WASHINGTON — Treasury Secretary-designate Steven Mnuchin said he will divest himself of his investments and interests in a number of companies and funds once confirmed, including a fund that has bet that Fannie Mae and Freddie Mac will be recapitalized and released from government control.
According to disclosures made public by the U.S. Office of Government Ethics on Wednesday, Mnuchin has an investment of between $500,000 to $1 million in a fund run by hedge fund manager John Paulson. That fund has reportedly bought shares of Fannie and Freddie, which have been in conservatorship, in the hopes the two government-sponsored enterprises will be released from government oversight and shareholders will reap benefits.
Mnuchin has already made comments that have been widely interpreted as favoring recapitalization and release of the GSEs. He told Fox Business in an interview after his nomination that he wanted the GSEs restored to the private sector as soon as possible — a break from congressional Republicans who want them eliminated entirely.
Mnuchin's comments boosted the stock value of Fannie and Freddie — almost certainly raising the value of his holdings in the process.
As Treasury secretary, Mnuchin would play a key role in determining the fate of the GSEs, which currently must give their profits to the Treasury Department and are not allowed to build capital. The potential conflict of interest drew the attention of Sen. Sherrod Brown, D-Ohio, who will participate in hearings on Mnuchin's nomination.
"How will your past business — and presumably social — connections to hedge fund partners who invested in preferred shares of the government-sponsored enterprises, Fannie Mae and Freddie Mac, inform your views on efforts to reform those Enterprises?" wrote Brown in a December letter to Mnuchin that included 11 questions. Mnuchin declined to respond to those questions.
In addition to Mnuchin's investment in the Paulson fund, he was also on the board of Sears Holdings along with Bruce Berkowtiz of Fairholme Capital Management, another large investor in Fannie and Freddie stock. Mnuchin stepped down from the Sears board in early December.
President-elect Donald Trump's ties to the GSEs also extend to hedge funder Carl Icahn, whom he tapped to be a regulatory adviser.
In a letter sent to an ethics official on Tuesday, Mnuchin said he would divest of investment interests in 43 companies within 90 days of his confirmation and would resign from positions with another 42 entities, including a number of funds, upon his confirmation. Mnuchin has already resigned from CIT Group, where he was vice chairman and a director.