Trump’s Defense Pick to Forfeit Unvested Options If Confirmed

  • Mattis would recuse himself for year on General Dynamics deals
  • Retired marine general set for confirmation hearing Thursday

Retired Marine General James Mattis will step down from his board position at General Dynamics Corp. and give up unvested equity awards if confirmed as President-elect Donald Trump’s defense secretary, according to a letter submitted to the Defense Department’s ethics lawyer.

In a letter dated Jan. 5 and made public Saturday, Mattis said he would resign from the board and temporarily recuse himself from matters related to the company, the fifth-biggest U.S. defense supplier with $10 billion in contracts last year.

Donald Trump and James Mattis.

Photographer: Drew Angerer/Getty Images

“For a period of one year after my resignation, I will not participate personally and substantially in any particular matter involving specific parties in which I know General Dynamics is a party or represents a party,” unless he is authorized to participate, Mattis said. Federal regulations allow for such authorization when it’s determined that the government’s interest in an official’s participation outweighs any reasonable concern related to ethics questions.

Mattis also said he would forfeit all restricted stock and stock options in the company “that have not, as of the date of my appointment, vested according the normal schedule for vesting.” Mattis currently holds unvested stock options and restricted shares in General Dynamics worth about $523,000 as of Friday’s close.

In addition, within 90 days of his confirmation he will divest all of his stock and vested stock options from General Dynamics, the letter said. His vested equity awards were worth about $562,000 as of Friday’s close.

Selling Stock

Mattis’s confirmation hearing is scheduled for Thursday before the Senate Armed Services Committee. As director since August 2013, Mattis has received at least $276,000 in fees from General Dynamics.

Recusing himself for a year may sideline Mattis during billion-dollar decisions across the military services, some of them triggered by the plans of the new administration. The Pentagon may buy ground-warfare vehicles from General Dynamics for the 65,000 Army troops Trump has promised to add, and it may also benefit from the Republican’s pledge to expand the Navy to 350 vessels by supplying its Arleigh Burke-class destroyers and Virginia-class nuclear submarines.

Most immediately, the Navy is in contract talks with General Dynamics to build 12 new nuclear missile submarines to replace the aging Ohio class -- the Navy’s top-priority program. That $128 billion project moved forward officially on Jan. 4 when Frank Kendall, the Pentagon’s undersecretary for acquisition, signed a decision memo.

The new Columbia-class submarine is part of a trillion-dollar program to modernize the U.S.’s sea-air-land nuclear triad over the next 30 years, including maintenance and support. Trump has seemed to signal his support for the effort. “The United States must greatly strengthen and expand its nuclear capability until such time as the world comes to its senses regarding nukes,” the president-elect wrote in a Twitter post.

Theranos Resignation

Mattis said in his letter that he’s already resigned from the board of Theranos Inc., the Silicon Valley company once touted for its promise of low-volume blood-testing. Federal regulators have since found a number of problems with the company and imposed sanctions on it and its founder, Elizabeth Holmes.

Mattis had joined the Theranos board in 2013 and said he still owns a stake in the closely-held company, from which he received director fees of $150,000. The Defense Department has determined that he doesn’t have to divest that stake “because the duties of the position of Secretary are unlikely to involve particular matters affecting” Theranos financially, Mattis wrote. He will recuse himself from any matter that “has a direct and predictable effect” on the company’s financial interests, he wrote -- unless he receives a waiver or exemption first.

The retired general also says he’ll resign from the Hoover Institution, where he’s a visiting fellow. The think tank, which is affiliated with Stanford University, touted its ties to Mattis and other members of Trump’s transition team in a fund-raising appeal to potential donors in December. A Hoover spokeswoman said Mattis got no advanced copy of the fund-raising message and wasn’t asked to approve it.

Mattis’s financial disclosure statement, posted Sunday by the Office of Government Ethics, listed his involvement as a board member or consultant for an array of think tanks as well as his Hoover fellowship, for which he was paid a $419,359 salary. Mattis also received a $20,000 honorarium from Northrop Grumman Corp. in March 2016 for a speech and a similar sum from the investment bank Goldman Sachs Group Inc. in September 2015.

Mattis listed himself as a board member with the Center for a New American Security, from which he’s resigned. It’s headed by Michele Flournoy, a former Pentagon policy chief under President Barack Obama who’d been a likely choice for defense secretary if Hillary Clinton had won the presidency. He was also a consultant in 2015 for the Center for Naval Analyses and Jamestown Foundation.

The largest asset listed by the retired general was between $1 million and $5 million in Vanguard LifeStrategy Conservative Growth, a mutual fund that holds a mixture of bonds and stocks.

— With assistance by Anders Melin

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE