The Washington Post reports:
The Treasury Department announced Wednesday that it will loan $700 million to a trucking firm that ships military equipment, in exchange for having U.S. taxpayers acquire an almost 30 percent stake in the company.
Under the unusual arrangement, the Treasury Department will provide the emergency loan to YRC Worldwide, while taking a 29.6 percent equity stake in the company. The U.S. government does not typically take ownership stakes in companies but was given permission to do so by Congress as a way to ensure taxpayer funds are not misspent.
That lede alone should be enough to raise an eyebrow. But it gets even more suspicious: YRC Worldwide's stock had already plunged 27 percent this year, and was down 85 percent over the last five years. The day before the deal was finalized, the company was only valued at $70 million.
Yet somehow, the company finagled a rare deal for a government loan worth 10 times more than the company itself. To hear Treasury Secretary Steve Mnuchin tell it, that's because the company is very, very important:
YRC is a leading provider of critical military transportation and other hauling services to the U.S. government and provides 68% of less-than-truckload services to the Department of Defense. This loan will enable YRC to maintain approximately 30,000 trucking jobs and continue to support essential military supply chain operations and the transport of industrial, commercial, and retail goods to more than 200,000 corporate customers across North America.
That argument might make sense on the surface, until you factor the part where YRC Worldwide is also being sued by the federal government for defrauding the Department of Defense out of millions of dollars.
As Roger Sollenberger explains at Salon:
In 2018 the Justice Department filed a lawsuit against YRC — along with subsidiaries Roadway Express Inc. and Yellow Transportation Inc. — alleging that trucking units had overcharged the Pentagon millions of dollars for at least seven years. The suit claims that the companies made false statements to the government and inflated weight measurements on the bills it charged to the Defense Department from 2005 to at least 2013.
The reason the trucking company got the bailout? The Pentagon endorsed it. The same Pentagon that the company allegedly defrauded for seven years.
— Roger Sollenberger (@SollenbergerRC) July 2, 2020
Bill Zollars was the CEO of YRC Worldwide at the time of the alleged illegal activity against the US government. He stepped down in 2011 after 15 years with the company, meaning he was still in charge for at least 5/7 of the years in which the company was stealing from the Pentagon.
"This case should serve as a warning to any organization that enters into a contract with the federal government: If you try to rip us off, be prepared to pay a heavy price," U.S. Attorney James Kennedy said at the time when the lawsuit was filed.
As of June 2020, Zollars now serves on the Board of the Governors for the US Postal Service.
A leadership position within USPS and a loan worth 10x more than it should be, particularly you already stole millions of dollars from the Pentagon, hardly qualifies under my personal definition of a "heavy price." But your mileage may vary.
Former CEO of troubled trucking company that got huge COVID loan is now on USPS board [Roger Sollenberger / Salon]
In unusual deal, U.S. Treasury to acquire 30 percent of trucking company in exchange for $700 million loan [Jeff Stein and Aaron Greg / The Washington Post]
Treasury to provide loan to YRC Worldwide [US Department of the Treasury]
Image: Public Domain via Wikimedia Commons