As Markets Crashed, DeVos Sold Shares in Secretive Cayman Island Fund

On March 12, Secretary of Education Betsy DeVos sold shares worth as much as $5 million in BDT Capital Partners Oak Co-Invest, a secretive fund for wealthy investors that operates out of the Cayman Islands.

The sale was disclosed in a form put online by the Office of Government Ethics on April 6, 2020, but government watchdogs had no way of determining what assets comprised DeVos’ sale as the coronavirus pandemic deepened and financial markets cratered. The periodic transaction report does not list details of the specific securities sold through the investment fund, which is used by wealthy elites such as the billionaire DeVos family. The value of the shares was reported as being worth between $1 million and $5 million.

Questions about financial transactions made by officials with access to non-public information became heightened in May when scandals engulfed the U.S. Senate concerning stock transactions made by Sen. Richard Burr (R-N.C.) and Sen. Kelly Loeffler (R-Ga.) weeks after all senators were briefed privately on the extent of the coronavirus crisis. Sen. Burr was served a warrant by the FBI in an investigation into the timing of his stock sell-off on February 13 and stepped down as chair of the influential Senate Intelligence Committee.

Sen. Loeffler turned over documents to the Justice Department, the Securities and Exchange Commission (SEC), and Senate Ethics Committee, before being informed in late May that she was no longer under investigation. Loeffler also stepped down from an Agriculture subcommittee and agreed to divest from individual stocks.

In Nov. 2017, Sen. Patty Murray (D-Wash.), the ranking Democrat on the Senate Health, Education, Labor and Pensions Committee, raised concerns that Secretary DeVos and other Trump administration officials were using overseas investment funds as tax shelters. “While use of these vehicles is not illegal or necessarily in violation of specific ethics rules and pledges, I am deeply concerned by the challenge they pose to the Federal Government’s broader ethics program,” Sen. Murray’s letter stated. As part of her Jan. 19, 2017 ethics agreement, DeVos had agreed to divest within 90 days from another BDT Capital Partners fund, “BDT Capital Partners Fund II, L.P.,” but the firm maintained many funds in the Cayman Islands and DeVos held on to the “Oak Co-Invest” asset.

There had been a clue as to what securities were included in DeVos’ March sale, because DeVos’ previous June 2019 sale of between $250,000 and $500,000 in BDT Capital Partners Oak Co-Invest had disclosed it as “a Cayman Islands-incorporated entity that provides specialty coffee beverages and accessories.”

But the opaque structure of BDT Capital Partners meant that the makeup of March’s sales remained undisclosed. Described as “notoriously private,” the Chicago-based private equity firm BDT Capital Partners was founded in 2009 by former Goldman Sachs banker Byron Trott, who according to Bloomberg had previously worked with high-net-worth investors such as Warren Buffett and the Pritzker, Walton and Koch families. In 2018, Business Insider wrote, “Trott runs one of the most secretive investment banks in the world, BDT Capital Partners, which caters to the world’s wealthy elite who value privacy and discretion.” The firm has no public website and makes almost no media appearances, courting billionaires and extremely wealthy investors with its privacy.

BDT Capital Partners and its multiple Cayman Island funds appear a number of times in the Paradise Papers, a leak of 13.4 million financial documents relating to offshore investments analyzed by the International Consortium of Investigative Journalists (ICIJ) since late 2017. The documents detail how companies and individuals avoid taxes using shell companies in “secrecy jurisdictions” like the Cayman Islands.

BDT Capital appears in the Paradise Papers for doing business with Appleby, an offshore law firm in Hamilton, Bermuda that has been fined by regulators for not having robust money-laundering safeguards. Australian tax officials told The Guardian that the leaks reveal a global industry of tax avoidance offered to wealthy individuals.

Two and a half months after the March transaction was disclosed, DeVos’ annual financial disclosure report was posted online on June 19. It lists an investment in BDT Capital Partners worth between $5 million and $25 million, with a distributive income for DeVos that year of $291,460. The asset was described in an endnote as, “Provider of specialty coffee beverages and accessories,” which could refer to the Keurig Green Mountain coffee company, which has been partially owned by BDT Capital Partners since 2016.

Sludge inquired with the Department of Education’s press office for confirmation of what assets were included in Secretary DeVos’ March sale and if she would disclose the contents of overseas funds in future periodic transaction reports, but did not receive a response.

“DeVos’ use of a secret fund completely negates the disclosure system, warranting further scrutiny and investigation,” said Jeb Fain, spokesperson for American Bridge 21st Century, a super PAC that supports Democratic candidates.

The opaque March sell-off was not the first time that DeVos’ financial disclosure reports have caused headaches for government ethics watchdogs. In December 2018, the nonpartisan Citizens for Responsibility and Ethics in Washington (CREW) flagged that DeVos’ 2018 disclosure report failed to document how she had divested from 24 assets included in her Jan. 2017 ethics agreement.

DeVos’ Senate confirmation hearing was held on Jan. 17, 2017, but her first Nominee Report of financial disclosures was not posted until Jan. 19, 2017—so senators at her hearing, which had already been postponed by a week, had not had time to review the hundreds of financial assets she reported. The week before the hearing took place on Jan. 17, Sen. Murray called for the hearing to be postponed again until DeVos had completed her financial disclosure and it was approved by the Office of Government Ethics.

In reviewing DeVos’ multifarious financial holdings, Virginia Canter, the chief ethics counsel at CREW, told Sludge that a wealthy investor like Secretary DeVos had ample time to prepare her initial nominee report and a more-accurate 2018 annual report. “There’s no reason why it should take this long, there are plenty of opportunities to work with ethics officials,” Canter said.

Another cabinet official who was slow to meet divestment commitments was Transportation Secretary Elaine Chao, who signed an ethics agreement on Jan. 5, 2017 to receive a cash payout of stock from construction-materials company Vulcan by April 2018. Chao held on to the stock for over another year as the stock rose nearly 13% in value, raising ethics objections. Chao’s annual financial disclosure report for last year, put online on June 13, 2019, reports that the Vulcan Materials stock was finally divested on June 3. Secretary Chao’s 2020 annual report has not yet been released, possibly due to the coronavirus pandemic, though other cabinet members filed.

Canter said that many of the wealthy individuals who make up Trump’s cabinet “presented their own types of ethics issues that were not necessarily evident from the paperwork.

“Secretary Chao seems to have a lot of funding for transportation going to Kentucky, where her husband is a senator. Carson had trouble at the outset having his wife decorate and paying for furniture that seemed to be very costly. DeVos should have been required to divest stock in Neurocore, where her husband is an investment manager with a large stake in the company.”

U.S. Commerce Secretary Wilbur Ross twice submitted erroneous disclosure reports — in May 2017 and again in August 2018—representing that he had divested from BankUnited, Inc. stock that he still held.