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LightSquared: The next Obama pay-for-play morass?

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By Michelle Malkin  •  September 15, 2011 11:49 AM

When it rains, it pours. And there ain’t a big enough umbrella for all President Obama’s cronies and fixers to crowd under these days.

While the Solyndra BGB (big green boondoggle) continues to blow up on Capitol Hill, the White House faces another pay-for-play backlash — this time from his own left flank.

The liberal Daily Beast reports on a broadband project backed by a frequent Obama White House visitor and donor that has Pentagon officials concerned over potential military GPS interference. The Obama FCC took the lead in intervening on the donor, billionaire hedge fund manager Philip Falcone’s, behalf and granting his company called “LightSquared” one of those coveted Obama waivers from existing law. Then Obama officials reportedly pressured a general to alter his testimony about the company’s impact on military satellite transmissions.

In a nutshell:

The four-star Air Force general who oversees U.S. Space Command walked into a highly secured room on Capitol Hill a week ago to give a classified briefing to lawmakers and staff, and dropped a surprise. Pressed by members, Gen. William Shelton said the White House tried to pressure him to change his testimony to make it more favorable to a company tied to a large Democratic donor.

The episode—confirmed by The Daily Beast in interviews with administration officials and the chairman of a congressional oversight committee—is the latest in a string of incidents that have given Republicans sudden fodder for questions about whether the Obama administration is politically interfering in routine government matters that affect donors or fundraisers. Already, the FBI and a House committee are investigating a federal loan guarantee to a now failed solar firm called Solyndra that is tied to a large Obama fundraiser.

Now the Pentagon has been raising concerns about a new wireless project by a satellite broadband company in Virginia called LightSquared, whose majority owner is an investment fund run by Democratic donor Philip Falcone. Gen. Shelton was originally scheduled to testify Aug. 3 to a House committee that the project would interfere with the military’s sensitive Global Positioning Satellite capabilities, which control automated driving directions and missile targeting, among other things.

According to officials familiar with the situation, Shelton’s prepared testimony was leaked in advance to the company. And the White House asked the general to alter the testimony to add two points: that the general supported the White House policy to add more broadband for commercial use; and that the Pentagon would try to resolve the questions around LightSquared with testing in just 90 days. Shelton chafed at the intervention, which seemed to soften the Pentagon’s position and might be viewed as helping the company as it tries to get the project launched, the officials said.

Via Dan Isett, here’s a press release highlighting how Obama FCC chairman Julius Genachowski went to bat for LightSquared.

Genachowski is refusing to attend a House hearing today on how and why the FCC fast-tracked the matter. Most transparent administration ever:

Lawmakers such as Sen. Chuck Grassley (R-Iowa) have questioned the process that led to what is seen as a fast-tracking of the FCC’s initial approval of LightSquared to operate as a commercial wireless venture, even amid complaints of dangerous GPS interference.

FCC spokeswoman Tammy Sun said on Thursday that the agency intends to send its head of engineering and technology, Julie Knapp, to testify. She said it was a technical hearing, and Knapp was the appropriate agency representative.

FCC Chairman Julius Genachowski has been listed as a witness on the subcommittee’s Web site for days. Sun said it was a mistake.

“We received an invitation from the subcommittee for the chairman or his designee to testify,” she said.

But subcommittee chairman Mike Turner (R-OH) had met with Genachowski and had made it clear that he wanted the agency head to attend the hearing, according to spokesman Thomas Crosson.

“The FCC told us late yesterday that he would not be attending” Crosson said in an e-mail. “We had expected him to attend, and it was made clear as such.”

Genachowski’s appearance has been anticipated as fresh questions emerge about the agency’s role in LightSquared’s waiver approval last January to use non-satellite phones on their proposed network. The power of those phones would crowd out GPS signals, according to defense, aviation and oceanic federal officials.

A few more tidbits about Falcone:

Last year, a popular financial blog named him one of the worst hedge-fund managers of 2010. And to many of his remaining investors’ great ire, roughly half of the money he has left is invested in a highly controversial, extremely risky private company—meaning he can’t easily sell, and investors can’t get their money back for the time being. The company, which Falcone has named LightSquared, is attempting to build a multi-billion-dollar satellite-based network to supply nationwide 4G wireless broadband service, in competition with AT&T and Verizon Wireless. “It is literally pie-in-the-sky stuff,” a former Harbinger investor says. “Cue the ‘Mission Impossible’ theme,” wrote a trade publication. Others have called it Falcone’s “riskiest trade ever” or “the bet of his life.”

Add in very public defections by employees, a lawsuit from a former partner, Howard Kagan, at Harbinger, and another bitter lawsuit, brought by Nacco, a small-appliance and industrial firm, which lost a takeover battle to Harbinger, and you can see why Falcone is losing his faith in Ganesh.

And that was all before federal authorities—the Securities and Exchange Commission and the Justice Department—started looking into a $113 million loan that Falcone took from his funds in the fall of 2009 to pay his taxes. His investors didn’t find out about it until the spring of 2010, and at that point they couldn’t get their money out of his funds. According to Reuters, there are also ongoing investigations by the S.E.C. into possible short selling and market manipulation abuses by Harbinger. “He [Falcone] has a reputation for being stubborn, volatile, and aggressive, and now the word on the Street is that, well, maybe you can’t trust him, either,” says one hedge-fund investor. “He lives by his own set of rules,” says another. “Dangerous, hockey player, high-life guy.” A fund manager sums him up this way: “A roll-the-dice, put-everything-on-red kind of guy.”

Falcone may be caught in what an observer says is a “death spiral” for a hedge-fund manager, because as soon as investors can get their money, they will take it and run. Goldman Sachs reportedly plans to pull its $120 million from Falcone’s fund. “These businesses, all they are is client trust. The money can vanish overnight,” says a former Falcone investor. “Once you ding a guy’s reputation, and there’s the perception that he broke that trust, it is virtually impossible to get it back.”

The Obama pay-for-play word of the day: LightSquared.

Pass it on.

***

Flashback Tim Carney 3/11:

Falcone’s contributions are noteworthy. Within days of finalizing his SkyTerra purchase and meeting with White House technology officials, Falcone and his wife each cut a $30,400 check to the Democratic Senatorial Campaign Committee.

A lobbyist working for Falcone told me those checks were related to a fundraiser for Democratic female senators that Mrs. Falcone had begun planning months before with Sen. Debbie Stabenow, D-Mich. He said they had nothing to do with LightSquared’s regulatory matters.

LightSquared lobbyists say they’re not bending the satellite-spectrum rules, especially considering the company just launched a new satellite. They also point out that AT&T and Verizon originally got plenty of their spectrum for free.

AT&T and Verizon make a good case that LightSquared and the FCC are pulling a fast one. But that still leaves the Big Two – among the largest campaign contributors in the country – in the position of wanting to use regulation to crush smaller competitors and take away consumer choice.

It’s an ugly mix of lobbyists, campaign contributions, opaque bureaucracy, and politics. It’s what you get when government picks winners and losers.

***

Related: Sarah Palin takes on Obama’s Crony Capitalism on Steroids.

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