Newly reviewed financial documents show that the controversial Postmaster General, Louis DeJoy, recently started investing in the company where Ron Bloom, the new Chair of the Postal Service’s Board of Governors, works as Managing Partner and Vice Chair, according to a new story by Jacob Bogage in the Washington Post.
DeJoy’s investments, which total up to $300K or more, began shortly before Bloom became chair but after Bloom backed DeJoy as the Postmaster General faced lawsuits over his handling of the Postal Service prior to the election. As a Trump appointee to the Board, Bloom has stood by DeJoy despite major critical failures in operations at the Postal Service after DeJoy took over last June, including massive delays in mail delivery in August and December. Earlier this year, Bloom embraced DeJoy’s proposal to charge Americans more for slower mail.
BAM. The Postal Service’s spokesperson told the Post that federal ethics rules do not bar DeJoy from investing in Bloom’s firm because it does not do business with the Postal Service. The spokesperson also said the division of Brookfield Asset Management (NYSE: BAM) where Bloom works as Managing Partner does not handle BAM’s bonds. According to the analysis of the Washington Post, starting last October, DeJoy began purchasing bonds which may be worth up to $305K. The spokesperson said DeJoy did not personally direct those purchases. BAM declined to comment.
XPO LOGISTICS. The Post also reported that DeJoy continues to hold millions of dollars worth of long-term leases with a contractor of the Postal Service, XPO Logistics Inc. (NYSE: XPO), which was recently awarded a $120 million contract that privatizes some of the Postal Service’s operations. DeJoy told the Post that he himself was not involved in that contract award. DeJoy has, however, presided over the decision to outsource that substantial component of the Postal Service’s logistics operations. DeJoy has been restructuring the Postal Service’s operations and has placed his loyalists in key positions in the leadership of the post office. Notably, BAM has held at least $2.6 million worth of XPO, DeJoy’s former company, as of March. (Here is a snapshot by True North Research of DeJoy’s holdings in XPO as of last year.)
FLAWED HIRING PROCESS. Throughout all of these controversies, Bloom has not distanced himself from DeJoy. Bloom was involved in hiring DeJoy, who was not recommended by the search firm the Postal Service hired for that executive search. At the urging of Trump’s Treasury Secretary, Steve Mnuchin, and with the help of others, like Mike Duncan (another investment banker and a top fundraiser of Senator Mitch McConnell who was placed on the Board by Trump and was then chair), DeJoy was pushed to the front of the line for the role of Postmaster General. Investigative reporting by the Post and other outlets have demonstrated how shoddy the Postal Board’s vetting process apparently was.
The Postal Service’s board, which was stacked with Trump appointees, failed to turn up easily findable information about DeJoy’s track record including the fact that the Inspector General of the U.S. Postal Service had criticized DeJoy’s family business for getting no-bid contracts that “may have cost consumers as much as $53 million more than if they’d been competitively bid.”
As the Post noted this month, the FBI is still investigating another set of recent allegations, which is that some former employees claim DeJoy pressured managers who worked for him to donate to his political allies and rewarded them for doing so, charges that DeJoy denies. DeJoy also reportedly cut costs at his logistics company by having employees work without air conditioning in warehouses during high temperatures. Additionally, as True North Research has detailed, DeJoy was accused by his own brother of stealing bank statements mailed to the firm in order to conceal complex financial arrangements DeJoy had orchestrated; DeJoy denied the claims and settled the case with a secrecy agreement.
BLOOM’S COMPENSATION. Because Bloom’s role on the Postal Board takes up fewer than 60 days a year, he is not required to file public financial forms about his compensation and investments. Such forms would likely not provide sufficient detail to determine how Bloom’s total compensation is derived from any of BAM’s activities.
At the Senate hearing on his nomination in 2018, Bloom said he had received stock options and restricted stock in BAM, in addition to his salary. He also said that he holds a carried interest (a profit-sharing arrangement) in Brookfield Capital Partners IV (BCP IV), a private equity fund launched with $4 billion in investments. BAM’s executive compensation and control processes are opaque and complex. Last year, Mark Vandevelde investigated the company for the Financial Times and noted 40 people or entities are part of Partners Limited, which owns about ⅕ of BAM. It is not known if Bloom is part of this special group of stockholders within BAM or not.
Bloom told the Post that he gets “no benefit whatsoever” when someone purchases BAM’s bonds.
