House Oversight Panel Opens Ethics Inquiry into Chao's Actions
A House committee has initiated a probe of actions of U.S. Transportation Secretary Elaine Chao that it contends raise “troubling questions” about whether Chao used her government office to help herself and her family.
House Oversight and Reform Committee Chairman Elijah Cummings (D-Md.) and Rep. Raja Krishnamoorthi (D-Ill.), the chair of the economic and consumer policy subcommittee, wrote to Chao on Sept. 16 stating that the panel had launched an investigation and requested a long list of documents and other information from her. They asked Chao to submit the information by Sept. 30.
The committee, primarily citing media reports and public filings, is focusing on two major areas of inquiry. One is whether Chao used her federal position to benefit Foremost Group. an ocean shipping company co-founded by Chao’s father James S.C. Chao and her late mother Ruth Mulan Chu Chao. Elaine Chao’s sister Angela Chao is Foremost’s chairman and chief executive officer.
The other focus of the investigation deals with Chao’s holding of deferred stock in Vulcan Materials Co. Vulcan is the leading U.S. producer of construction aggregates. Chao didn’t divest her holdings until more than one year after she said she would do so.
A DOT spokesperson, in a Sept. 16 emailed statement, acknowledged that the department had received the committee’s letter. The official added: “We look forward to responding to the committee’s request. Media attacks targeting the secretary’s family are stale and only attempt to undermine her long career of public service.”
Chao has held several senior federal positions, including serving as Labor Secretary from 2001 to 2009. At DOT, she was deputy secretary from 1989 to 1991 and deputy administrator of the Maritime Administration from 1986 to1988.
Foremost is headquartered in New York City and has offices in Hong Kong, Shanghai and Nagasaki. It ships bulk freight, such as grain, soybeans, coal and iron ore.
Cummings and Krishnamoorthi told Chao in their letter that several reports “suggest that you used your official positions to elevate Foremost Group’s influence and status with the Chinese government, which has extended hundreds of millions of dollars in low-interest loans to the company for the purchase of foreign-flagged ships.”
The letter cites fiscal 2018 and 2019 budget proposals that sought to cut a Maritime Administration program that aims to assist U.S.-flagged ships, by providing annual federal stipends in exchange for U.S. military access to the ships so they could be used in times of war or other emergencies. Congress did not agree to the cuts at the Maritime Administration.
Chao received the deferred stock units at Vulcan as compensation for being a director of the company. She was a board member from 2015 until she resigned on Jan. 31, 2017—the day the day the Senate confirmed her as DOT secretary.
Cummings and Krishnamoorthi are concentrating on Chao’s continuing to hold the stock in Vulcan for more than a year after she had said she would divest it.
Chao said in a Jan. 5, 2017, statement that she would receive a cash payout for her Vulcan stock units in April 2018, the year after she left the company’s board.
But Chao didn't sell her Vulcan shares until June 3, 2019, after the Wall Street Journal published a story about Chao’s not divesting her stock, the congressmen said. [see 6/14/19 ENR story here.]
Chao disclosed in a June 12, 2019, letter to a senior DOT ethics officer that she had sold the stock on June 3. She told the DOT official that she had sold the stock "even though you advised me that holding these stocks did not create a conflict of interest."
Chao also said that she had changed her 2018 financial disclosure report to correct an "inadvertent misstatement" in earlier reports. She was referring to statements in those earlier filing that her deferred compensation from Vulcan was in the form of a cash payout, when they actually were in the form of stock.
But Vulcan filings with the Securities and Exchange Commission show that Chao’s deferred stock would be converted to common stock shares in the company, not in cash.
The two congressmen said that Chao’s stock units were exchanged in April 2018 for shares of Vulcan common stock valued at more than $300,000. They added, “Your continued ownership off shares of stock meant that you continued to have a financial interest on the success of the company.”
A DOT spokesperson had said in a statement sent to ENR on May 31 that Chao had disqualified herself from any DOT action that would have a "direct and predictable impact' on Vulcan."
Cummings and Krishnamoorthi added that the committee’s probe may lead to legislation that could call for increasing penalties for submitting. Inaccurate financial statements and also recommend strengthening disclosure and reporting requirements for federal officials.
Links added to story on 9/17/19.