh company [20].
In my view the reusable part is the exemption. If avoiding "an imminent threat to human life and government property" can justify obligating money before Congress appropriates it for critical minerals [3], the same sentence can be written about another sector. The counter-thesis is simple. Congress passes the scoped OSC authority now advancing [7], the Defense Production Act route stops being necessary, and Paoletta's 1792 argument is never tested. Semafor's report does not include any share-price reaction to the stakes [25], so a claim that the market has already discounted this legal risk rests on nothing in the record.
What to watch
- Whether the Senate Armed Services plan giving OSC explicit equity authority passes, and how narrowly it is scoped.
- Whether the Pentagon reconciles its two accounts of which office and which statute backed each stake in the briefings the Senate panel requested.
- Whether the department restates or itemises the $465 million figure it attributes to the MP Materials equity investment.