Some of the bonds DeJoy purchased were described as tied to Brookfield Property Partners (“BPY”), which is its real estate investment arm. Bloom is a leader in a different division of BAM, its private equity division, but last year BAM announced Bloom was leading its efforts to revitalize BPY’s retail property portfolio. In 2021, the publicly-traded BAM announced plans to use its own funds to take BPY private, a move some called unusual. Not all of DeJoy’s BAM bonds are BPY ones.
According to the Post, ethics experts had different opinions about DeJoy’s purchase of bonds issued by a corporation led by the chair of the Board charged with oversight of DeJoy’s management of the Postal Service. “One argued that the transactions raise questions about oversight and governance at the nation’s mail service, which has taken on newfound prominence during the coronavirus pandemic and after the November election, in which nearly half of all voters cast their ballots through the mail. The other said financial connections between government officials could give off the appearance of conflicts without necessarily causing ethics problems.”
Here is additional information about the company that Bloom helps lead and that DeJoy has invested in.
BACKGROUNDER ON BROOKFIELD ASSET MANAGEMENT/BAM DURING BLOOM’S TENURE
1) BAM Is Interested in Profiting from the Privatization of the Public’s Assets
Since 2016, Bloom has worked as Vice-Chair and Managing Partner in the private equity business of BAM, which is the second largest “alternative-asset management firm” in the world, meaning its investments are focused on private equity, hedge funds, and real estate for cash flow. In 2020, BAM had more than $600 billion in Assets Under Management (AUM) and reported revenue of more than $60 billion. It had more than $800 million in net income in Q2 of this year.
Since 2002, BAM has been led by Bruce Flatt, who previously led its real estate group. Privatization is part of the business strategy of Bloom’s boss. For example, in BAM’s 2016 Q3 earnings call, Flatt said: “We believe every country in the world will eventually privatize most of the infrastructure that it has on its own balance sheets…”
Flatt has also stated:
“[G]iven the debt loads that are in countries, public infrastructure will be pushed into private hands … [T]he 20-year story for infrastructure is this will become one of the biggest businesses in the world, because this infrastructure is going to get pushed into private hands because it has to. That’s one way for the governments to fund themselves and that’s going to happen….”
Privatization of infrastructure can mean highways or utilities, but it can apply to more than that, like assets involved in logistics, such as much of the capital that makes up the Postal Service.
Earlier this year, BAM affirmatively touted the debt governments took on to try to ameliorate the pandemic. BAM told investors on May 17 that “infrastructure privatization is accelerating,” and it also emphasized that:
“Infrastructure assets continue to move into private hands…. [T]o create the stimulus programs to combat the pandemic, virtually every government in the world borrowed more money than they ever imagined and have yet to address the question of how to pay it back… With respect to repaying government debt, there are only two ways out: economies must grow and generate increased taxes to ensure that the debt can be serviced and reduced, or assets must be sold. For a government, asset sales generally mean the sale of infrastructure assets and/or letting others (the private sector) make future investments when they are required… [T]he global economy will require trillions of dollars of investment to bring 5G to their citizens (cell towers, data centers, fiber) and… the capital required to decarbonize the electricity grid and transition away from fossil fuels is one of the greatest investment undertakings to have ever been contemplated.”
To that end, BAM recently established a $20 billion global infrastructure fund, noting “We support government efforts to privatize infrastructure, including the ‘Infrastructure Banks’ being set up globally to facilitate these activities.” That fund does not include the U.S. Postal Service, yet.
OTHER PRIVATIZATION PLAYS. BAM’s CEO has reportedly been considering joining in the privatization of the public sector Shipping Corporation of India, among other privatization plays on the horizon.
2) BAM Has Been Embroiled in Other Major Controversies
BAM BAILED OUT KUSHNER. Bloom has been a Vice Chair of BAM since mid-2016, the presidential election year that brought Trump and his son-in-law, Jared Kushner, to power. After Trump nominated Bloom to the Postal Board in 2018, BAM-controlled entities including its real estate arm, BPY, bailed out Kushner by making an enormous investment in a building the Kushners owned. (It is not known what, if anything, Bloom knew about that transaction.)
As detailed in the FT investigation, Kushner purchased 666 Fifth Avenue for a record-breaking nearly $1.8 billion in 2007, and a balloon payment was due in early 2019. Kushner and his family had been meeting with foreign investors, including meetings with Qataris in 2016-2017, to make that payment. From the White House, Trump and his advisor Kushner were in a position to decide whether to join Saudi Arabia in sanctions against Qatar for its ties to groups accused of terroristic violence. In 2017, Trump reversed the U.S. position and opposed the sanctions.
