US House Democrat blasts Commerce’s ‘highly concerning’ $1.6 billion USA Rare Earth deal

Authors: Jarrett Renshaw, Ernest Scheyder and Gram Slattery

WASHINGTON, March 20 (Reuters) – A senior House of Representatives Democrat accused U.S. Commerce Secretary Howard Lutnick on Thursday of engineering Washington’s $1.58 billion investment in a U.S. rare earths company in a way that would give the government “high visibility” over the company while boosting the influence of investment firms run by the Lutnick family.

Zoe Lofgren, ranking member of the House Science, Space and Technology Committee, wrote in a 10-page letter that the proposed deal would allow the Commerce Department to retain an equity stake even if the department decides not to invest, while also leaving the company dependent on $1.5 billion in private financing led by Cantor Fitzgerald, the financial firm formerly led by Lutnick and now run by his sons.

“This deal creates tremendous personal conflict by giving the Commerce Secretary overwhelming leverage to influence the conduct of a private company while conditioning his support on advancing his son’s interests,” Lofgren, a California Democrat, wrote.

The letter provides a glimpse into the types of investigations Democrats could pursue if they regain power in Washington after the November midterm elections, where lawmakers are scrutinizing the administration’s aggressive use of federal financing and equity to reshape supply chains for critical minerals and other strategic industries.

American Rare Earth CEO Barbara Humpton and a spokesperson were not immediately available for comment. The Commerce Department did not immediately respond to a request for comment.

equity exchange funds

The U.S. Department of Commerce’s CHIPS Program Office signed a non-binding letter of intent in January to provide up to $1.58 billion in funding to USA Rare Earth, including a $277 million grant and a $1.3 billion loan, in exchange for an 8% to 16% equity stake.

The funds will help the company develop a mine in Sierra Blanca, Texas, expected to open in 2028, and build a magnet manufacturing plant in Stillwater, Oklahoma, expected to open this year.

According to the company’s regulatory filings, the government can retain its stake even if the deal falls through or the funds are clawed back, a provision Lofgren called “very strange” for a federal investment.

The company must meet a series of milestones to receive funding, including raising additional private capital, completing technology studies and demonstrating market demand for its manufacturing plans, according to the filing.

Lofgren argued that the conditions could make the company dependent on the discretion of commerce officials and could have undue influence, especially given that the private capital raised by Cantor Fitzgerald was a condition of finalizing the government investment.

“The interplay between the company’s vulnerabilities and your personal conflicts is a clear red flag,” Lofgren wrote.

The lawmaker also questioned whether the Commerce Department has the legal authority to take equity stakes in companies under the CHIP and SC Act, arguing that the law’s “other transactions” authority does not allow the government to take stakes in private companies.

The Trump administration has used similar structures to take stakes in a range of companies, arguing that the investments are needed to strengthen domestic supply chains and national security.

Lofgren gave the department until April 3 to provide the committee with documents related to deal negotiations.

Reuters reported in January that a U.S. Senate committee was separately reviewing at least one other equity deal in the key mining industry.

(Reporting by Jarrett Renshaw and Ernest Scheyder; Editing by Sergio Non, Rod Nickel)