Heavyweight Fight on Solyndra Loan Restructuring: Obama Agency vs. Obama Agency

October 14, 2011

WASHINGTON, DC - The Energy and Commerce Oversight and Investigations Subcommittee today heard startling testimony and released illuminating new documents regarding the unfolding Solyndra investigation. Officials from the Department of the Treasury were called to testify about that agency's belief that DOE violated the 2005 Energy Policy Act when restructuring the loan to the now-bankrupt recipient of a $535 million taxpayer guaranteed loan and, in the restructuring, placed taxpayers at the back of the line so that private investors would be the first to recoup losses on the company.

Treasury officials agreed to testify after the White House last Friday unloaded a significant new document production, including alarming emails from Treasury and OMB personnel expressing frustration that DOE had failed to communicate with them regarding the Solyndra loan guarantee or consult with the Department of Justice, as Treasury had advised. Moreover, the Treasury and OMB officials' emails clearly indicate they believe DOE's legal justification for placing taxpayers at the back of the line was inconsistent with their interpretation of the law.
In a December 15, 2010 email, as DOE was preparing to restructure Solyndra's loan and put taxpayers at the end of the line, senior officials at OMB questioned the legality of DOE's restructuring, writing:

"There are some questions at the staff level about how DOE is going about the restructuring for Solyndra. At least one involves the legal question of what 1703(d) (3) means for their plan to make some of the debt "junior" to the new debt. I think they have stretched this definition beyond its limits." (View the full email HERE)

The emails refer to a legal analysis prepared by DOE to justify its decision to place private investors ahead of taxpayers in the event of Solyndra's bankruptcy, despite a clear prohibition of such "subordination" of the taxpayers' obligation in the law. Two versions of that legal opinion have been produced to the committee through its ongoing investigation; one version was handed over by the Office of Management and Budget after being compelled by a subpoena, and the other version handed over by DOE after the OMB production revealed its existence and DOE was withholding important documents. While the memos contain the same content, one version was addressed directly to Energy Secretary Steven Chu and the other was not. Both versions of the legal justification were entered into the hearing record today.
A Senior Treasury lawyer offered additional commentary on DOE's actions, writing in an August 16, 2011, email:

"I would bet a quarter that the DOE lawyers have some kind of theory on how whatever restructuring they have done and whatever they are considering doing does not violate these requirements. Cant wait to hear it." (View the full email HERE)

Republicans had previously suggested further review of the documents before releasing the conflicting versions of who actually received the memo, and the minority was notified of plans to hold a future hearing on DOE's legal justification; after the panel's Democrats sought to place one version of the memo into the record, members on both sides agreed to make both versions public.
Oversight Subcommittee Chairman Cliff Stearns said after the hearing, "I have never seen anything like this in all my years in Congress - here we have one cabinet level agency concerned that another has broken the law, and taxpayers are on the hook for half a billion dollars as a result."
Read the Solyndra Restructuring Legal Memorandum for the DOE Secretary that OMB provided to Committee Republicans in compliance with the subpoena HERE.
Read the second version of the Solyndra Restructuring Legal Memo DOE later turned over to committee investigators after the committee learned DOE had withheld the memo as part of February 17, 2011, document request HERE.
Read all of the emails that were submitted into the record HERE.