Then, in 2018, BAM entities agreed to a 99-year lease of 666 Fifth Avenue, which included paying almost a half a century of rent in advance. This deal added up to almost the total amount due for the Kushner balloon payment.
That was not BAM’s only expense. It also announced plans to invest $400 million more to revitalize Kushner’s aging skyscraper, including relying on a $300 million loan. It also appeared BPY had sold off almost a third of its own properties right before the Kushner deal, but BAM said those sales were for other reasons.
When the dust settled, reporters learned a Qatari sovereign wealth fund held $1.8 billion of BPY preferred equity, which accounted for almost ten percent of this part of BAM. Qatar said it “unwittingly” aided the lease but had no knowledge of it. Other BAM filings showed it had some unnamed Middle Eastern investors. These events have prompted a Congressional inquiry.
BAM HAS INVESTED IN U.S. TRAILER PARKS. Another area of controversy involving BAM is its increasing role in the financialization of housing for Americans with low incomes. (Bloom helps lead a different division of BAM, as noted above.)
A new report, “Cashing in on Our Homes; Billionaire Landlords Profit as Millions Face Eviction,” details the role of BAM in the U.S. housing market. This report was issued in March by Bargaining for the Common Good, the Institute for Policy Studies, and the Americans for Financial Reform Education Fund. Here are its key findings (internal citations omitted):
- BAM “first bought a fleet of manufactured home communities across 13 U.S. states for $2 billion in 2016, partnering with RHP Properties’ manufactured home business. RHP promotes itself as the ‘nation’s largest private owner and operator of manufactured home communities.’ By 2021, RHP had $5 billion in assets, including more than 67,000 manufactured home sites in nearly 270 communities in 28 states.”
- “RHP has a record of raising rents on its lower-income — often fixed-income — residents and skimping on upkeep.” Here are two examples. First, “As Jorge De La Cruz, a resident of a manufactured home community in New York shared with members of a housing justice group organizing manufactured housing tenants, MH Action: ‘After [RHP Properties] took over [in 2017], they’ve been overloading our monthly finances by aggressively increasing rent. Our monthly lot rent now stands at $906 per month [up from $633 per month] and that doesn’t even include any utilities…’” Second, “During the pandemic, RHP has continued to raise rents. Residents said rents doubled over the past decade at one New York community, with another 4% hike in 2020. Rents at one Delaware RHP community rose by $100 from 2018 to 2019, and again during the pandemic.”
- “RHP has also continued to pursue evictions despite the economic and health crises. From mid-March 2020 through January 2021, it has filed at least 27 evictions in Sunbelt … states according to data from the Private Equity Stakeholder Project.”
Additionally, as that report noted, last year BAM’s BPY “contributed $635,000 to the ‘No on 21’ campaign, which opposed a California rent control initiative aimed at alleviating the state’s housing crisis” by returning rent control to local governments. Corporate spending against that initiative by BAM and other Wall Street firms that are invested in the financialization of consumer rent payment succeeded in defeating that measure in November 2020.
3) Other Noteworthy Public Policy Issues Involving BAM
RAINFOREST ACQUISITIONS. BAM has also used its private equity capital for agricultural and forest land grabs in the Brazilian rain forests and elsewhere, including lands belonging to indigenous tribes/First Nation people.
CLIMATE CHANGE CONTROVERSY. Earlier this year, another Vice Chair of BAM named Mark Carney claimed that the firm had a “net zero” carbon footprint, a very controversial assertion. Carney is playing a role in this year’s global climate conference, COP 26, and his claim was widely denounced. The definition of “net zero” is one of the issues that will continue to be debated at the COP.
Carney had asserted the firm was net zero in part because it had “avoided emissions” by investing in renewable energy, even though it has also invested in coal and other fossil fuels, according to Bloomberg News. It has a long history of owning utilities in Canada and beyond.
Most climate watchdog groups do not consider “avoiding emissions” as counting toward being carbon neutral. As Bloomberg’s Jess Shankleman and Akshat Rathi reported, advocates consider claims like BAM’s to be greenwashing: “‘Most large asset managers have a renewable energy fund,’ said Ben Caldecott, director of the University of Oxford’s Sustainable Finance Program. ‘Simply having one does not make you net zero.’”
Bloomberg also interviewed Ulf Erlandsson of the Anthropocene Fixed Income Institute, who stated: “It won’t matter how many solar panels one installs… if we don’t reduce actual CO₂ emissions.”
