Trump Adviser Carl Icahn Lobbies for Rule Change That Benefits Icahn

“This looks more like what you’d see in a banana republic.”

Icahn

Photographer: Heidi Gutman/CNBC/NBCU Photo Bank/Getty Images

Late in the day on Feb. 27, Michael McAdams’s phone lit up with a flurry of calls and messages. McAdams runs a biofuels trade group, and in the arcane world of fuel policy, the news couldn’t have been bigger: The White House was considering a radical change to the U.S. renewable fuel mandate, which governs the amount of ethanol blended into the country’s gasoline supply. To the surprise of many, the Renewable Fuels Association (RFA), a major trade group that represents ethanol producers, was dropping its opposition to the proposal, which would shift the responsibility for meeting biofuel quotas away from refineries. “I nearly fell out of my chair,” says McAdams.

By the time he got to the office the next morning, McAdams had messages from most of his 33 members, who were worried the proposal would upend the biofuel market and dry up demand for their products. It took him almost two days to get back to them all and try to explain what was happening, to the degree that he even knew himself. “We’re in an information void,” he says. “There’s a vacuum here on who the hell is running what.”

The answer is, Carl Icahn is running things. Since Election Day, the billionaire New York investor has emerged as the most powerful person in the $24 billion ethanol industry. That’s due in part to his stake in two oil refineries, but mostly it’s because of his relationship with President Donald Trump. Icahn has known Trump for more than two decades and was an early supporter during the campaign. Trump rewarded Icahn in December by making him special adviser to the president on regulatory reform, giving Icahn the perfect platform to influence federal policies that affect his $20 billion business empire.

Trump and Icahn at Trump Tower the night of the New York primary in April 2016
Trump and Icahn at Trump Tower the night of the New York primary in April 2016.
Photographer: Victor J. Blue/Bloomberg

As his first agenda item, Icahn has chosen to go to war over a U.S. Environmental Protection Agency program that he says costs his refineries hundreds of millions of dollars by forcing them to buy renewable fuel credits, generated when biofuel is blended into gasoline. He doesn’t want to scrap the mandate—he just wants the obligation for meeting it to move from refiners to other participants in the energy market. Ethanol producers fear a big change might unravel the whole system, which is why it was such a surprise that the RFA caved.

The switch came after a Feb. 23 visit by Bob Dinneen, chief executive officer of the RFA, to Icahn’s office in New York. As he later explained in an interview with an agriculture radio show, Dinneen concluded Icahn was driving U.S. policy on the issue and couldn’t be stopped. So Dinneen cut a deal with Icahn that included an item on RFA’s wish list. Icahn took the joint proposal to the president.

When news of the deal broke, corn and gasoline prices went haywire, while shares of CVR Energy Inc., Icahn’s refinery company, surged. Although the White House and EPA have yet to act on the proposal, the market likes its chances; since Trump’s election, CVR has climbed more than 58 percent, boosting the value of Icahn’s majority stake by more than $500 million.

Chart: Icahn’s Not-So-Invisible Hand

“This looks more like what you’d see in a banana republic,” says Tyson Slocum of Public Citizen, a liberal watchdog group. “You’ve got a strongman who surrounds himself with billionaires or wealthy advisers who conduct the business of government to benefit their business.”

Icahn makes no apologies for this. Sipping a glass of pineapple juice in his 47th floor corner office on March 9, the 81-year-old investor says he’s surprised by all the controversy, which he sees as a fake issue generated by well-funded opponents. “I have a right to talk to the president like any other citizen,” he says. “Especially if I think he respects me, why the hell shouldn’t I call him?. … It may sound corny to you, but I think doing certain things helps the country a lot. And yeah, it helps me. I’m not apologizing for that.”

Icahn would seem to inhabit an extraordinary position of privilege in the Trump administration. Except that he’s not technically a part of the administration. As a special adviser, he’s not a government employee and receives no compensation. That means he doesn’t have to relinquish any of his vast financial holdings, nor is he subject to federal ethics rules that typically apply to people who work for the president.

Every part of Icahn’s portfolio is touched by government regulation. There’s American International Group Inc., subject to strict federal oversight under a 2010 law Trump says he’ll revise; Federal-Mogul Holdings Corp., an auto parts maker with plants in China and Mexico; and Herbalife Ltd., a multilevel marketer facing a May deadline to comply with a Federal Trade Commission settlement. Says Slocum: “This is the purest definition of a conflict of interest that you can get.”

