U.S. Commerce Secretary nominee Penny Pritzker received $54 million last year from an offshore trust in the Bahamas, according to a disclosure report that describes an empire of casinos, hotels, energy companies and family trusts that may be worth more than $2 billion.
Pritzker, 54, whose family founded Hyatt Hotels Corp. (H), has assets valued in a range of $400 million to $2.2 billion, not including holdings in the hotel company, according to documents released yesterday by the U.S. Office of Government Ethics.
Senator Charles Grassley, an Iowa Republican, criticized President Barack Obama’s nomination of a wealthy beneficiary of an offshore trust as “hypocritical.”
“When he was first elected, the president said tax avoidance through international tax havens forced ordinary Americans to ‘pick up the slack,’” Grassley said today in an e-mailed statement. “Now, after calling his opponents tax avoiders, the president is appointing a friend who did the same thing to a cabinet post.”
During the 2012 presidential race, Obama’s campaign aired television ads accusing Republican nominee Mitt Romney, a co-founder of Bain Capital LLC, of stashing his money overseas, including the Cayman Islands.
Pritzker would be among the wealthiest cabinet secretaries in U.S. history, ranking with industrialist Andrew Mellon, who served as Treasury secretary during the 1920s. Her financial disclosure forms provide a detailed look at the holdings of the most public figure in a very private family dynasty.
The payment she received from the Bahamas-based trust, described on the form as compensation for consulting, was made last year for services Pritzker provided over 10 years as the Pritzker holdings were restructured along individual family lines, said a person familiar with Pritzker’s finances who asked not to be identified discussing confidential information. Pritzker paid U.S. taxes on that payment, the person said.
CIBC Trust Co. (Bahamas) Ltd. administers offshore trusts set up by associates of Pritzker’s grandfather that benefit Pritzker and her immediate family, the person said.
Pritzker also received a total of $32.2 million in consulting fees last year from 272 other family trusts, according to the disclosure form, which doesn’t identify whether the trusts are U.S.- or foreign-based.
Another person familiar with the family finances said those trusts are all U.S.-based and that the payments also were for consulting services associated with the same restructuring.
Pritzker listed her Hyatt holdings as worth more than $50 million in the disclosure form, which only requires values in broad ranges. Her shares are worth $409 million, based on proxy disclosures and yesterday’s closing price of $40.78. Pritzker’s net worth is more than $1.5 billion in the Bloomberg Billionaires Index.
If confirmed by the Senate, Pritzker said she will divest 221 separate financial holdings and resign from 158 entities, including management control of at least 24 family trusts and her board position with the hotel company, according to her disclosure filing, required of nominees to major government posts. Her filings are more than 200 pages.
Obama filed an eight-page disclosure form yesterday, showing a tiny fraction of his future commerce secretary’s wealth. Obama and the first lady reported assets of $1.9 million to $6.9 million last year.
Pritzker intends to keep her Hyatt stock. Government ethics advisers determined “that it is not necessary at this time for me to divest my interests in these entities” because doing so wouldn’t substantially affect her ability to serve as Commerce secretary. She promised to recuse herself from decisions that could affect Hyatt’s business. Her restricted Hyatt stock will convert to Class A shares upon her resignation from the board.
A Chicago businesswoman who served as finance chairman of Obama’s 2008 presidential campaign, Pritzker has an extensive financial history with plenty of material for critics to mine during her confirmation hearing, which has been scheduled for May 23. Obama nominated her to the post May 2.
Her financial disclosure forms show income last year that included $1.17 million from Horton Trust Co., $1.54 million from Pritzker Realty Group LP and $508,000 in consulting fees from CC Development Group Inc., the parent company of Classic Residence by Hyatt.
Pritzker will retain her Hyatt stock, including Class B shares, if she becomes the next Commerce secretary. When Hyatt offered shares in 2009, the sale was structured so family members would own 80 percent of Class B stock, or more than three quarters of the voting power.
The Pritzker family owns 55.9 percent of Hyatt, and Penny Pritzker controls 11 percent of this holding. She has 3,170 Class A shares and about 10 million Class B shares according the company’s latest proxy statement.
Other holdings she disclosed include Niagara Casino Group LP and A.N.P. Gaming Corp. She also reported more than $1 million in cash with Wells Fargo (WFC) and a brokerage account with a unit of JPMorgan Chase & Co. (JPM) worth $1 million to $5 million, the documents show.
At the Capitol, Pritzker on May 14 began seeking enough support to win Senate confirmation to the Commerce post. She held one-on-one sessions with lawmakers including Senator Mark Begich, an Alaska Democrat, and Senator Richard Durbin of Illinois, the No. 2 Democratic leader and a top recipient of her campaign donations.
Among holdings she plans to divest if confirmed are interests in Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) of Omaha, Nebraska, El Paso Pipeline Partners LP (EPB) of Houston, Wells Fargo & Co. of San Francisco, and a private equity energy fund run by Goldman Sachs Group Inc.
She will also resign positions with Harvard University, Hyatt, the Pritzker Realty Group LLC -- which she leads -- and a family controlled trust. Pritzker plans to step down from controlling management roles in all family trusts and outside positions. If confirmed, her divestitures will include financial and energy stocks.
Pritzker’s liabilities include at least $50 million in loans to PSP Capital Resources LLC of Chicago, including one related to a Colorado residence. She also has American Express (AXP) credit card charges valued at $250,001 to $500,000, according to the filings. She was not required to disclose the value of her residences.
The Pritzker family once owned half of Superior Bank, a pioneer in the securitization of subprime mortgages. The bank’s failure in 2001 tarnished the family’s reputation as investors. None of Pritzker’s holdings listed in her financial disclosure documents showed an association with Superior Bank.
Pritzker may draw scrutiny for her role in the bank’s collapse, which ranked as one of the biggest U.S. bank failures in more than a decade.
Her family, along with Alvin Dworman, a New York real estate developer, created the lender in 1988 after acquiring a distressed savings and loan. Penny Pritzker served as chairman of the Hinsdale, Illinois-based bank from 1991 to 1994 and later as a director of a holding company.
While she was there, the bank used a “high-risk” strategy of rapid growth in subprime mortgages and car loans for securitization, the Office of Thrift Supervision said in a July 2001 statement.
Subprime loans typically are given to people with the weakest credit, charging higher interest to cover the bigger risk of default, and Superior’s collapse turned out to be a preview of the financial crisis that came later in the decade.
A February 2002 report by the General Accounting Office blamed the people who ran the company for the collapse.
“Primary responsibility for the failure of Superior Bank resides with its owners and managers,” the GAO said. “Its strategy resulted in a high concentration of extremely risky assets. This high concentration of risky assets and the improper valuation of these assets ultimately led to Superior’s failure.”
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