BAM largely stood by Carney’s assertion though he walked his claim back to acknowledge avoidance does not count in net-zero calculations. Notably, one of Carney’s responsibilities at BAM “is developing a $7.5 billion impact fund to invest in companies with pathways to net zero.” As discussed above, one of BAM’s long-term revenue strategies is to capitalize on the privatization of public assets to help governments fund reduced reliance on the burning of CO₂.
U.S. FREIGHT RAIL. It is also noteworthy that the bulk of BAM’s recent federal lobbying has been around the issue of freight railroads. BAM is invested in “global rail logistics,” including U.S. railroads. Its recent lobbying has centered on the purchase of RailAmerica Inc., the nation’s largest short-line rail operator, by the Green & Wyoming line via private equity. (The freight industry has repeatedly backed groups obstructing the mitigation of climate change, like the American Legislative Exchange Council; some major rail corporations transport substantial quantities of oil and coal.)
Notably, past proposals to cut costs at the Postal Service have called for it to expand its “intermodal” use of rail logistics, with a projected savings of $100 million annually. There is no indication that BAM’s involvement in the RailAmerica purchase was tied to mail service, but there is also no mechanism that would allow Congress to track any such potential conflict.
4) What’s Next?
NEED FOR MORE CONGRESSIONAL EXAMINATION. The actions of Louis DeJoy over the past year, including his financial ties to a firm led by the Chair of the Postal Service’s Board of Governors and DeJoy’s other financial dealings, underscore the need for greater scrutiny by Congress of this Postmaster General.
While refusing to divest from more than $2 million in income a year from a contractor of the Postal Service may be acceptable (and, indeed, lucrative) to DeJoy and to relaxed rules that have allowed such a conflict to persist, the American people deserve better. For most Americans, the income from XPO that DeJoy has refused to divest from could make anyone else a millionaire twice over each year for years to come. It is no small thing in the grand scheme of things.
Additionally, even though BAM is not currently invested in the U.S. Postal Service, the appearance of DeJoy’s investment in BAM can undermine public confidence in the Board of Governors and the Postal Service. BAM has expressed exuberance for the privatization of the public sector in the U.S. and abroad.
Also, there is nothing restricting Bloom or BAM from later participating in, or profiting from, future privatization of the Postal Service resulting from the corrosive strategies that Bloom is aiding now, like DeJoy’s efforts to charge American consumers more for slower, less reliable mail.
The risks of having investment bankers, like Bloom and others Trump put on the Board, governing the Postal Service are unacceptable. The opacity of the range of investments made by private equity firms as part of their near- and long-term strategies for maximizing profits for themselves and their investors impedes meaningful congressional and public oversight.
This is also why DeJoy’s ongoing and substantial investment in Warburg Pincus warrants greater scrutiny. As True North Research previously noted in response to questions from Chairman Gerald E. Connolly of the Subcommittee on Government Operations of the Committee on Oversight and Reform of the U.S. House of Representatives:
“Another potential issue is Mr. DeJoy’s long-term financial relationship with the private equity firm Warburg Pincus. According to his wife’s financial filings, he has between $2.5 million to $11 million invested in two Warburg Pincus private equity funds, with income of between $200K and $2 million in the past year…. Mr. DeJoy also has liabilities with the private equity firm in the form of capital commitments to Warburg totaling between $5,250,000 and $25,500,000. It is not known what those capital commitments are invested in, but Warburg Pincus has been a long-time financial partner of DeJoy and New Breed/XPO.
Warburg Pincus has also used its private equity to secure stakes in other logistics companies across the globe that could financially benefit from privatizing or parting out the U.S. Postal Service. It has also previously invested in pension buyout firms. It has also helped UPS [a direct competitor of the post office] acquire other firms, like Coyote Logistics, to expand its reach.”
THE BOTTOM LINE. Last fall, True North Research called on DeJoy to be fired or resign. True North has also called for the Board of Governors to exercise more responsible control over the Postal Service. The Board must be staffed with people who will ensure that the interests of the American people are paramount and not subservient to other interests, like outsourcing core public functions for private gain, degrading the quality of First Class mail service (the universal service standard millions of Americans rely on), or serving commercial clients over the needs for prompt and reliable mail delivery and nearby post offices for everyday Americans who live in rural areas as well as cities.
In the view of True North Research, the American people need new and better leadership of the U.S. Postal Service.