Last month, seven Democratic senators wrote the White House asking for information about Icahn’s role in EPA policy. “With a sprawling business empire and potentially unlimited portfolio in the administration,” the senators wrote, “Icahn’s role presents an unacceptable risk of further real or potential conflicts.” As of March 14, they hadn’t gotten a response.

One of the original corporate raiders of the 1980s, Icahn is still in the business of shaking up companies he sees as poorly managed, although he now prefers the gentler term “shareholder activist.” A self-described workaholic, with a pair of dueling pistols on his desk, he bagged his latest quarry this month, forcing out the CEO of AIG.

Icahn says the EPA rule is just one of innumerable regulations “strangulating” the economy. Pressed for examples, he mentions those governing liquefied natural gas, key to his billion-dollar stake in Cheniere Energy Inc., and the Federal Railroad Administration, which he’s battling in federal court over the safety of tank cars one of his companies built.

As a major player in the stock and bond markets, Icahn has an interest in the direction of the Securities and Exchange Commission. He says Jay Clayton, the lawyer Trump picked to lead the agency, stopped by his office for a brief chat in early January, on the same day Clayton’s selection by Trump was made public. Icahn insists he hasn’t talked to the administration about any other regulatory issues outside those pertaining to the SEC and EPA.

Icahn and Trump go way back, and not surprisingly the nature of their relationship is mostly business. In the early 1990s, as a creditor of the Taj Mahal, Icahn helped Trump keep control of his troubled Atlantic City casino. At campaign rallies, Trump bragged about Icahn’s endorsement, calling him one of the “greatest businesspeople in the world.” For a president surrounded by captains of industry, Icahn is by far the wealthiest, worth about $20 billion, according to the Bloomberg Billionaires Index, more than the rest of Trump’s appointees combined.

Within days of his victory, the president-elect ended a Trump Tower interview with Scott Pruitt, his future EPA chief, by directing him two blocks uptown to meet with Icahn. “He has some questions for you,” Trump told Pruitt, according to a person with knowledge of the meeting. The Icahn interview hadn’t been on Pruitt’s schedule, according to the person. So Pruitt and an aide scanned the internet for information about Icahn’s pet ethanol issue as they headed up Fifth Avenue.

Icahn’s trouble with the biofuel mandate is that importers and refineries are forced either to blend ethanol into their gasoline or buy renewable-fuel credits from others that do. Icahn’s refineries in Oklahoma and Kansas mostly rely on buying credits, which was fine until the price of the credits soared. Under the current system, Icahn says, independent refiners like his are handing windfall profits to those who sell credits, including big gas station chains such as Royal Dutch Shell Plc. “It’s an outrage,” says Icahn. “It’s a deal that in a Third World country would make a dictator blush.”

Over the course of two meetings and more phone calls with Pruitt, Icahn says Pruitt seemed supportive. At his Jan. 18 confirmation hearing, Pruitt testified that he hadn’t taken a position on the issue. But a few days after Pruitt took office last month, Icahn was working on a plan to force the EPA chief’s hand. Armed with the support of the RFA, Icahn called the president with the joint proposal, finally connecting one evening while Icahn was out walking his dog. Trump seemed receptive, Icahn says, adding that it’s the only time they’ve discussed the issue since the inauguration. Trump told Icahn to call Gary Cohn, director of the National Economic Council. Cohn, in turn, handed him off to an aide, who spent more than an hour on the phone with him.

The following week, when news of Icahn’s gambit leaked out, the backlash was swift. “This is not going to happen,” said Iowa Governor Terry Branstad, a Trump ally. Alarmed farm state senators started questioning Trump aides. Before long, the White House issued a statement saying no executive order was in the works. (The EPA didn’t respond to requests for comment.)

Back at the General Motors Building on March 9, stretching his 6-foot-3-inch frame and folding his hands behind his head, Icahn says he still hopes Trump and Pruitt will take his side over the EPA rule. But he allows that the controversy generated by his involvement may have hurt his cause. He regrets taking the special adviser title because he says it’s become a PR distraction. “I gotta tell you,” he says, “I didn’t count on all of this opprobrium.”

The bottom line: As special adviser to Trump, Icahn can influence regulatory policies that affect his $20 billion portfolio without violating ethics rules.

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