New information obtained by CREW reveals that Postmaster General Louis DeJoy may be taking advantage of a loophole in government ethics laws and regulations to resolve conflicts of interest related to his stake in a logistics company where he used to be a top executive. The company, XPO Logistics, has large contracts with the United States Postal Service (USPS), which DeJoy now oversees. According to a new endnote in his financial disclosure report, DeJoy may be getting rid of some of his interest in the company by transferring it to his adult children. While technically legal, such a transaction raises a host of ethics concerns and could result in a “sham divestiture” if his children later return the assets to DeJoy.
By divesting his interest in XPO, DeJoy will be able to make decisions and participate in matters that could affect the company’s bottom line. So, if in fact DeJoy is transferring some of his interest in XPO to his adult children, that raises the possibility that his children could transfer the assets back to DeJoy once he leaves government, where he could have made decisions that increased the value of the company’s stock. Based on the disclosure, it does not appear that anything would prevent DeJoy’s children from transferring the XPO stock back to him once he leaves government. Even if DeJoy’s children never return the stock to him, it is still unseemly that DeJoy could make decisions as postmaster general that could boost their personal wealth.
DeJoy’s initial decision to retain his $30 to $75 million interest in XPO Logistics was panned by experts in government ethics and may have led him to violate conflict of interest laws or regulations. CREW recently discovered that, in a significant reversal, DeJoy agreed to divest his interest in the company.
Multiple Trump administration officials have controversially divested assets by ultimately transferring them to family members. Justin Muzinich, Treasury’s deputy secretary, transferred his stake in his family’s company to his father via a loan. The questionable transaction was criticized by ethics experts because it does not require his father to make payments on the principal for nine years and does not account for the possibility that his father could transfer the stake back to Muzinich after he leaves the government. Adding to their concerns, the company benefited significantly from the bailout related to the COVID-19 pandemic run by Muzinich.
Similarly, Treasury Secretary Steven Mnuchin transferred his interest in an entity he agreed to divest to Louise Linton, his fiance at the time. When they got married, her financial interests were imputed to Mnuchin, meaning that he ultimately retained his interest in the entity. Because of this dubious arrangement, OGE declined to certify his financial disclosure report covering 2017 but allowed Mnuchin to revise his ethics agreement to maintain his imputed interest in the company.
In October, Postmaster General DeJoy revised the financial disclosure report he filed in June to note that, with regard to his interest in The Louis DeJoy Family Partnership, LLC, “I intend to resign from this position and transfer my interests in this entity to my adult children. I will continue to abide by recusal commitments until I have fully resolved all conflicts of interest.” According to the financial disclosure, $5,000,001 to $25,000,000 of DeJoy’s XPO stock and additional call options related to the company are contained in that family partnership. According to the most recent copy of the report obtained by CREW, OGE still has not certified his financial disclosure so it may still be revised, and DeJoy could back down from his apparent plan to transfer the interest to his children if he has not already done so.
The endnote suggests that, as of early October when it was added, DeJoy had not yet transferred his interest in the family partnership to his adult children. It is unclear what the endnote means for the certificate of divestiture (CD) DeJoy obtained related to XPO, which allows him to indefinitely defer paying capital gains taxes on the sale of his interest in the company. Because DeJoy reported the value of his XPO stock in ranges, it is impossible to tell whether the CD applies to the entirety of his interest in the company or only the portion that is not contained in the family partnership. If it applies to the entirety of his interest in XPO, one possibility could be that DeJoy would sell the portion of his interest in XPO contained in the family trust to his adult children, all the while being able to defer paying capital gains taxes on the sale. If the CD only applies to the portion of his interest in XPO that is not contained in the family trust, it could mean that DeJoy may just transfer the interest to his adult children without selling it to them.
One more wrinkle in this story emerged on October 19, when the USPS Office of Inspector General (OIG) released a report that discussed in part DeJoy’s compliance with ethics requirements. The report, however, was not based on a full view of DeJoy’s finances. The OIG’s determination that DeJoy had complied with his recusal and divestiture obligations relied on the caveat that it did not evaluate his compliance with regard to some of his accounts, but the name of the entity they are associated with was redacted from the report. While it is impossible to know which accounts the OIG was referring to, it seems possible that the OIG was not given the opportunity to review the family partnership that contained some of his interest in XPO.
The ability to divest assets that pose conflicts of interest by transferring them to adult family members is a concerning loophole in government ethics laws and regulations, and DeJoy’s reluctance to reveal how he is managing his conflicts of interest does not afford him the benefit of the doubt. DeJoy must publicly clarify whether he indeed has transferred some of his interest in XPO to his children and, if so, detail whether the terms prohibit his children from returning the stock to DeJoy once he leaves the government.
If DeJoy’s divestiture is not a sham, he should have no problem saying so to the public and to Congress.